Monday, November 25, 2013

WILL SEGMENTATION WORK ?

By whatever means the segmentation is arrived at, be it by judgments, by classifying the database or by statistical techniques, the segments must pass a four-question test:
  • Are they truly different in a meaningful way? If not then they are not a segment and should be collapsed into one of the others. In determining, if and how segments differ from one another, it is helpful to give each a characterising nickname i.e. price fighters, range buyers, delivery buyers and whatever else suits. The name will ultimately become the shorthand description used in the company that immediately identifies the customer typology.
  • Are the segments big enough? If they are not, they will require too much resource and energy.
  • Do companies fall clearly into one of the segments? A company cannot be in more than one segment. This is unlike consumer segments where one week I may fit into an airline’s business-class segment and another week fit into low cost.
  • Can each company be easily identified as belonging to a specific segment? The strongest criticism of needs-based segmentations is that they work well in theory but poorly in practice. Saying that there is a ‘partnership-focused’ or ‘service-focused’ segment is one thing; allocating companies to these segments and building sales and marketing activity around this is quite another. Combating this problem is not easy. In many cases, companies pick out the key firmographic characteristics of each needs-based segment and use these as segment identifiers. In other cases, ‘killer questions’ based around needs are employed – the difficulty here is that significant resource is required to ask such questions to a whole database of potential customers.
CHOOSING SEGMENT TO WORK WITH

By plotting the different segments on an X Y grid it is possible to determine which are worth targeting and, equally important, which are not. The two factors that influence this decision are the attractiveness of the segment against the supplier’s competitive position within that segment. In this way it is possible to identify targets that justify resources in targeting and development. In the example below it may be thought that the price fighters offer no margin and are not worth targeting, even though they form a large segment. However, the traditionalists may be worth working on to see if they can be moved north and east to join a more attractive segment such as the range buyers, quality fanatics or delivery buyers.
The Directional Policy Matrix Used To Select (and De-Select) Segments
FINAL THOUGHTS

Segmentation is the first crucial step in marketing, and the key towards satisfying needs profitably. It is often the mix of where-what-who and why (the benefit or need) which is driving the segmentation. The grouping together of customers with common needs makes it possible to select target customers of interest and set marketing objectives for each of those segments. Once the objectives have been set, strategies can be developed to meet the objectives using the tactical weapons of product, price, promotion and place (route to market).

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