Definition of Market Segmentation as a Process
When market researchers talk about market segmentation, they are most often describing a means of classifying customers and/or potentialcustomers by commonalities that include, but are not limited to, demographic variables (age, education, income, employment status, etc.). Often these commonalities are more predictive of actual behavior than demographic variables alone. In brief, market segmentation looks at multiple variables such as product usage, associated product usage, lifestyle choices, psychographic (or attitudinal) profiles, and demographics to cluster customers and potential customers into groups. This information could then be used to develop products specifically for the clusters, to treat clusters differently in terms of theirhandling by customer service, to use a particular mix of marketing channels to reach cluster members, or to develop cluster specific communications, including advertising. A rudimentary example of this might be a study conducted by specialty pizza chain. Let's hypothesize that franchisee ownersof this company's stores observe that some customers are making special orders for pizzas with multiple types of meat rather than the standard menu offering of either a pepperoni pizza, or meatball, or sausage, or Canadian bacon. They want them all! And, the want lots of meat, so they're ordering extra meat as well. Moreover, these customers differ, at least anecdotally, from typical chain customers, who generally are families with small children and groups of teenagers. Sensing that there might be an opportunity here to expand the pizza market, the Marketing Department undertakes a market segmentation study. First, the segmentation team would conduct focus groups or in-depth interviews with their core customers and then with potential new customers (maybe heavy users of other pizza establishments or chains) and light to medium users of their own chain. They would focus on unmet needs and wants regarding pizza and other associated offerings. Perhaps the team would have brainstormed new pizza ideas and/or pricing offers. They would test these in qualitative research to determine which might have legs. Then the team would conduct a thorough, robust quantitative market research study, exploring pizza habits, evaluating competitors, determining where their chain is both strong and weak. The study would ask lifestyle questions about when and how respondents want and use pizza. Last, they would ask demographic questions. In the analytic phase, the market researchers would slice and dice the resulting data. They would look at multiple combinations of variables, such as circumstance of use (under what circumstances customers buy pizza) crossed with demographic variables. And demand for the new pizza ideas and new pricing offers they tested. The essence of market segmentation, whether the segments are based on lifestyle, usage, circumstance of use, or other key variables, is that the segments are not necessarily driven by demographics variables alone. When age categories might tend to act similarly in their current consumption patterns, their circumstances of use might vary widely. Consequently, a segmentation study might find that heavy purchasers of particular types of pizza is driven more by their lifestyle choices than by their age or education. So lovers of meat might warrant a pizza offering targeted specifically to them. Or those who love cheese might find cheese stuffed inside the pizza crust appealing. An example of this type of segmentation is discussed in a fascinating talk by Malcolm Gladwell at the TED Talks.
Finally, marketers would use a market segmentation study to design segment-specific communications on the Web, in direct mail, and advertising. They might even work to re-engineer internal processes that touch customers to be segment sensitive (such as handling segments differently in the delivery of customer service). Return from Definition of Market Segmentation as a Process to the Home Page |
