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Market Mapping and Market Segmentation

Market Mapping & Market Segmentation Market Mapping and Market Segmentation A market map defines the distribution and value chain between supplier and final market segment, accounting for the various buying mechanisms and influencers found in a market. Market segmentation identifies those groups of customers whos e similar requirements can be satisfied by a distinct marketing mix. The Marketing Process Company has developed processes and software to help define both these inter-linked pre-requisites to successful strategic marketing planning. The software tools, MMap and Market Segment Master, can be used in support of the 10 stage market mapping and segmentation process shown below, which is incorporated in a series of workshops. Manufs Importers Nat Distrib's Independ Distrib's Co-Ops & Clubs Overseas 1,250 ktns 2,500ktns 45% Consults Manuf's Distrib's Consults Independ Consults Speclst Public'n Total European Market $2B PMS share - 30% 850ktns27% 1,970ktns35% 525ktns25% 405ktns6% Direct Agents/ Retail 75ktns22% 65ktns 370ktns21% 300ktns30% 1,935ktns33% 400ktns38% 50ktns35% 215ktns49% 50ktns40% 290ktns3% 8% $1,400M $600M 40%

15% 2,385ktns34% 200ktns40% 355ktns15% (150) (30) (5) (245) Private etc Direct Agent/ retail What is Bought services Where, When and How (20,000) Who Buys What Large Corp Groups Private C G P what what what where where where when how when when how how A1 to A17 G1 to G13 P1 to P4 Micro- Segments C1 to C17 G1 to G13 P1 to P4Market CPIs Micro- Segments Innovative/new Life Cycle Cost Financing IT networking Sophistication Maximum output Brand-quality Brand-service Application range Price Total 100 100 100 score score score score score Leading Mgt CFO/IT Mainstream Public Finance Dependent Doc in the Box Groups Extensive service Intensive Surg Size Differ. Reach.

Seg 1 Seg 2 Seg 3 Seg 4 Seg 5 Seg 6 Seg 7 and compatible with the company! OK Market Mapping Groups Corp Who Buys intensity, consultancy, package, quality, What products, Stage 2 Segmentation Stage 1 Segmentation Why The Market Mapping and Segmentation process, shown graphically above, can be distilled into a 10 step process, as defined by Professor Malcolm McDonald and I an Dunbar in Market Segmentation - how to do it, how to profit from it, and is used to map and segment your market. Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation 10 Step Market Mapping and Market Segmentation Process 1. Define market (need). List the needs being met by the current products, as highlighted by the current customers. The definition should focus around the needs of the final customer (i.e. the final user.). 2. Set parameters for analysis (i.e. specify what is to be included / excluded). 3. Estimate RAM (Realistically Available Market) i.e. that part of the market in which your organisation can realistically compete. 4. Draw a map of the market your business is segmenting CURRENT: Identify junctions (i.e. transaction stages). Include stages where influence is brought to bear on the purchase decision [i.e. where influence / advice / decisions occur (not necessarily a transaction) about which products to choose]. Draw a total market map not just the part you currently deal with. This will ensure you understand your market dynamics properly. For example, avoid the word distributor if there are in fact different kinds of distributors who behave in different ways and who supply different customers. 5. Initial quantification: Total market volumes (units) / value (revenue) and your organisation s share, which flows through different channels. Guesstimates. No. of businesses / customers which exist at each junction. 6. Draw a map of the market your business is segmenting FUTURE: Record key drivers (such as e impact on channel mix. Specify key assumptions. Identify new / emerging junctions. Need to capture which channels will increase at the expense of others. Adjust total market volumes and your organisation s share, which flows through different channels. 7. Expand detail (preliminary segments). Top-line picture developed so far may be hiding important differences between customers. Note at each junction on your market map (if applicable), all the currently business) that will have an

understood different types of companies / customers that occur there. Sketch out the various sub-junctions separately. Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation Construct an outline (as opposed to the definitive picture). Definitive picture can be entered once you have decided at which junction(s) on the map you should be developing segments. Highlight companies / customers who make decisions about which product to buy (i.e. split junction into leverage / nonleverage members ). Redraw the market map incorporating the breakdown of junction types. NOTE: Market mapping routine may be challenging the traditional lists of company / customer types at the various junctions around whom you currently conduct your marketing effort. 8. Identify the junctions where market segmentation should occur (Market Leverage Points) on the Market Map determine which junctions own or influence the purchase decision (i.e. those junctions where a decision is made about which of the competing products/services should be purchased) segment junction furthest away from the supplier (manufacturer) where decisions are made progressively backtrack along map away from final user towards the supplier 9. If junction owns or influences the purchase decision, ask: Who buys (i.e. dominant profiling characteristics)? What, where, when and how do they buy? Why do they buy (underlying needs from which CSFs derived)? 10. Use process to segment your market into groups of customers who share the same needs, behaviours and current channel preference. Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation Market Mapping and Segmentation Workshops The objective of the workshop series is to produce a structure for the defined m arket, which clearly identifies the different requirements that customers look to be sa tisfied. These different requirements can then be used to develop the alternative strateg ies that need to be implemented, to better access the segments and tune the product offers to suit the customer requirements. It should be noted that most organisations do not have access to the information to produce a definitive segmentation structure that is 100% accurate. However most organisations do have sufficient internal knowledge to produce something that is roughly right and a reasonable starting point. Where this is not the case, the process makes it very clear where the information holes are and the importance o f that information. If research is required, the process ensures a rigorous and ve ry targeted brief can be produced. The Workshop series is structured in three phases, as follows: 1. Market Definition A market is defined in terms of a need that can be satisfied by the products or services customers view as alternatives. Once this is clear, the boundaries for the segmentation project can be set. 2. Market Mapping Market mapping is used to develop a clear understanding of how a market actually works, looking at both the routes or channels to market and the role of influenc ers. A key stage in market mapping is to identify who makes the decision between alternative offers, as it is on these individuals/departments that the segmentat ion review will focus. 3. Market Segmentation Having identified the key junctions on the market map, these are analysed to arr ive at a segmentation structure. This is achieved by answering the following questio ns: Who buys? Here the output of the market map is captured, by identifying and defining the different types of decision makers such as large corporates, small independents, individuals and so on, along with the revenue associated with their decisions. What is bought, where? when? how? The objective of this step is to clearly identify the Key Discriminating Feature s (KDFs) used by the decision-makers to choose between one offer and another. In

an airline example this could involve class of travel, fare type, additional ser vices (chauffeur drive, for example), schedule, airport, loyalty programmes, agency, d irect and so on. Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation Who buys what? The different types of decision makers identified earlier in the process are the n broken down into a series of micro-segments, to reflect the different purchase bundles they put together. Why do they buy? As segmentation is about splitting customers or potential customers within a mar ket into different groups or segments, (within which customers have the same or simi lar requirements), understanding the real needs customers are trying to satisfy by t he purchase bundle they put together is a crucial step. This information is convert ed into Critical Purchase Influences (CPIs). For example, some segments will be influenced by service and convenience, others by price and so on. It should also be noted that CPIs may relate to how the micro-segment wishes to be served. For example some large customers may wish to be served by a single point of contact for all their needs, in which case they would be reached by the chann el serving those needs; for other micro-segments the Internet may represent the bes t way to serve the customer. The final part of this phase involves mapping product groups onto the identified segments to produce an Ansoff Matrix, which defines the product-markets. Ansoff Matrix PRODUCT OR SERVICE Existing New MARKETNew Existing Market Penetration Product Development Market Extension Diversification Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation MMap - The Market Mapping Tool Market Mapping Tool is used in-house by The Marketing Process Company and allows the production of market maps quickly and simply. These are some of its features: MMap introduces a uniform language for market maps By adopting a single, consistent approach, MMap enables The Marketing Process Company to produce a series of market maps to allow easy comparisons between markets Maps constructed by MMap will be structurally and numerically consistent MMap is versatile enough to allow comparisons of volumes and values and their percentages and market shares Market maps may be easily exported to a word processing or presentation package The structure of the map is continuously checked whilst drawing to ensure consistency Each map is produced in full colour. A re-colouring tool facilitates viewing of : routes through a channel the influencers of a particular channel and who the channel consequently influences routes into and out of a channel by unique colouring by channel. An example Market Map for a fictitious financial service market, (produced using Mmap), shows the source of supply, market channels and (un-named) product/market segments. Suppliers 100.00% Retail Banks 90.00% 10.00% Other Financial Inst 10.00% 4.00% International Banks 10.00% 7.00% Local Banks 80.00% 75.00% Direct Sales (Banks)

80.00% 35.00% Direct Marketing 3.00% 0.50% Internet 3.00% 1.00% Local Offices 1.00% 1.00% 90.00% 10.00% 80.00% 2.00% 2.00% 2.00% 2.00% 1.00% 3.00% 2.00% 0.50% 0.50% 1.00% 32.80% 16.00% 1.70% 1.00% 1.00% 1.00% 1.00% 0.50% 0.50% 0.50% 0.50% 0.50% 30.00% 15.00% Direct Mail 3.00% 0.50% 0.30% 0.20% 0.50% Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1

Market Mapping & Market Segmentation Market Segment Master - the Market Segmentation Tool Often companies sell products and services into horizontal segments. In these cases, the product offer maps onto how the customers run their business, and segments are often hard to identify in a way that will give maximum leverage in the marketing plan. To help solve this problem, we have developed a set of tools (MS M Market Segment Master) and processes for analysing existing and potential customer data, and generating and sizing segments. The tool automatically segments on the basis of similar attributes, which either directly map onto needs, or can be used to define needs. One of the great advantages of the tool is that, as well as generating segment descriptions, it l ists potential customers who belong to each segment. A number of novel outputs are produced in order to show the size and relationshi p between the clusters found. As an example, below is shown a Spread-Cluster Map. The colour of the discs represent the strength of a chosen feature (red graded t o green which represents high strength), the diameter represents the number of customers in a cluster and the distance between the discs represents the relativ e difference between clusters. MSM and Market Segment Master are registered trademarks of Prof Malcolm McDonald and Ian Dunbar. Copyright 2003 The Marketing Process Company Date: 27/06/03 Ref: Mkt Map & Seg v 2003.1