Philip Kotler and other gurus of marketing science see three factors as central to world-class marketing:
- A deep understanding of your market.
- Correct market segmentation.
- Product development, positioning and branding based on that market segmentation.
Market segmentation is key to all successful marketing and the creation of sustainable competitive advantage and shareholder value.
These three factors, combined with:
- Effective marketing planning
- Long-term integrated strategies
- Efficient supply chain management
- Market-driven organisational structures
- Careful recruitment, training and career management
- Rigorous line management implementation
Leads to a successful, customer-focused business.
The marketing writer Ted Levitt once said, “If you’re not talking segments, you’re not talking marketing”.
Marketing segmentation is important because if you don’t understand how different parts of your market think, everything else you do is flawed.
If you aren’t segmenting your market and are treating it as a homogenous mass, you will only survive if your competitors are as equally ignorant. Relying on your competitors being incompetent is not a sustainable business strategy.
Markets are not homogenous. Consumers do not all have the same motivations and needs. If your data shows a homogenous market, it is probably wrong or poorly analysed.
Segments should be distinct. Consumers shouldn’t cross over between different segments.
Your chosen segments should be accessible. There is not point targeting a segment if you cannot get your goods and services to it. Segments should also be viable. They should be big enough, stable and worthwhile entering financially.
Professor Malcolm McDonald examined the market for Global Tech and described the following market segments.
- Koala Bears – Like to use extended warranties and won’t repair tech themselves; they prefer to call a service engineer. Often small offices. 28% of the market.
- Teddy bears – Require lots of account management from a single service provider. Prepared to pay a premium for service and attention. Larger companies. 17% of market.
- Polar Bears – Teddy Bears but colder. Will Shop around for cheap service. Will use third-party engineers rather than those of the tech provider. Expects freebies e.g. training. Carries out ‘serious’ annual reviews of contracts. Requires a supplier who can cover several locations. Larger companies. 29% of the market.
- Yogi bears – A ‘wise’ Teddy Bear or Polar Bear. Will train their staff to carry out their own service needs. Needs a skilled product specialist via distance communication (probably on the phone 24 hours. Requires different service levels in different parts of their business. Can be large or small companies. 11% of the market.
- Grizzly Bears – Will bin tech rather than repair it. Wants tech that is so reliable that when it breaks, it’s already obsolete. Won’t pay for training. Not small companies. 6% of the market
- Andropov Big Bears – Their business is totally dependent on your product. Claims to know more about your product than you do. You will do as they instruct. Expect you to ‘jump to it’ when called. Not large or small companies. 9% of the market.
What is important to note about McDonald’s segments is that they are not based on traditional demographics or financial data. They are based on attitudes and expectations.
It is also important not just to segment by product category. For example, you may wish to segment by expected distribution channel.
Segmentation is matching your offer to meet consumer needs. It is not easy. It is a complex and critical task to appropriately define consumer groups, which can be fickle.