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Part 3: Segmentation

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See Part 2

So what are the bases for segmentation? While it is difficult to determine what will segment a market into different segments based on different benefit tradeoffs, there are some useful ways of thinking about how this might be done. In any event, however, this is typically a reiterative process (i.e., trying one way, then another).

One way to start the process is to look at the various benefits and think about whether there are groups of customers who would care about different clusters of these benefits.

In my experience, this may lead you to following bases for beginning to think about segmenting a market.

Usage - often how customers use a product can result in their making tradeoffs across different benefits. For example, light users and heavy users of a product often care about different benefits.

Application - customers who apply a product in a mission critical way often care about different benefits (for business buyers this could be a way central to their business, but a cook may use a product that is central to a recipe as well).

Prior experience with the product category - often denoted as experts and novices, these different types of prior experience usually highly correlate with different needs.

Often in consumer markets, prior brand loyalty, buying situation (work vs. entertainment), or sometimes lifestyle (as in the case of may cars) can be the basis of a segmentation.

Without good data to help you, the best you can do is to begin trying to segment the market using some a priori idea (such as using usage, prior experience, etc.), then checking it to see if the segments really care about different benefits. If not, try again using different segmentation bases, and reiterate. You might look for combinations of bases as well.

You will know that you have a good segmentation if it meets the criteria that the customers in the different segments make tradeoffs differently. A good segmentation will also meet other criteria, such as

  • the segments are measurable - that is, you can identify the size of the segment
  • the segments are reachable - that is, you can reach the segment by media (often this can be ascertained by looking at the segment descriptors)


Finally, some people get confused by thinking that segmentation means segment "targeting". Segmenting markets is simply the analytical process of breaking the market into distinct segments. Targeting is a decision to go after a particular segment (see the tutorial), and this decision can only be made after you consider a number of other factors, including competitive response, customer perceptions, etc.

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