The segmentation solution Featured

7:00pm EDT December 31, 2006

Is your organization plagued by deficiencies such as a fuzzy business mission, information that is not decision-oriented, a lack of insight into customers’ buying motives, a production-driven focus, illogical targeted resource allocation, an unfocused sales and promotional strategy, and/or a delayed response toward attacking niche markets?

If so, you’re not alone. These issues emerge in segmentation audits of many major companies.

“Great organizations act with a sense of urgency to correct occasional trouble spots, and a strong segmentation strategy is a large part of the answer,” says Art Weinstein, Ph.D., professor and chair of marketing in the Huizenga School at Nova Southeastern University. “In fast-changing and hypercompetitive markets, successful 21st century companies must be superb segmenters to survive and thrive. Having superior goods, services or ideas is no longer enough.”

Today’s customers have a multitude of choices in the marketplace and marketspace (e-commerce). Mass marketing is a fading memory. Market segmentation means partitioning markets by need, geodemographics or behavioral characteristics into customer groups likely to exhibit similar purchase behavior. Segmentation marketers know their customers and give them what they want by building strong relationships and communicating via highly targeted or personalized media.

Smart Business asked Weinstein how segmentation can help a company’s overall marketing program.

How can a company identify its segmentation bases?
The following questions may help you identify your organization’s segmentation bases.

  • Geographics — Where do I find my customers?

  • Demographics and firmographics — What are the personal and organizational characteristics of customers?

  • Usage — What are my customers buying?

  • Benefits — What are their needs and desires?

  • Psychographics — What are the key buying discriminators?

Realize that successful segmentation initiatives are strategic, not short-term; there are no magic formulas or seven-point plans that work in all cases. One major medical device manufacturer developed four unique research studies over a three-year period to assess the myriad challenges presented by management objectives, fierce competition, changing technologies, personnel capabilities and customer wants.

Organizations should assess their level of segmentation sophistication. Build on what is working and add new initiatives in areas needing attention. Market definition sessions and segmentation audits can be the building blocks for initiating new or revised segmentation programs and processes.

Should segmentation be product-based or customer-focused?
Creativity in market analysis is highly encouraged. While most executives are comfortable with recognized industry segmentations, generally these are product-based rather than customer-focused. Seldom do they provide a competitive edge. Management should encourage building original, proprietary segmentation models to find target markets and niches that competitors overlooked. Segmentation benchmarking can be insightful, too. Compare your company’s marketing practices to those of companies with similar customers, problems and opportunities.

Where is segmentation headed?
New segmentation challenges are rising to the forefront. Dynamic segmentation (ongoing market redefinition using technology to gauge customer behavior) is replacing static segmentation (strategies left unchanged for months or years) by progressive companies. Superior segmenters must understand their customers and the buying behavior of all players in the value chain, and develop a broader view of segmentation, emphasizing competitive advantage, customer orientation and resource decisions. Finally, marketers must recognize the shift from transactions to complex business relationships.

On-target organizations are now creating positions such as market segmentation manager, director of new business opportunities, customer relationship manager and differentiation specialist. The message is clear — it’s the customer, not the corporation, that sets the true agenda for exchange and change in business.

Top executives and newly minted MBAs realize the value of segmentation as a precursor to successful marketing. Firms in all industries are discovering the power of segmentation for finding and keeping customers in globally competitive markets.

ART WEINSTEIN, Ph.D., is professor and chair of marketing in the Huizenga School at Nova Southeastern University. He is the author of “Handbook of Market Segmentation” (Haworth Press, 2004) and coauthor with William C. Johnson of “Superior Customer Value in the New Economy” (CRC Press, 2004). Reach him at (954) 262-5097 or art@huizenga.nova.edu.