Market Segmentation

Market segmentation is often necessary to effectively meet the needs of different customer groups. Different segments will value different aspects of your products, services, and brands differently. You should have a good understanding of the following dimensions of each market segment:

• Its overall size and its growth rate
• Its price sensitivity
• The benefits that are most and least important to it
• How well it is served by existing products and brands
• How brand loyal it is
• How it selects and purchases the product
• How accessible it is
• The distribution methods it prefers
• How it uses the product
• Its product usage/replacement rate
• Its longevity and projected evolution over time

Markets can be segmented in the following ways:

• Product Usage Segmentation. For instance, some people use baking soda to deodorize their refrigerators, while others use it as a surface soft scrub, to treat insect bites or itchy skin or as a toothpaste.
• Purchase Behavior Segmentation. In many industries, four groups than often emerge to one degree or another are:
• Brand loyal consumers
• Convenience-driven consumers
• Price-driven consumers
• Consumers that enjoy seeking out new brands and products within the category
• Benefit Segmentation. People might buy a sailboat to race, for a daysail, to cruise on a vacation, to live aboard, to entertain friends, or as a second home.
• Price Segmentation. Price segmentation will yield higher overall revenues and profits if designed properly. Airlines have made a science out of price segmentation. First-class travelers pay more. Business travelers with tight schedules will be less price sensitive. Tourists with fixed budgets, flexible schedules, and a long planning horizon will look for lower fares. Some people will only travel taking advantage of last-minute seat-filling bargain prices. Other last minute travelers have no choice and behaviorally (but probably not attitudinally) are virtually price insensitive. Seats are less expensive on slower days (Saturdays, December 25, etc.).
• Lifestage Segmentation. There is a system of segmenting adults into eight distinct mindsets using a specific set of psychological traits and demographics that are proven to drive consumer behavior. Consult: Strategic Business Insights VALS (values and lifestyles) at www.strategicbusinessinsights.com/vals/ustypes.shtml, and U.S. MONITOR at http://www.kantarfutures.com/products/us-monitor/.
• Cohort Group Segmentation. Refers to people who were born at approximately the same time and who have experienced the same events at the same lifestages.
• Psychographic Segmentation. Refers to segmenting people based on their values, attitudes, and lifestyles.
• Geographic Segmentation. Segmenting people according to their geographic location can help target people in the same socioeconomic bracket who may share interests or concerns.
• Geodemographic Segmentation. Refers to segmenting people based on their location—typically zip or postal code—and demographics, such as age and income. Consult: Claritas’ PRIZM® Premier, P$YCLE® and ConneXions® segmentation tools (https://www.claritas.com/products-solutions) and CACI’s ACORN (acorn.caci.co.uk).

As the previous list illustrates, consumers can be segmented on many dimensions. The trick is to arrive at a segmentation scheme that relates to differences in purchase motivations and behaviors. Different brands are designed to appeal to different needs with unique points of difference. It is important to understand the consumers for whom your brand will mean the most and who will have the highest likelihood of responding to your brand messages.

Reprinted with permission from Brand Aid, second edition, available here.