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Segmentation Fundamentals

Thomas Emrich

Managing Director at ValMark Group

(401) 450-2841

tlemrich@valmarkgroup.net

Why Segment Markets or Customers?

“To sell more products and services, to more people, more often, more efficiently; at the highest possible price.”

~ Sergio Zyman

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Segmentation Can Take Different Forms Depending on Your Objectives

Market Segmentation•Fairly consistent process for most companies•Where you play

Customer Typing•Fairly consistent process for most companies•Who’s on the course

Customer Segmentation•A variable process aligned with what you’re trying to do•How you play

Role Segmentation•A standard process for most companies•What position customers are playing

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Market Segmentation Divides High Level Opportunity Into Relevant Parts

Total Market

Potential Market

Available Market

Qualified Available Market

Target Market(s)

Penetrated Market(s)

Total Market – total population

Potential Market – those in total market that have interest in buying the product

Available Market – those in the Potential Market who have access and resources to buy the product

Qualified Available Market – those in the Available Market who are legally permitted to buy the product

Target Market – segments or groups within Qualified Available Market that you decide to serve

Penetrated Market – those in the Target Market who have purchased the product before

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Customers Within The Same Target Market Can And Do Vary By Type

Sales RepBroker Rep

DistributorRetailer

InfluencerOriginal

Equipment Manufacturer

Consumer

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There Are Segmentation Options If You Primarily Sell To Other Businesses

Demographics

Industry: Which industries should we focus on?

Company size: What size companies should we focus on?

Location: What geographical areas should we focus on?

Operating Variables

Technology: What customer technologies should we focus on?

User status: Should we focus on heavy, medium, or light users

Customer capabilities: Should we focus on customers needing many or few services?

Situational Factors

Urgency: Should we focus on companies that need quick delivery and service?

Specific application: Should we focus on certain applications of our product?

Size of order: Should we focus on large or small orders?

Purchasing Approaches

Purchasing organization: Should we focus on companies with highly centralized or decentralized purchasing organizations?

Power structure: Should we focus on companies that are engineering dominated, financially dominated, etc.?

Nature of existing relationships: Should we focus on companies where we have the strongest relationships or simply go after the most desirable companies?

Purchase policies: Should we focus on companies that prefer leasing? service contracts? systems purchases? sealed bidding?

Purchase criteria: Should we focus on companies that are seeking quality? service? price?

Personal Characteristics

Buyer-seller similarity: Should we focus on companies whose people and values are similar to ours?

Attitudes toward risk: Should we focus on risk-taking or risk-avoiding customers?

Loyalty: Should we focus on companies that show high loyalty to their suppliers?

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Even More Options If You Market And Sell To Consumers

Method Pro Con

Need/Benefit • So-called natural segmentation because buyer needs is simple…basic• Easy to do• Intellectually interesting

• Needs (importance ratings) should not be mistaken for problems• Different techniques for measuring needs yields different outcomes• Common approaches understate importance of emotional attributes

Behavior • Easy to find a small group of customers who account for lion’s share of category volume

• Managers love to talk about 80/20 rule• Very easy to do

• Heavy buyers are often price conscious and psychologically locked into whatever brands are available on sale

• Product usage often correlated with organization size• Generally, segments have similar brand preferences, consumption

patterns, demographics and

Psychographic • Like need/benefit segmentation, attitude and personality characteristics are fun to work with

• Managers like to name the groups• Simple and capable of being understood by everyone in the organization

• Attitudes are often weak predictors of buyer behavior and brand choice• Segments have similar brand preferences, consumption patterns,

demographics and media exposure patterns• Segments can’t be found in databases

Demographic • Simple and capable of being understood by everyone in the organization• Describes people or stakeholders that you’re typically familiar with• Media services and agencies find demographics easy to work with

• Demographics rarely predict buyer behavior• Little understanding of the differential needs between targets• Segments have similar brand preferences, consumption patterns,

demographics and media exposure patterns

Job/Outcome • Popular with top management; featured in Harvard Business Review• So commonsensical, it’s a wonder marketers haven’t discovered it before• Simple and capable of being understood by everyone in the organization

• Can slant toward rational drivers of brand choice and ignore role of emotional triggers

• Overlaps with occasion-based and needs-based segmentation• Segments have similar brand preferences, consumption patterns,

demographics and media exposure patterns

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Whether B2B Or B2C Different Customers Can And Do Assume Different Roles

Purchase Initiator Purchase Gatekeeper Purchase Influencer

Purchase Decision Maker End-User

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Call To Action

If it’s been a while since you checked the fundamentals of your segmentation game, please contact me at anytime.

After all, a phone call or email doesn’t really cost anything.

I look forward to hearing from you.

Thomas Emrich, Managing Director at ValMark GroupPhone: (401) 450-2841Email: tlemrich@valmarkgroup.net