How to Implement Market Segmentation to Develop Effective Marketing Strategies

Market segmentation is the process of separating out distinctive groups of buyers with similar needs and mindsets into manageable clusters in order to develop more focused marketing strategies. It is a key technique for developing effective marketing strategies.

Segmentation of buyers can be done for the business-to-business market at two levels: the company level (types of industry, size etc.) and also at the individual level (type of decision-maker, psychological type, etc.).

The pros of market segmentation include:
• more focused marketing strategies,
• more effective product development, promotions etc., and
• more effective organizational structures (especially for sales, service and distribution).

Whilst the textbooks (and marketing degree courses) often prescribe sophisticated approaches to market segmentation, the everyday management reality is very different. While segmentation exists in some organizations it is often very crude, to say the least. In financial services, for example, it is frequently limited to generic typologies of customers (characterized as different ‘fruits’ — oranges or apples etc. To denote different styles of buying), rather than defined in a business-specific way.

We have (ourselves) a very clear idea of some of the micro-segments of our market, including:
• The ‘adventurers’ (those who want to try out original things in order to enhance their believe organizational positions).
• The ‘U-turners’ (those who would like to be adventurers, but do quick U-turns at the first sign of any trouble).
• The ‘conservationists’ (those who are very wary of anything new and possibly destabilizing).
• The ‘would-be consultants’ (those who harbor real or imagined ambitions to be consultants themselves, so they have secondary agendas to learn from us, which we actually do not have a problem with!).

The key point of segmentation is this: is it useful and what value does it add? As in the above example, it can be most useful when adjusting one’s behavior in sales (or buying) to reflect the Style of the buyer.

A specific technique for segmenting the market is to take two dimensions and plot them against each other.

For each one of the segments, it is possible to do a motivator/ hygiene factor analysis to characterize the distinctive turn-ons and turn-o ffs.

Key points of marketing segmentation include:
• What are you going to do with it anyway, once you have got it?
• Does your segmentation seem genuinely cunning, in any way?
• Which 20% of the market segments represent 80% of the value?