The various strategies for segmenting a market are presented by the cascade diagram, Figure 3.5 below.
FIGURE 3.5: SEGMENTING A MARKET
Heterogeneous demand
Customer needs
Objective needs Subjective needs Customer
characteristics
Observable characteristics
Not so observable characteristics Homogeneous market
segment
The ‘cascade’ (as shown by the arrows) is the ‘process’ by which a market is segmented. To separate out the different types of customer – one from the other – discriminating variables must be used. For example, gender separates out and discriminates males from females. These variables are shown at the ‘decision nodes’, i.e. the shaded areas.
Stage one of the process commences with an analysis that searches for unfulfilled demand (current or potential). In other words, segments related to what the customers require and are willing to pay a ‘profitable’ price for (i.e. not just ‘need’ or ‘want’). These requirements can be sub-divided into objective needs versus subjective needs. Objective needs are those that can be measured to a commonly agreed standard (which for a service can only be ‘time’, see Chapter 2).
Whether or not the objective needs draw a blank, the wise marketer will now look toward subjective needs to continue to define the poten- tial segment.
One of the advantages of marketing a product which is either service related, or enhanced by a service, is that a given ‘core’ service has the potential to be almost all things to all customers. The very intangible nature of service means that, with the exception of time, all other eval- uations of quality are subjective. Thus, the service marketer would look at such subjective issues as:
• the status
• the social visibility
• the amount of inter-personal service which clients want
• the political respectability (e.g. does this bank exploit the poor in third world countries?)
• the psychographic needs of the customer as expressed in the technology adoption curve (see Figure 3.6).
The marketer next identifies what types of customers exhibit these partic- ular objective or subjective requirements, i.e. we now need to know who wants what.
For the purposes of segmentation, customers can be described using two sets of criteria. That which:
• can easily be seen, for example, their ‘observable characteris- tics’ – and
• can’t be so readily seen, for example, their ‘non-observable char- acteristics’.
The easiest of these elements to examine are the observable character- istics, i.e. the marketer is able to tell by looking.
In consumer markets, for example, this would perhaps include the customer’s:
• age
• gender
• race
• location
• socio-economic class etc.
In other words their demography.
In business to business markets the question is, are the customers:
• large or small companies?
• in high-tech or low-tech, the service sector or manufacturing?
– and –
• what sort of industry are they in, e.g. chemicals, utilities, agri- culture etc.?
The marketer then proceeds to examine customer characteristics for non-observable phenomena.
In a consumer market this will mainly be along the lines of the person- ality (sometimes known as psychographics) of the prospect. There are numerous ways of defining personality – many of them have proved useful when defining segments.
Additional variables in this category include people’s opinions, beliefs, leisure activities, level of education etc: all of which are difficult to see at a glance but, with the right skills, can be used to segment.
In a business to business situation this might be ‘company culture’. (The reader should also consider Psychographics in Business to Business as per ‘Crossing the Chasm’by Geoffrey A. Moore.)
Whilst it is possible to form a viable segmentation strategy from just customer demand (objective or subjective measures), the more of these variables that are included in the definition of the market segment, the more stable that segmentation strategy becomes.
So, for example, a bank could identify a type of small business which, because of the owner’s lifestyle, required access to their money at all times of the day, and days of the week, particularly when banks were normally closed (i.e. their objective needs). The bank is aware that this group of companies and the people running them, were highly sensi- tive to politically correct issues. They did not want to deal with a financial institution that exploited the third world, nor failed to give equal oppor- tunities to race, religion or gender (i.e. their subjective needs). So far so good, but the financial service marketer now needs to know how to recognize these people or companies. The next stage is to note that these previously identified needs are particularly prevalent amongst small software Value Added Resellers (VARs) specializing, say, in customizing Microsoft programmes for the smaller company in the retail sector. The entrepreneurs of these VARs are frequently male, highly socially mobile and members of local business networks such as the Chambers of Commerce, Rotarians, the ‘Round Table’ etc (i.e. their ‘observable’ char- acteristics).
If we link all that together then we have a foundation on which to build our segment. So, if these VARs were to be predominantly located near colleges of further education or universities, the marketing strategy should ensure that an ATM (automatic teller machine) were placed on every campus, whether the bank had an office there or not.
Additionally, the bank would run special promotions to these entrepre- neurs via the social activities in which they participate and would employ dynamic PR to enhance and protect its ‘acceptable’ image to this group.
The types of market segmentation for consumer and business markets consist of the following:
• Benefit segmentation alone, as we have discussed above.
• Situation– the situation company staff may find themselves in at particular times, such as, for example, a business traveller needing to change travellers cheques or obtain currency after bank closing hours, is the ideal target market for Bureau de Change.
• Psychographics segmentationis all about defining people by their personality. As there are over 650 personality traits this can become cumbersome. So what most marketers have done is to cluster these together into psychographic segments and put labels on them which will serve as short hand (such as ‘Yuppie’
–young upwardly mobile urban professional. ‘Woopy’ – well- off older person, ‘Dink’ –dual income, no children). Personality is of tremendous importance when segmenting the market for an IT related service. (See the section entitled, Crossing the chasm later in this chapter).
• Geographic segmentation exploits the location of the customer – wherever they may be.
• Usage segmentation is about what the customer does with one’s product. So, for example, mobile phones can be used either for:
– incoming and outgoing calls, texts etc. whilst on the move (normal pattern?)
– outgoing calls only, i.e. trainers can’t take calls in the seminar – data transmission, emails etc, i.e. either stand alone or linked
to notebook/laptop
– personal administration, e.g. managing one’s diary – taking and sending photographs
– accessing the Internet
– accessing entertainment (e.g. video and music ‘on line’) – any combination of the above, and more to come: nation-
ally only; internationally etc.
Segmentation in some business to business markets feature benefits such as company loyalty and buyers’ motives (in other words, the buyer’s previous purchase behaviour). Therefore busi- nesses buyers (i.e. ‘procurement’) are not just concerned with physically obtaining supply but also with:
– earning a bonus based on cost reductions achieved, – making a statement about their buying abilities in the
organization, or
– playing a political game to guard themselves against future recrimination.
• Suitable technologyis also a means by which we can segment in a business to business market. The question is, “Do our customers have the technology to be able to use our products?” For example, someone marketing software packages designed for the Intranet would have to focus on those organizations that have the necessary hardware to carry that software’s requirements.
The remaining segmentation types for locating business to business segments are:
• ‘Type of end use’, i.e. the actual use for the IT and/or service.
For a vehicle maintenance supplier for example, it may be to keep customers’ vehicles on the road, via regular or preven- tative maintenance, or it could be to train people to operate a hotline.
• The type of industryas a means of segmenting the market would address the service sector, rather than the manufac- turing sector, local authority, rather than financial services and so forth.
• The job function of the user– for example, is the user a manager, a manual worker, a financial director, a designer etc?