Factfile 12
Segmentation project structure
Setting the projects parameters - is based on understanding what market you are segmenting.
Definition: A Market
A customer need that can be satisfied by the products or services seen as alternatives.
Malcolm McDonald and Ian Dunbar
www.MarketSegmentation.co.uk ? Project Parameters
Geographic boundaries are not being referred to here, though it is useful to set sensible geographic limits to segmentation projects, Instead, reference is being made to, the products and/or services customers consider as alternatives to your offer.
For example, your company might manufacture buttons, but if the customers also consider zips and Velcro as alternatives, then you are not in the button market but in the market for garment fastenings. The market should therefore be defined in terms of the overall customer need your product or service is trying to satisfy.
If you can only manufacture buttons and will never develop or acquire the capabilities to manufacture these other products, then to make the segmentation project meaningful to your company you could limit it to buttons - but never lose sight of what is happening in the real market.
Segmentation process steps
Please click here to view a diagrammatic and summary of the segmentation process before reading on.
These steps can be followed as an internal information audit to determine what you already know and what you don?t know about customers and their needs. They also form a useful structure for segmentation research projects.
1. Who are the customers I should be segmenting?
If you can identify the real decision-makers in your market you have identified the customers for your segmentation project, that is the individuals whose buying criteria you must understand.
In most instances there is one primary decision-maker even when the buying process involves a committee and/or includes a buying department. If decision making genuinely involves a group of individuals, then the buying criteria of the group has to be understood.
Constructing a map of the market that captures the routes to market, the role of value-adders, influencers, intermediaries and final users can be used to locate the various decision-makers found in your market. A very simple example of a market map appears below:
Figure 4: Example of a market map
Source: Ian Dunbar, 2002.
Market mapping has advantages beyond segmentation:
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By tracking the different routes to market being used today - and forecasting what they may be in, for example, three years time - enables businesses to plan their future channel strategies.
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Looking at the company?s allocation of sales and marketing resources in relation to the decision-making structure can reveal shortfalls and excesses.
To achieve these insights a full market map would, in addition to highlighting the decision making structure, show volumes or values along the different routes to market and a company?s share along the routes and of each decision making stage.
2. What personal information should I capture about these decision-makers for future reference?
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Once a market has been segmented we have to be able to allocate each decision-maker into their respective segment so that we can target them with the offer that will win their custom. To help achieve this, accessible information about decision makers must be recorded, such as job title, business activity, size of company, age, professional qualifications and so on.
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Unfortunately, it is not until the completion of the segmentation project that we will be able to see if any particular ?profiling? pattern emerges for each segment. If such patterns do not emerge there are alternative approaches that can be adopted to allocate decision-makers into their respective segments.
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What you cannot escape from is that customers do not care if you experience difficulties in this area, they will not move out of their segments into more ?convenient? segments to enable you to target them more easily.
3. How do I get an insight into the buying criteria of decision-makers?
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It should be noted that price is rarely down the sole criteria. In most market it is rare to find more than 10% of decision-makers solely buying on price (which means buying the cheapest).
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For the majority it is about value, with the constituents of ?value? being found in the product and/or service, the support provided pre- and post-sale, accessibility, availability, brand values and so on, measured against the price being asked for this ?purchase bundle? (your price and that of competitors).
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Therefore, a focus on the key features customers refer to when deciding which product or service to buy (and therefore the basis for discriminating between alternative offers) will provide the link to understanding the real benefits customers are looking to obtain from their purchase - customers buy features because of the benefits they deliver.
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These benefits will both come from key discriminating features (KDFs) on their own and through the way certain customer combine them.
4. How can I sensibly replicate the market I am segmenting?
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On rare occasions the number of customers in a market is such that it is possible to log each customer separately and continue the project at this ?micro-segment? level.
But for the majority:
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A market research project with a carefully designed sample structure will achieve this.
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By referring to customers and noting as a separate record each customer who has illustrated a different focus in their feature preferences ie a different set of key discriminating features and/or a different priority.
Recording personal information about each customer in the sample is a critical requirement of this stage - see point 2.
5. How can I understanding the different needs that customers are seeking to have satisfied?
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With the KDFs identified, along with how customers pull them together, we have the platform for developing an understanding of the real buying criteria that exists across the market.
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By evolving these features into their benefits (as seen by the customers) we can take this list of benefits back to the customers in our sample and ask them to prioritise each of them.
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Arriving at the real benefits often requires skilled interviewing of customers.
6. Forming segments
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The needs that have now been identified along with how they are prioritised by each customer in the sample means we have a common framework for comparing one customer with another and, therefore, for forming segments of like-minded customers.
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This does not have to be a mathematical challenge as there are software programs available to do this task.
7. Segment checklist.
A series of check questions are usefully applied at this stage before moving into expensive product development and new marketing campaigns.
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Is each segment large enough to justify a distinct marketing programme?
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Is the offer required by each segment sufficiently different from that required by other segments?
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Is it clear which customer is to be found in each segment?
You may also want to ask yourself:
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Can my company focus on these segments, change culture and structure itself around them?
If you think the answer to this last question is ?No?, effective implementation of a segmented approach to marketing which is aligned to the segments formed by your customers will be extremely difficult.
Note:
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Once a market has been segmented according to the buying criteria of customers and the company has determined which segments it is best equipped to serve, it doesn?t automatically mean you have to serve every customer in your selected segments or that you have to serve every customer in a segment in exactly the same way.
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You do this by determining segment attractiveness (eg size, growth, profitability) and relative competitive strength. This can be visually captured in a segment portfolio matrix.
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The very large accounts may require key account managers with very small accounts handled through third parties and/or through low cost channels (or not handled at all if they are unprofitable).
Implementing segmentation
Segmentation is not an end in itself. It is what you do with the segments that really count. A segmentation project should therefore extend into the implementation stages.
Figure 5: Implementation process
Source: © Malcolm McDonald and Ian Dunbar 2002.
The material in this factfile has been contributed by Professor Malcolm McDonald and Ian Dunbar of The Market Segmentation Company. A jointly authored book - Market Segmentation: How to do it; How to profit from it (2nd edition) Palgrave, 1998, ISBN 0-333-73369-X - takes an in-depth look at this topic. For more information see www.MarketSegmentation.co.uk.