Market Segmentation

What is Segmentation?

Basic mission of marketing is to create a difference between a companys

offering and that of its competitors on an attribute important to customers
To create differentiation, marketers use segmentation, targeting and
positioning
Market Segmentation is the process of dividing the market into homogenous
groups of customers who respond similarly to a particular marketing mix of
the four Ps product, price, place and promotion
Segmentation means the development of unique marketing strategies for the
various needs of the marketplace
The objective of segmentation is to analyze markets, find niche
opportunities, and capitalize on a superior competitive position

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 Strategic Segmentation & Target Marketing*
Segmentation impacts the core elements of a marketing strategy (The Four
Ps) product strategy, pricing strategy, promotional strategy, distribution
strategy
Apart from the four Ps, marketers must also think more broadly in terms of
three Vs- valued customer, value proposition and value network, especially
for strategic segments
Strategic segments are those segments that require distinct value networks,
rather than just changes in the marketing mix

Three Vs

Valued Customer Value Proposition Value Network

Who to serve? What to offer? How to deliver?

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 Checklist for Marketers on the Three Vs
Valued Customer

Who are our valued customers?

Are there customers who are unhappy with all the current offerings of the
industry?
Are there customers who have a need but are not being currently served by
the industry?
Are we trying to reach customers who are unaware that they need our
product? If so, how are we going to create the need?
Who is the user? The buyer? The influencer? The payer? What are the
preferred criteria of each and their power in the buying decision?
Is the target segment large enough to meet our sales objectives?
What is the growth rate of the target segment?

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 Checklist for Marketers on the Three Vs
Value Proposition
What are the core needs we are trying to address with our value proposition?
Does the value proposition fit the needs of our valued customers?
What benefits are we actually delivering to the customers?
Is our value proposition differentiated from the competitors or are we
positioning in a crowded space?
Are our value proposition claims reinforced by underlying product and
service features?
Are we positioning on attributes that we can defend against competitive
attacks?
Are we positioning on too many benefits to be credible?

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 Checklist for Marketers on the Three Vs
Value Network

Can we serve the valued customer with the value proposition at a profit?
Do we have the necessary capabilities to deliver the value proposition? If
not, could we acquire or partner with them?
Would serving the valued customer have negative consequences on our
existing customers or businesses? If so, how are we going to control for this?
Which high-cost or low-value-added activities could be eliminated, reduced,
or outsourced in our value network?
Where are the advantages of scale in our value network? Can we maintain
scale while not losing flexibility?
What is our break-even point? Could we lower it by slightly varying the value
network?

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 Common Basis of Segmentation (B2B & Industrial)

Domestic - International
Geographic
User Industry & Application
Customer size & Consumption Rate
Type of purchase ( Project, Replacement OEM , Replacement)
Buyer Behaviour Characteristics (Govt Vs Non-Govt)
Other (Substitutes, State of Customer Health)

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 Segmentation Options

Undifferentiated Marketing
Differentiation
A firm identifies and actively markets its products or services to
two or more segments of the markets based on varied customer
needs
Concentration
The firm decides to serve one of several potential segments of the
market. This is less expensive than differentiated marketing
This is the appropriate choice for a new business with limited
resources or a firm diversifying in a market outside of its core
business

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 Segmentation Options (Contd..)
Atomization
Also known as customerization, interactive segmentation, one-to-
one marketing, micromarketing and personalization
This approach breaks down the market to the finest level of detail
individual customers
Atomization strategy can be used as a stand-alone technique or in
conjunction with differentiation or concentration
Nichemanship
Is the process whereby a company integrates marketing and
management activities to optimize its competitive market position
Niche marketers are trendsetters/spotters, market innovators and
creative marketing strategists

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 Segmentation Planning
- The Ten Point Program for Segmentation Studies -
Establish segmentation objectives
Specify target population measurement units
State relevant definitions
Recognize segmentation viability/segment formation criteria
Select segmentation bases
Choose appropriate data collection methods
Employ sampling procedures
Analyze the data
Consider budgetary constraints
Know how the information will be used

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 To Sum up - Segmentation Framework
Segmentation Planning
Understand market definition / segmentation
Commit to a segmentation-based marketing strategy
Use segmentation planning and research guideline
Segmenting Markets
Define the market geographically
Assess business demographic variables
Analyse product usage patterns
Incorporate organizational psychographics
Benefit from benefit segmentation techniques
Use the nested approach for business segmentation
Conduct the study

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 To Sum up - Segmentation Framework

Segmentation Implementation
Develop a segmentation-based target market strategy
Create a segmentation-driven corporate culture
Monitor and evaluate segmentation performance

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