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Segmenting markets is a foundation for superior business performance. Market segmentation is the process of identifying and analyzing subgroups of buyers in a product-market with similar response characteristics.

Differences in buyers responsiveness justifies & supports market segments, more than anything else.

The Japanese bicycle manufacturer Panasonic pioneered made-to-measure bicycles in 1989, for which the retail customer is measured as if for a suit of clothes, and the custom-made bicycle arrives at the store, for delivery, within a few days.

The psychographic profiling that passes for market segmentation these days is a mostly wasteful diversion discovering from its original and true purpose customers whose behavior can be changed or whose needs are not being met.
Daniel Yankelovich and David Meer

59% of recently surveyed companies

executed a major marketsegmentation initiative in the previous 2 years. Yet only 14% derived real value from the exercise.

Whats wrong with market segmentation?

Different kinds of people display many different buying patterns.

Current market segmentation unable to identify the right target with the greatest potential to accept a brand or product.
Market segmentation is often narrowly focused on the needs of advertising.

Daniel Yankelovich:

Traditional demographic traits (age, sex, education levels & income not a sound basis for marketing strategy. Non-demographic traits e.g. values, tastes & preferences inuence consumer purchase.

Segments that are potentially receptive to a particular brand & product category need to be identified.

Psychographics capture some truth about real peoples lifestyles, attitudes, self-image, & aspirations, but is a very weak indicator of what people are likely to purchase.

Good segmentation identifies groups most worth pursuing: the underserved, the dissatised, & the likely rst time buyer!

The 1950s were marked by extraordinary innovations in consumer products. By early-1960s, consumers were becoming less predictable in their buying habits: many people without much education had become affluent, others with sophisticated tastes had become very price conscious. Tastes & purchasing patterns no longer aligned with pure demographics.

1970s: Products had become less distinctive - focus of creative departments shifted from product to consumer. Companies portrayed persons in advertising, who particular groups of consumers thought they resembled or wanted to. Ads for cake mixes played on a wifes traditional role.

Shampoo ads used lifestyle symbols.

1970s: Social scientists developed analytical techniques to solving business problems business executives, confused by fragmentation of the mass audience, welcomed their insights. Result: New classification of customers Inner-Directed, Traditionalists, Hedonists.

1978: Arnold Mitchell at Stanford launched VALS (Values & Lifestyles) that classifies individuals into 9 (nine) psychological types. Late 1970s: psychographics became the most accepted mode of segmentation. Ad agencies saw it as a scientic technique & good for a sales pitch - but psychographics overlook purchase history, product loyalty, & propensity to trade up!

Pepsi Generation campaign used psychographics to identify with the youth culture emerging at the time - ads became popular but did not deliver unusual commercial benefit. Miller Lite ads used psychographics & featured mud-wrestling supermodels to impress the young, male segment, but sales did not increase.

2000: Despite disappointing performance, market segmentation still widely used. In 2004, an EIU (Economist Intelligence Unit) survey of 200 senior executives of large companies indicated that:

59% executives had conducted a

major segmentation exercise in the 2 preceding years, only 14% said they derived real value.

Meaningful segmentation needs relevant data:

1. What features & benets matter to

2. Which customers are willing to pay

higher or lower prices?

3. What relative advantages &

disadvantages customers identify in a certain offering?

4. What social, economic, & technological

trends affect purchasing and usage patterns?

Relevant data make segments that: Reect company strategy; Indicate sources of revenue & prot; Identify consumer values, attitudes & beliefs related to product or service offerings; Focus on actual customer behavior; Accommodate or anticipate changes in markets or consumer behavior.

When companies change marketing chiefs, a new segmentation follows. New CMOs use segmentation exercise to put their stamp on the business. Few marketing chiefs know how segmentation would streamline companys strategic decisions making. Focus is on exploring personalities, but personalities rarely translate into behavior.

Good segmentation must identify groups that impact companys nancial performance. Companies should rank customers by protability, so as to concentrate the right amount of attention on them. To grow revenues, a company must understand what makes its best customers. If a luggage company knows that majority of people buying their soft bags travel abroad, it could focus on international travelers.

Conjoint analysis: a tool for understanding multi-dimensional consumer behavior. Working with combinations of features adding or deleting some & studying the impact. A Financial Services company has its own unique requirement

Active Investors (high-net-worth clients, strong reliance on actively managed investments such as stocks and bonds). Mass-Market Coaches (low-networth clients, strong reliance on actively managed investments)

Upscale Coaches (high-net-worth clients, little reliance on actively managed investments) Product-Oriented (low-net-worth clients, little reliance on actively managed investments)

Effective segmentations are dynamic in two ways: They concentrate on consumers needs, attitudes, & behavior, which can change quickly, rather than on personality traits; They are reshaped by market conditions, such as economic changes, emerging consumer niches, & new technologies.



At the start of the World Wide Web online experience common segmentation criterion: Early Adopters felt comfortable exploring the Web; Newbies or recent adopters, sought high levels of support. Transactors whose concern about sharing personal information, or credit card numbers, was no obstacle to transacting business online.

Today, fewer people worry about such psychographics many of todays segmentations are designed around net-based capabilities & customers interests and concerns. Games, File-sharing, Parental Control Devices.!