Wednesday, November 19, 2008

Marketing Tool: Segmentation

By Olu Akanmu

Have you ever seen a shoe whose size fits all persons? How smart do free size dresses look on those who wear it? Wouldn’t you prefer a dress that is tailored to fit you and people who have the same physical profile as you? This is segmentation. Any marketing program that does not recognise that customers are different and have different profiles will always be sub-optimal, in-efficient and loose to smarter competition that taps into the segmentation principle.

Market segmentation is the art of dividing our customer base into groups based on their unique profiles. Such unique profiles must however be relevant to the business or product you want to sell. For example, being a Christian or a Muslim may not be relevant in the purchase of detergents. What is relevant is likely to be age, gender and income group. Market segmentation allows us to develop products, services that better fulfils the need of the customers. It also allows us to develop more targeted and efficient promotions program because we know media that the target customer group consumes. We will also know how to speak to them in ways that makes them bond with our service. Perhaps, the overall beauty of segmentation in this environment is that it also allows the service you develop to be price- relevant to the customers you are reaching. You will not be developing or marketing an expensive product for someone who cannot afford it.

So, let us define clearly what is a good market segmentation?

a) Homogeneity: A good market segment will have a unique profile, or consist of customers who are similar enough to be targeted or served in the same way. This may be income groups, gender, age, occupation, and lifestyle. A very powerful segmentation factor today especially in service business, is behaviour of customers or the way they use the service or product. Such segmentation helps to see unique customer insights that enable service improvement, design of strategies to increase customer usage, and profitability.
b) Quantifiable: A market segment must be quantifiable. You must be able to say at least roughly the size of the unique customer group. If you don’t know the size of the group relative to others, how would you allocate your marketing resources to the segments efficiently?
c) Relevant to the product or service: As discussed above with religion, we must ensure that the segmentation factors used are relevant to the business. There is a bank in Nigeria whose billboard says it is environmental friendly as its own unique selling proposition. Yet, environmental friendliness has not been found to be a reason for choice of bank or banking service!.
d) Actionable: Related to the above is that the segment must be actionable for marketing program. You must ask that if I divide my customer base this way, does it enable me to develop more relevant product and services; does it give me unique customer insights for service improvement and promotions?
e) Large enough to make the marketing program efficient: As no segmentation is a problem, there is also the risk of over-segmentation. A market segment must be large enough as to make your marketing program efficient. Over segmentation leads to having customer segment base that are too small and fragmented, such that you will have too many products, too many distribution channels, too many promotions etc. This becomes very costly to the business and defeats the whole purpose of segmentation.

Segmentation can sometimes be an art. You may need to experiment with several ways to slice your customer base to discover a uniqueness or pattern that is not readily obvious to your competitors. There is something intuitive about a good segmentation that gives you a competitive edge. You can feel it. You see something unique about customers. You see new opportunities to improve your service to meet customer needs. You see new pricing and promotion strategies. You see a good business.

So, try it today. Slice your customer base to discover unique customer groups with unique motivations and needs. Test your different slicing models whether they are truly homogenous, quantifiable, relevant to your product, actionable for a marketing program and large enough to make your marketing program efficient. And you will be having a new powerful competitive tool on your hand. Best wishes.

Olu Akanmu
January 2006

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