Question

the subject of market segments is an important topic in the development of any marketing plan. What are some criteria that firms use to form market segments? How will you segment the market for your Course Project topic?

Answer 1

Market segmentation is practised by most businesses in one form or another, as a way of streamlining their marketing strategy by dividing broad-based target markets into specific groups of consumers, and devising marketing methods that will appeal to each group.

Identifying viable segments

Clearly defined market segmentation criteria not only ensure that customers are more likely to identify – and purchase – the product that is right for them; it also minimises wastage of resources, reducing the time spent marketing the wrong products to the wrong customers. It is important, however, to focus resources on market segments whose size, growth and profitability is good, both immediately and in the long run. The following 5 market segmentation criteria should be useful when planning your own company’s market segmentation strategy.

A market segment should be:

1. Measurable: Market segments are usually measured in terms of sales value or volume (i.e. the number of customers within the segment). Reliable market research should be able to identify the size of a market segment to a reasonable degree of accuracy, so that strategists can then decide whether, how, and to what extent they should focus their efforts on marketing to this segment.
2. Substantial: Simply put, there would be no point in wasting marketing budget on a market segment that is insufficiently large, or has negligible spending power. A viable market segment is usually a homogenous group with clearly defined characteristics such as age group, socio-economic background and brand perception. Longevity is also important here: no market segmentation expert would recommend focussing on an unstable customer group that is likely to disperse, or change beyond recognition within a year or two.
3. Accessible: When demarcating a market segment, it is important to consider how the group might be accessed and, crucially, whether this falls within the strengths and abilities of the company’s marketing department. Different segments might respond better to outdoor advertising, social media campaigns, television infomercials, or any number of other approaches.
4. Differentiable: An ideal market segment should be internally homogeneous (i.e. all customers within the segment have similar preferences and characteristics), but externally heterogeneous. Differences between market segments should be clearly defined, so that the campaigns, products and marketing tools applied to them can be implemented without overlap.
5. Actionable: The market segment must have practical value – its characteristics must provide supporting data for a marketing position or sales approach, and this in turn must have outcomes that are easily quantified, ideally in relation to the existing measurements of the market segment as defined by initial market research.

A good understanding of the principles of market segmentation is an important building block of your company’s marketing strategy – the foundation for an efficient, streamlined and ultimately successful approach to customers, and a means of targeting your products and services accurately, with the minimum of wastage.

Following the development of market segments by the firm, they then need to be evaluated against a set criterion. Essentially, this review is a checkpoint in the overall market segmentation, targeting and positioning process (known as the STP model/process). This analytical ensures that the resultant market segments are valid and usable for the firm’s purposes.

The main criteria for evaluating market segments

The main goal of this stage of the STP process is to ensure that the market segments that have been constructed by the firm meet with basic requirements and guidelines, which will make them usable segments and potential target markets. The best way to think about this step of the STP model is to think about it a review checkpoint.

The following table outlines the main requirements/criteria for a market segment.

EVALUATION CRITERIA	WHAT IS IT?	WHY IS IT IMPORTANT?
Homogeneous	This means that the consumers allocated to each segment should be similar in some relevant way	This is the basis of market segmentation– that the consumers in each segment are similar in terms of needs and/or characteristics
Heterogeneous	Each segment of consumers should be relatively unique, as compared to the other segments that have been constructed	This demonstrates that the consumers in the overall market have been effectively divided into sets of differing needs
Measurable	Some form of data should be available to measure the size of the market segment	Measurements are very important to be able to evaluate the overall attractiveness of each segment
Substantial	The market segment should be large enough, in terms of sales and profitability, to warrant the firm’s possible attention	Each firm will have minimum requirements for the financial return from their investment in a market, so it is necessary to only consider segments that are substantial enough to be of interest
Accessible	The market segment should be reachable, particularly in terms of distribution and communication	Each segment needs to be able to be reached and communicated with on an efficient basis
Actionable/practical	The firm needs to be able to implement a distinctive marketing mix for each market segment	The range of segments identified generally need to be defined for the capabilities and resources of the organization, so very specialized segments may not be appropriate
Responsive	Each market segment should respond better to a distinct marketing mix, rather than a generic offering	The key outcome of the STP process is to develop a unique marketing mix for a specified target market, if the segment will not be more responsive to a distinct offering, then the segment can probably be combined with another similar segment