Segmentation

• Lesson
• Exercise
• Answer

This is the first of three lessons based upon segmentation, i.e. SEGMENT – TARGET – POSITION. To get a product or service to the right person or company, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment(s).

Segmentation is essentially the identification of subsets of buyers within a market that share similar needs and demonstrate similar buyer behavior. The world is made up of billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behavior. Such a group is known as a ‘segment’. Think of your market as an orange, with a series of connected but distinctive segments, each with their own profile.

Of course you can segment by all sorts of variables. The diagram above depicts how segmentation information is often represented as a pie chart diagram – the segments are often named and/ or numbered in some way.

Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation:

• Is the segment viable? Can we make a profit from it?
• Is the segment accessible? How easy is it for us to get into the segment?
• Is the segment measurable? Can we obtain realistic data to consider its potential?

The are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. However the more general bases include:

• by geography – such as where in the world was the product bought.
• by psychographics – such as lifestyle or beliefs.
• by socio-cultural factors – such as class.
• by demography – such as age, sex, and so on.

A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.

SEGMENT – TARGET – POSITION