Segmentation: Do You Know Who Your Customers Are?

Marketing managers are continuously searching for information about the people in their market. Many managers can rattle off statistics about them, i.e., what percentage are male, 18-24 years old, and like country music. But do they really know who these consumers are, what they want from a product or service, or the best marketing strategy for them? They may not, because not all consumers of a product or a service are the same; distinct groups exist within a market, people who have different motivations, attitudes, and desires. Segmentation is an effective market research tool used to understand complex categories of customers in an existing or emerging market.

Uses of Segmentation in Research

Segmentation research is usually conducted with a combination of methods that group or cluster consumers into groups with similar characteristics. Many marketers are familiar with classic lifestyle segmentation studies that classify people based on their activities, opinions, and interests. Rockbridge conducts these types of segmentations to guide marketing and product development strategies.

Segmentation can also be utilized for a variety of research applications where determining the types of customers within a market is essential. The following are some real world examples of how segmentation research can be used:

  • Understand behavior. Many companies experience a low rate of customer retention. In order to identify ways to keep customers, one marketer asked why his customers switch to the competition. Rockbridge segmented former customers based on their attitudes, and found distinct groups who perceived the service category very differently, and therefore, had unique motivations for turning to the competition. As examples, some customers were satisfied with the service but left because the competition offered a better deal, while others were unhappy with the service they were receiving and switched to gain better service.
  • Determine service needs. Not all customers want the same level and type of service when they purchase a product or service. This became evident when a lending company hypothesized that different groups of its customers required distinct levels of service. Rockbridge segmented its customers on needs and found that they indeed wanted differing levels of service. Some customers required a “hand-holding” relationship (i.e., frequent meetings and constant phone contact) with the service representative. Others wanted to be left alone, meaning they would call the service representative only when needed.
  • Assess emerging markets. Segmenting an emerging market enables a marketer to define appropriate potential target groups within the broader market and identify how best to approach these consumers. To achieve these goals, Rockbridge has segmented emerging markets, including both users and potential users of a category, based on attitudes towards the product or service. We commonly find that different attitude segments have unique uses for the product or service along with differing attitudes toward the category.
  • Develop marketing strategies. Rockbridge has also segmented markets in the United States based on social and economic variables for a charitable organization. The segmentation allowed the organization to construct appropriate marketing strategies for similar areas of the U.S., and the representatives of similar markets were able to share their strategies and ideas for increasing donations.

The Science of Segmentation

A full-scale segmentation effort may involve a series of steps including defining issues in a management workshop, conducting focus groups to identify purchase process themes, crafting a survey to gather information on motivations, needs, attitudes, behaviors, and demographics, and ultimately leading a concluding workshop to map strategic direction. An effective segmentation has a number of features:

  • The segments link to indicators of value (e.g., usage, intent) so it is possible to prioritize and allocate resources
  • The segments are differentiated by demographics as well as attitudes, can be identified in a list or database, or found through some other differentiated marketing channel
  • The resulting differences in attitudes and needs across segments is logical and valuable for planning communications and tailoring products.

The underlying analysis for market segmentation can require a range of sophisticated statistical techniques, but the goal is to identify homogenous groups of individuals who have more in common with each other than with individuals in other groups. While a scheme for segmenting a market is initially developed from a specific survey or database, it is possible to continually reclassify consumers in subsequent research studies using a concise set of core questions. We can also link segments to items in a database to support direct marketing efforts.

Segmentation is a versatile tool that can answer many questions marketers have about a current or emerging market. Depending on the goals of the study, a researcher can segment a market based on a variety of variables including attitudes, needs, demographics, and social and economic variables. Segmentation is a complex tool to implement but yields rich results to guide business strategies.

Learn more about segmentation.