Market segmentation is a two-step marketing strategy that divides a broad target market into subsets of customers that have common needs, interests and priorities, and then designs and implements strategies and launch plans to target the customer segments that have been identified as desirable.
The Development of Discerning Segmentation Studies
An effective basis for segmentation allows for differentiation among segments. This differentiation is marked by variables that are established in the segmentation design. Depending on your distinct market, these variables may include but are not limited to things such as a 400 bed hospital versus a 200 bed hospital, urgent care versus doctors’ offices, or users that consume defined throughput volumes of a specific item on an annual basis (e.g. low, medium and high volumes as defined by customer feedback collected in a voice of the customer study). In general, it is recommended to avoid the use of general differentiators such as age, gender and marital status because they are too broad in nature and will not allow for distinction among segments. Those types of general variables are better suited for higher level market studies conducted before a segmentation study is performed.
When a segmentation study is designed with the right variables and implemented correctly, the results will reveal clusters of data that are divided into distinct groupings based on the variables used for the study. Everything downstream including the marketing strategy and launch plans are hinged on the data resulting from the study. If the data is not good, the marketing plan and launch plans will reflect this and hence contribute to a launch that is likely to fall short of performance expectations.
Sometimes even a well-designed segmentation study reveals clusters of data that overlap and lead to an ambiguous result. In this case additional segmentation studies may be required. This is a pivotal moment in a segmentation study where successful companies tend to differentiate themselves from the masses in applying a patient and mature approach to ambiguous segmentation study findings.
These market driven leaders recognize that additional segmentation studies may need to be conducted in order to gain clarification.
Contrarily, many companies tend to become unraveled when faced with unclear data that requires additional resources and time to sort out. They may start applying assumptions in order to move the project along to avoid further time and expenses. It is at this point that successful, market driven companies tend to pull out ahead of the competition and the majority of companies tend to begin to unravel.
The Keys to Effective Implementation
Here are some key segmentation characteristics that a company must be able to clearly articulate in order to demonstrate an effective implementation of a market analysis and segmentation:
- Available Market: current size of segment(s)
- Potentially Available Market: potential size of segment(s)
- Key, unmet needs of the segment(s)
- Information systems needs of the segment(s)
- Their prioritized needs/benefits sought(s)
- Their prioritized preference for product and service features
- Demographic characteristics of the segments
- Product/system ownership and usage patterns
- Competition’s strength in each segment
- Perceived positioning of each competitor
- Any unique or additional characteristic information for the segment(s)
With more companies striving to transform into market driven organizations (see our recent IOI Partners article), it is becoming increasingly difficult to differentiate one’s product from the competition. Similar to the continuous process of listening to the customer and ensuring that the company is adjusting itself according to changing customer needs, market segmentation requires continuous revision. This means that market segmentation should be re-examined and if necessary, additional studies performed throughout the life of a marketing strategy or product life cycle.
Most importantly, there should be a willingness of management to invest in the resources and to implement the processes required to sustain continuous market segmentation re-examination and studies. It is through this approach that a company will be able to have the customer insight and market instinct to stay ahead of the competition, to establish and sustain a successful product launch.