The Marketing Toolkit:

Your-Marketing-Toolkit^SM

Segmentation and Business Strategy

Effective grouping of potential customers into market segments and the formulation of business strategy is inseparable. This is due to the observation that profitability and success of all businesses rests in the marketplace. However, merely understanding the marketplace is insufficient. The information must be engaging and compelling of action through answering provocative what-if questions. Your-Marketing-Toolkits provide the Pervasive Marketplace Awareness and facilitate customer information driven business development based on affordable quantitative marketing research.

For effective business planning it is useful to think of groups of customers or market segments as having common characteristics and their members would act similarly in the marketplace. They provide more detail into differences in characteristics than considering the market based solely on average values. But these segments are inventions of the marketing strategic process. They are not natural to the market. There may be a number of ways of defining these segments based on demographics, valued benefits, or attitudes and opinions. Effective segments have three characteristics: (1) Homogeneous (on some characteristics), (2) Strategically Useful (able to make effects), and (3) Identifiable.

There are two general types of market segments, those imposed for operational purposes and those that are functional and derived from common customer attitudes and behavior. Both types are useful but in different ways. Operational segments allow one to look at groups of customers based on imposed characteristics such as: existing versus potential customers, size of customers’ business, known applications, or regions. Functional segments are based on common attitudes and are based on marketing research data. As previously noted we may need a number of different types of market segments for developing an effective business strategy.

Furthermore, it is important to note that the data used for segmentation is also critical for the strategic planning process. Marketing information is far too valuable to be used solely for one purpose, such as segmentation.

What are the functional segments for product positioning?

Typically functional segmentation is done based on benefits or features, on importance of characteristics and on attitudes. The purpose of the functional segmentation is to examine the groups of attitudes and opinions. Benefit market segments, for example, are selected to identify those customers that have common needs and attitudes towards specific products.

What makes good market segmentation?

Functional market segmentation for Your-Marketing-Toolkit is done off-line. It is not a dynamic process in Microsoft Excel but handled using a standard multivariate statistical package. Traditionally a hierarchical clustering tool is used. This provides a number of measures of quality of segmentation along with the segment profiles, including Distance Tree Diagrams.

What are the characteristics of the operational and functional market segments?

Your-Marketing-Toolkit is setup to allow “slicing and dicing” of the database. This provides a means of examining sub-samples. For example by selecting one of the types of segments, the Quadrant and Value Maps as well as the pricing models are recomputed based on those selected groups of customers. Note that this ability is built into Your-Marketing-Toolkits based on pre-selected groups of customers. These typically include both operational and functional segments.