Market segmentation is the process of placing customers into describable and identifiable groups so that you can understand their needs and behaviors, reach them, communicate with them and influence them. Unfortunately, it's often misunderstood and misapplied. Companies struggle to find a single segmentation model that will fit all their needs. The truth is, the value of market segmentation rests on its fit to an organization's objectives. For instance, a segmentation that tells us about income distribution doesn't necessarily tell us who's willing to spend their money!
Why market segmentation? It's absolutely central to what Marketing and Marketers do. In his seminal text Marketing Management, Philip Kotler notes that, "[a] marketer can rarely satisfy everyone in a market. Not everyone likes the same soft drink, hotel room, restaurant, automobile, college and movie. Therefore, marketers start with market segmentation."
For instance, if you're a business line manager responsible for the launch of a new product or category, it's essential to understand who's likely to be interested and who's not. Many Marketing teams break the bank trying to move the unmovable. Similarly, if you're a promotions manager, it's critical to know not only who to reach, but where to reach them. It's valuable to choose venues that discriminate between those you want to reach and those you don't.
Methodologies we use for market segmentation include:
- Online and panel surveys
- Attitudinal and behavioral analysis
- Perceptual mapping
- Statistical clustering
- Tree classification/CHAID analysis
