Segmentation

A segment is a unique group of customers (or potential customers) who share some common characteristics which make them different from other groups of customers.

People are different. Some segments may have different needs, they may require different versions of the same product; they may pay different prices; they may buy in different places; they may be reached by different media.

In consumer markets, customers and prospective customers can be grouped together, or 'segmented', in lots of different ways: by their age, their sex, where they live, how they live, what they earn and so on.

In organisational markets or industrial markets, customers and prospective customers are generally segmented by the actual type of business, its size, location and even culture or how they operate. You can investigate these in more detail, in the 'How to Segment' subtopic.

Customers and prospective customers can be further segmented according to whether they are heavy or light users of a particular product or service, and whether they are very loyal to a particular brand or supplier.

You can use the media browser later to find out what Harvard's Professor Rosabeth Moss Kanter thinks about loyalty segments.

It is worth spending time getting to know your customers. Each segment that is chosen, or targeted, needs to be treated differently in some way. Different segments often pay different prices, buy in different places, watch different media, or even want a different product. Different segments require different solutions.

Segmenting and selecting the best market segments is called 'Target Marketing'. This is a vital marketing skill.

If you are going to get the best results, you must know what is happening in your marketplace.

In the 1960s we had mass marketing. In the 1970s segmentation became more popular. In the 1980s Target Marketing became so precise that narrower segments, or 'niche markets' emerged.

Today, we have the opportunity of one-to-one marketing where individuals are targeted directly. The marketer can now communicate with thousands, or even millions, of individually named customers. Some say today that there are no more mass markets - no more masses of homogeneous customers wanting the same as everyone else.

For example, once there was a market for coffee. Today the market has fragmented into Powder coffee, Granule coffee, Freeze-dried granule coffee, Caffeine free granule coffee, Caffeine free powder coffee, Percolator coffee, Filter coffee, Organic Coffee, even Ethical coffee. Markets fragment. New products and services are created to satisfy the more specific requirements of the segments emerging from fragmenting markets.

Marketers today can satisfy smaller and smaller segments, right down to individual requirements. Today, many products and services can be tailor made to suit thousands, or even millions of individual requirements.

But more than one individual is often involved in the decisions to buy, to vote or to behave in some way. For example, children influence which cereals their parents buy. The children are in turn influenced by their peers and 'advisers' at school and in the playground.

This is where segmentation focuses on the Decision Making Unit, or DMU. Who is involved in making the final decision to buy or not to buy?

The DMU is made up of Starters or Initiators, Advisers, Deciders, Purchasers and End-Users.

DMUs are very important in organisational markets too. For instance, the marketing of a new computer system to a large industrial corporation would obviously involve several people in the final decision. You can see marketing managers talking about DMUs in the media browser.

So customers can be broken into groups or segments. The only limitation is your imagination.

Right now, around the world, there are many similar groups of customers - all buying similar goods or services. It could be argued that there is no such thing as a local market, since local markets are simply segments in a much bigger global market. Professor Theodore Levitt thinks it's worthwhile expanding your horizons.

So keep your eyes open and remember: segmentation is a vital skill for marketers.

Well, you'll recall someone said 'I accept the universe' and the response to that by, I think it was Oliver Wendle Holmes (an American jurist), was "You better!" - Theodore Levitt, Marketing Expert