Segmentation and Targeting (Characteristics of a Useful Segmentation …
The marketing process of segmentation, targeting, and positioning ( or STP) identifies a firm's potential customers, selects which customers a firm should pursue, and formulates its value proposition for its target customers
The first step of the process,
, groups customers with similar needs into customer segments and then determines the characteristics of customers in those segments. For example, a company that sells packaged tea leaves might uncover two customer segments-price-insensitive customers and relatively price-sensitive customers.
The next step is
, or selecting segments that the firm wants to focus on for its products or services.The tea company might decide to focus only on the price-insensitive customers by offering a premium product. For these customers, the company might offer an attractive tin containing loose tea mixed with bits of fruits and flowers, or a tin filled with individual, pyramid-shaped linen sachets.
The final step is
, or formulating the firm's value proposition for the target segments, and developing an action plan for them. ln our example, the company may position its high-priced tea as a premium/luxury product designed for the consumer with good taste, while its low-priced tea could be positioned as a good value for the smart consumer. This positioning is communicated to consumers through the ways in which the product is designed, packaged, distributed, and advertised.
What Is Segmentation
At its most basic, segmentation is simply separation of a heterogeneous group of customers with different needs into homogenous subgroups or segments of customers with similar needs and preferences. This allows firms to tailor their products and services to better meet the needs of each segment.
Why Segment the Market?
Customers benefit from products and services tailored to their needs because they provide convenience, save time, and enrich the customer experience.
Digital technology and customer-level data have allowed firms to customize solutions for individual customers-such as when Amazon & Netflix.
Characteristics of a Useful Segmentation
There are often multiple ways to segment a market; however, for a segmentation to be useful, it must be identifiable, substantial, accessible, stable, differentiable, and actionable.
An organization should be able to identify customers in each segment and to measure their characteristics, such as demographics or usage behavior. In Africa, for example, Procter & Gamble and Unilever appeal to lower-income consumers by selling small packets of products, such as detergent or salt, at small kiosks.
Although the increasing availability of data makes it possible to create microsegments, it is usually not cost-effective to target small segments. To be useful, a segment therefore needs to be substantial-large enough for a firm to serve profitably.
There is not much value in creating a segmentation scheme if an organization cannot reach the segments. To be accessible, a segment needs to be reachable through communication and distribution channels independent of other segments. For example, young consumers, who increasingly use social media, have become more accessible to firms that are eager to engage them via Face book, Twitter, Instagram, and biogs.
A segment should be stable over a long enough period of time that any marketing effort would be successful and profitable. For example, lifestyle is often used as a segmentation variable but the stability of lifestyle segments in the international context appears to be low.
Consumers in a segment should have similar needs, and these needs should differ from the needs of consumers in other segments. In Japan, for example, there was a market segment for alcohol-free drinks, from nonalcoholic beer to wine to gin and tonic mixes.
An organization should be able to create products and marketing programs for attracting and serving customers in the segments identified.
How to Segement
Major Segmentation Variables for Consumer Markets
the ultimate goal of segmentation is to group consumers with similar needs and preferences, often it is easy to form these groups on the basis of readily available and identifiable information about consumers,
Country, region, city, urban/rural, climate
Age, income, gender, generation, marital status, family size, occupation, education, ethnicity, religion
Lifestyle, personality, activities, interests, opinions
Usage rate, loyalty, product knowledge, Involvement, purchase occasion, buying stage
Convenience, value, safety, status
Major Segmentation Variables for Business Markets
Country, region, clty, urban
Industry, firm size, global/reglonal, owners
Centralized or decentralized purchase, purchase policies, Involvement of declsion-maker
Volume, purchase frequency, attitude toward risk, loyalty, urgency
Price, product quality, service, relationship
Bases for Segmentation
Why do customers make the decisions they do? Needs, preferences, decision process
What have the customers done? Usage, loyalty, profltabilty
Who are the customers? Demographics, media habits, lifestyle