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How to Segment Markets

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Perhaps the most important analytical process of marketing is segmentation. By segmenting the market, one obtains a very clear understanding of customers and ultimately provides a basis for clear and precise targeting and positioning. But segmentation is also very difficult and, especially without customer data, is what I would admit as an art form in marketing.

You can become quite confused about segmentation by reading the popular press, most marketing textbooks, and tons of Internet companies because the term has been used to signify many things.

Typically, you'll find the term segmentation applied to demographics and lifestyles in consumer markets and size, industry, and geography in business markets. On the internet, people use age, gender, etc. for segmentation (or worse yet, confuse segmentation with terms like one-to-one marketing as though people are so unique and share little commonality).

It's all very confusing, but there is a way to make this clearer and the answer lies in the work of Russell Haley (Journal of Marketing, July 1968) who first used the term "benefit segmentation." Also known as Needs-Based segmentation, benefit segmentation is essentially the idea that customers should be segmented on the basis of their needs. Simply put, customers in different benefit segments have different needs.

In previous tutorials, we explained the idea of benefits and tradeoffs so you can use these terms to crystallize the idea of segments having different needs. The different segments allocate their 100 points differently across the various benefits. This allocation results in the needs of different segments clustering around different benefits.


Here is Haley's original segmentation of the toothpaste market. Notice how the segments seek a different cluster of benefits. Again, the segments tradeoff the possible benefits differently.

  The Sensory Segment The Sociables The Worriers The Independents
Principle Benefit Sought
Fruity or minty flavor, product appearance
White, bright teeth
Decay prevention, plaque and gum disease avoidance
Price
Demographic Correlate
Children
Young People
Families, Older Consumers
Men, Large Families
Behavioral Correlate
 ?
Smokers
Heavy users of dental supplements
Heavy users of toothpaste
Personality Characteristics
High Self-Involvement
High Sociability
Hypochondriacs
High Autonomy
Life Style Characteristics
Hedonistic
Active
Conservative
Value-Oriented


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Allen Weiss is the founder and publisher of MarketingProfs.com. He can be reached at amw@marketingprofs.com.

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