Market Segmentation: Understanding Your Customers

Written by Dora Cheatham, Program Manager, Emerging Enterprise Center

“Any color-so long as it’s black.”  Why Henry Ford’s famous quote is no longer relevant.

When we utter Ford’s words today, they are often said in jest. Ford lived in a time of limited competition and his goal was straightforward:  minimize costs through mass production.  And the consumer was more than happy with the deal.  Today’s consumer is different:  he wants choice, lots of it, and with the proliferation of brands and channels, it’s there for the taking.  Whether you are a business or non-profit organization, selling a product or a service,  by segmenting  your market and customers into groups with similar needs and buying criteria, then adjusting your marketing mix to meet the needs of each group,  you enhance 

THE 5 CRITERIA FOR EFFECTIVE SEGMENTATION

1. HOMOGENOUS—the needs within each segment should be               homogeneous within the segment and different from the other        segments.
2. IDENTIFIABLE– the customers within the segment must be identifiable and specific.
3. PROFITABLE—The more segments identified, the greater the opportunity to offer a targeted high value offer.  However, the number of segments identified should be balanced against the cost to serve those segments.
4. ACCESSIBLE—the customers in the segments should be readily accessible in order to be able to serve effectively.
5. ACTIONABLE—the segmentation should be such that the company can act on the segmentation to implement appropriate programs for each segment.

Once segmented, the business can then determine its business and marketing strategy on the segments themselves—their size, growth and profitability—the competition and the capabilities of the business.  Which segment(s) will you focus on?  Which segment(s) offer the greatest growth/profitability/maximum barriers to entry? Will your marketing mix (product, price, distribution, marketing message, processes, people) be the same for each segment or will they differ? The chart below shows the various marketing strategy options for business development based on market segmentation.