Introduction to Segmentation
Transcript
Hi, my name is Jerry Thomas and I'm CEO of Decision Analyst, one of the leading research and analytics companies in North America. And today I'm introducing a series on market segmentation, one of the most widely pursued business strategies in the world.
Virtually every business pursues segmentation in some way. Segmentation answers basic questions that almost every business faces.
- What is the optimal target market for our brand or our business?
- What is the ideal product line?
- What should our brand strategy be? That is how do we differentiate our brand? How do we position ourselves? And what messages and themes support that positioning?
- What advertising strategies should we explore?
There are many ways to segment markets. Geographic segmentation is probably the most widely practiced segmentation technique. That is, you only market your product or your service in a limited geographic area. And because you're putting all of your resources in that small geographic area, you achieve a competitive advantage.
Demographic segmentation is also widely used. Men's clothing and women's clothing are examples of segmenting a market by gender. Some markets can be segmented by age or education or ethnicity. You can segment a market by media consumption. For example, you may target your product only to people who are heavy consumers of radio or only target consumers who read gardening magazines.
There's price segmentation. General Motors is famous for its Chevrolet through Cadillac range of automobiles segmented by price levels. It makes sense. Some people have more money than others. You can also segment a market by distribution channels. For example, you may only sell your product in drugstores and focus all of your energy on being the best brand in drugstores. Markets can be segmented by politics. Fox News is an example of market segmentation based on political outlook. You are really only limited by your imagination in the different ways that markets can be segmented.
But when most people in marketing today talk about market segmentation, they're referring to attitudinal or perceptual segmentation. There are many different terms used to describe this type of segmentation, lifestyles, values, needs, needs-states, motives, etc. Regardless of the terms used, the core idea is that we are grouping people by attitudinal similarities.
The people in a segment tend to share the same attitudes and outlook on life. For example, if we were segmenting the automotive market, we might find that there's a group of people who believe that safety is most important. We might find another group that believes speed and power are most important and another group where gas mileage is most important. These three segments could be the template for product line planning. We could design a car for safety, one for speed and one for fuel efficiency.
If you're using direct mail or other precisely targeted direct marketing, you can often target a large number of segments. You can use a different message to address each segment. If you're using broad reach media like radio or television, you can only address a limited number of segments because of message conflicts across the segments.
Summing up, market segmentation is all about trying to become a big fish in a little pond by focusing all of your resources and energies on a small part of the total market. Our next episode in this market segmentation series will outline some common pitfalls and errors in segmentation studies.
Presenter
Jerry W. Thomas
Chief Executive Officer
Jerry founded Decision Analyst in September 1978. The firm has grown over the years and is now one of the largest privately held, employee-owned research agencies in North America. The firm prides itself on mastery of advanced analytics, predictive modeling, and choice modeling to optimize marketing decisions, and is deeply involved in the development of leading-edge analytic software. Jerry plays a key role in the development of Decision Analyst’s proprietary research services and related mathematical models.
Jerry graduated from the University of Texas at Arlington, earned his MBA at the University of Texas at Austin, and studied graduate economics at SMU.