A decision to use a market segmentation strategy should rest on consideration of four important criteria that affect its profitability. In order for segmentation to be viable; the market must be (1) identifiable and measurable (2) accessible, (3) substantial and (4) responsive.
Identifiable and measurable: Segments must be identifiable so that the marketer can determine which consumers belong to a segment and which do not. However, there may be a problem with the segment’s measurability (that is, the amount of information available on specific buyer characteristics) because numerous variables (e.g. psychological factors) are difficult, if not impossible, to measure at the present time. For example, if the marketer discovered that consumers who perspire profusely favored a particular brand, very little could be done with this information since such a group would be difficult to measure and identify for segmentation purposes.
Accessible: This criterion refers to the ease of effectively and economically reaching chosen segments with marketing efforts. Some desired segments may be inaccessible because of legal reasons; for example, liquor manufacturers are unable to market directly to young teenagers, In fact, there is a vigorous debate dealing with the constitutionality of segmenting and targeting certain groups. Cigarette companies that aimed recent new brands at 18 – 24 year old black women with a high school education or less have been criticized, and legislation to protect these targeted groups from such advertising has been proposed. The Association of National Advertisers defends the practice and claims such proposals amount to censorship and a violation of First Amendment rights.
It is more likely, however, that segments may be inaccessible because the marketer is unable to reach them at a reasonable cost and with minimum waste via existing promotional media and retail outlets.
Substantial: This collection refers to the degree to which a chosen segment is large enough to support profitably a separate marketing program. As was noted preciously a strategy of market segmentation is costly. Thus, one must carefully consider not only the number of customers available in a segment but also the amount of their purchasing power.
Responsive: There is little to justify the development of a separate and unique marketing program for a target segment unless it responds uniquely to these efforts. Therefore, the problem is to identify market segments that will respond favorably to marketing programs designed specifically for them.
If the four criteria above are fulfilled segmentation will be an attractive marketing strategy. The question remains, however: By which variables or bases may be market be segmented?
How to build a database for marketing:
1) Compile a computerized list of, your individual customers, including the information you already have about customer. How long has a person been a customer? How much does he or she spend? Does this person pay with a check or credit card? What type of product or service does this person buy?
2) Review the data items to determine which ones can help you improve the efficiency of your marketing efforts and which ones don’t matter. The details of the purchasing behavior of your customers is important for example knowing a person’s age and sex. But if everyone who buys your product is college educated, may be you don’t need to collect information about educational attainment.
3) Figure out what’s missing. It’s unlikely you already have all the information you need to target your customers more precisely. To find out more about the demographics, psychographics, and media habits of your customers, you may need to survey a sample of your database. If can’t afford that, many firms can take a list of your customer’s addresses, assign each one of its census block, and supply you with the typical demographic characteristics of the households in that block.
4) Determine who your best customers are. Segment your database by the dollar value of your customers. By knowing the characteristics of your best customers, you can target potential customers who share those characteristics.
5) Keep your database up to date. A customer database is a long term relationship, not a one night stand. Keeping it up to date will require money and constant maintenance but it should pay off in bigger profits.