Segmentation

Segmentation
Profiling customer groups based on shared characteristics such as
Demographics, Needs and Wants.
Group customers with similar needs into customer segments and
then determine the characteristics of customers in those segments.
Segmentation is a practice that seeks out the pieces of total market
that contains customers with identifiable characteristics (income, age,
personal interest, ethnic groups, special need etc.).
 Customers could buy the
model T in any color they
wished as long as it was
black
Any customer can have a
car painted in any color that
he wants so long as it is
black

-Henry Ford
Why Segment??
To create goods and services that are better tailored to the needs of
specific customers.
Focus marketing resources more efficiently.
Market segments must be
Measurable
Substantial: Coke C2 (20-40 Male)
Accessible
Differentiable: Must respond differently to different marketing
program.
Actionable: Must be practical and Cost efficient
Market Segmentation
Dividing up market into more-or-less homogenous
subsets for which it is possible to create different value
proposition
The company finally decides which segments to serve
Market Segmentation processes can be used during
Customer Portfolio Management for two purposes.
To segment potential markets to identify which
customers to acquire
To cluster current customer with a view to offering
differentiated value propositions supported by different
relationship management strategies
Market Segmentation Process
1. Identify the business you are in
2. Identify relevant segmentation variables
3. Analyze the market using these variables
4. Asses the value of the market segments
5. Select your target market to serve
1) Identify the Business you are in
Benefit Competitors: Delivering the same benefit to
customers
Product Competitors
Geographic Competitors: Benefit and product
competitors operating in the same geographical
territory
2) Identify the segmentation variables
Consumer markets can be clustered based on the shared
characteristics
User attributes Usage attributes
Demographic attributes: age, gender, Benefits sought, volume consumed, share of
occupational status, household size, marital category spend
status, household income, stage of family
life cycle, religion

Geographic attributes: City, State, Country,

Psychographic attributes: Lifestyle,

Personality
Identify the segmentation variables and analyze the market
(Business Markets)

Business Market Segmentation

Criteria
Industry Classification Company, Govt. Body
Dispersion Geographical
Size Large/ medium/small scale
Account Status
Buying Process Open tender, bidding,
Centralized/decentralized
Propensity to switch Satisfied/Dissatisfied with the present
suppliers
Geography Country, region, location
Buying Style Risk Averse, Innovator
Major Segmentation Variables
B2C B2B
Geographic: Country, Region, City, Urban/Rural, Climate
Demographic Firmographic
Age, Income, Gender, Education, Religion Industry, Firm Size, Ownership
Psychographic Buying Approach
Lifestyle, Personality, Activities, Interests and Opinions Centralized, Decentralized, Policies, DMU
Behavioural Behavioural
Usage rate, loyalty, product knowledge, Purchase Volume, Purchase frequency, attitude towards risk,
occasion Urgency
Benefit Sought Benefit Sought
Convenience, Value, Safety, Status Price, Product, Quality, Service, Relationship
Bases for Segmentation
WHO: Who are the customers???
Demographics, Media Habits, Lifestyle

WHAT: What have the customers Done??

Loyalty, Usage, Profitability

WHY: Why do the customers make the decisions they do?

Needs, Preferences, Decision process
3) Analyze the market (Business Markets)

Account Value
Classification of customers based on their value
Value is associated with some measure of sales revenue or volume
Cost win and keep the customer must be included
Analyze the market (Business Markets)

Share of Wallet
Share of category spend
Indicates the future potential exists within the account
The percentage of a customers spend for a product that goes to the
firms selling the product
E.g. No. of times a person fills the cars fuel tank in a month
Analyze the market (Business Markets)

Propensity to Switch
May be high or low
Assessment of satisfaction/dissatisfaction
Switching costs
4) Assess the value in a market segment and select which markets to
serve

The potential value of the segmentation opportunities depends upon

1. How attractive is the opportunity?
2. How well placed is the company and its network to exploit the
opportunity?
Assess the value in a market segment and
select which markets to serve
Segment Attractiveness
Size of segment,
Segment growth rate,
price sensitivity of customers,
bargaining power of customers,
entry barriers,
barriers to exit, prospect of
new entrant, potential for
differentiation,
propensity for customer
switching
Company and network fit
Does the opportunity fit the
companys objectives, mission,
vision and values?
Does the company and its
network possess the
operational, marketing,
technological, people and other
competencies, and liquidity to
exploit the opportunity?
Assess the value in a market segment and select
which markets to serve
The companies need to identify attributes that indicate the
attractiveness of a market segment and competencies of the
company and its network.
Customer Life Time Value (LTV)
A measure of customers profit generation for a company.
Lifetime value is the present day value of all net margins earned from
a relationship with a customer, customer segment or cohort.
Thus it can be estimated at the level of
Individual customer
Segment or cohort
5) Select your Target market to Serve
Basis for Targeting
Number of Customers in the segment and their spending potential
Ability to reach customers and cost of doing so
Intensity of existing competition
Level of customer satisfaction with competitors offerings
Forecasted Growth
Potential Profitability
Barriers to entry