Performing Market Segmentation

This article reviews the steps involved in a typical market segmentation study in order to illustrate a successful approach that may often be taken. There eight steps involved in the process are as follows:

1) Define the problem or determine the use to be made of the research. Market segmentation can be used to, answer a wide range of questions about the response of market segments to the firm’s marketing strategies (such as price or product changes, new product offering, and advertising themes), and can aid in the selection of target market segments for the firm’s offerings.
2) Select a segmentation basis: Segmentation studies are usually conducted by marketing practitioners using one of two general alternatives for choosing a segmentation basis: a priori and clustering methods. For purposes of illustration, the a priori approach will be described here. The clustering method will also be addressed briefly at the end of this section.

In the priori segmentation approach, management decides in advance what basis to use for segmentation. If for example, concern is with the likely impact of a price increase, consumer income or price sensitivity measures may be chosen as the segmentation basis. With this type of market segmentation approach, therefore the marketer must begin by selecting some basis for it.

Generally, segmentation bases used by marketers can be categorized as falling into one of two major groupings: general consumer characteristics and situation specific consumer characteristics. General consumer characteristics to be discussed include demographic, geographic, socio-economic, and lifestyle characteristics. Situation specific consumer characteristics to be examined include product usage, purchase patterns, and benefits sought in a product. Each of these groupings offers advantages as well as disadvantages depending on the situation faced by the marketer. The relevant considerations for making a selection min the segmentation process are management’s specific needs and the state of knowledge about each variable’s relevance as a market segmentation as a market segmentation basis.
3) Choose a set of descriptors that defines, characterizes or relates to the segmentation basis. These descriptors of segments can include virtually many variables (sex, social class, and so on). To illustrate, the degree to which a person may respond to price deals may be linked to such demographic descriptors as age, income, and location. In fact, the enormous number of possible variables from which to select makes the decision process complex for the marketer.
4) Select a sample of consumers that is representative of the larger population of interest. Here, the idea is to research and identify segments on a low cost basis. Instead of gathering data from the entire population, a less costly sample of consumers is selected. It is then determined if segments are identifiable within this sample. If this is the case the next step is to project sample results to the relevant population in order to segment the entire market.
5) Collect data on segment descriptors from the sample of consumers. When obtaining these data, the marketer may rely on primary data-collection efforts or on available secondary sources for example, the Market research Corporation of America offers clients a variety of measures on a national panel of consumers.
6) Form segments based on chosen consumer descriptors. Here the marketer must define and use a dividing line to determine to which segment each sample consumer will, be assigned. For example, if the marketer were segmenting consumers into heavy-use and light-use soft drink users, the decision might be to classify heavy users as those who purchase more than four liters of soft drinks per week.
7) Establish profiles off segments. Once respondents have been classified into segments, profiles of these segments can be established on the basis of their key discriminating characteristics. For example, a segment of TV viewers who may be frequent watchers of TV movies may be profiled as having the following characteristics: lower income and education; traditional, conservative values; compulsive TV viewing pride in a clean home; unwillingness to take risks: concerned with security; content with being home bodies; and price consciousness. Several analytical techniques exist for accomplishing this process; however, discussion of their use is beyond the scope of this text.
8) Translate the results into marketing strategy. This is the most difficult aspect of any segmentation project. During this stage the marketer uses findings about the segments estimated sizes and profiles to, select target market groups and design appropriate marketing mixes for the chosen segments. Thus, the key to a successful segmentation study is the ability to interpret results and use them as guidelines for the design, execution, and evaluation of an appropriate marketing strategy/ the selection of target segments is a complex “art” in which the marketer considers such factors as the segments expected responses to marketing variables, their reachability, the nature of competitive activity within each segment, and the company’s resources and ability to implement a segmented strategy. Information from the segment profile should help generate diverse ideas and creative strategies for appealing to chosen segments.