Surveys, focus groups and statistical analyses typically require expert consultants. In some cases, a more cost-effective approach is to choose mass marketing. Rather than spend money on market research, a company might fund a one-size-fits-all campaign, knowing an advertisement with broad appeal is bound to reach some members of a profitable segment. Stan Mack is a business writer specializing in finance, business ethics and human resources. Mack studied philosophy and economics at the University of Memphis.
By Stan Mack. Wrong Target Market research is a complex discipline, and even the experts can get it wrong. Too Narrow or Too Wide If the segment you target is too narrow, you limit your potential revenue. Downlaod our free e-book, Understanding your audience , to get best practice strategies on how segmentation achieves your business objectives.
Topics: Customer Insights , Segmentation. Defining your segments too broadly If you define your segments too broadly, you may miss out on certain segments and fall short to a competitor who targets more narrowly. Related content: 4 reasons to segment your marketing campaign narrowly 2. Related content: 3 things you're missing if your market segmentation is wrong 3. Related content: 5 steps to kickstart your market segmentation 4.
Not using segmentation to provide a clear, strategic direction Segmentation should provide your company with a strategic direction to move forward, giving you a clear idea of which markets you should target. Related content: 5 leadership strategies to drive business growth with customer experience Improve your marketing effectiveness with segmentation and persona development. Harvard Business School, By Nikky Lee - 07 December, How employee well-being drives profit.
Early results from this analysis indicated that the current approach to subdividing the markets in which the company operated was not delivering the benets that might be expected. In short, applying country, product and customer type groupings did not lead to homogeneous groupings of customers. Instead it resulted in an unmanageable number of customer groups. For example, in each country the company was selling six main product groups. Within each of these product groups was a range of between three and eight machines.
The potential customer groups for the company included plant hire, extractions, civil engineering contractors, tool hire, house building, agriculture, waste disposal, landscaping, public utilities and local authorities, earthmoving and manufacturing services.
Although the resulting multicelled matrix reects the industry structure, it is not indicative of customer needs and buying behaviour.
This is partly due to how the marketing function was organised. A different marketing team managed each. Identify macro-segments based on key organizational characteristics such as: Size Usage rate Application of product SIC category; end market served Organization structure Location New vs.
Evaluate each of the selected macro-segments on whether it exhibits distinct response to the firms marketing stimuli. If it does not, identify within each acceptable macrosegment, the relevant micro-segments ie: with homogeneous response based on the key DMU characteristics.
This characteristic can be the criterion used in choosing among alternative suppliers or any other DMU characteristic, such as: Position in authority and communications networks of firm Personal characteristics: demographic, personality Perceived importance of specific determinants of buying decision Attitudes towards vendors Decision rules.
Select the desired target micro-segments based on the costs and benefits associated with reaching the segment. This meant that customers buying a variety of products must often deal with a number of different marketing teams. A further difficulty related to the organisation of the dealership network.
Dealers had little incentive to develop expertise in all areas of the portfolio or in all customer types. The tendency was for dealers to cherry pick. Some dealers also focused on a limited number of products, which were known to be easy sellers, and for which the margins were high. The result was that some customers had to shop around to buy different pieces of equipment. At a time when the business was attempting to expand its portfolio into new areas, this was not an encouraging state of affairs.
The answer lay in a thorough analysis of customer needs and buying behaviour. This revealed that certain customer types tended to buy certain sizes and types of products and that it would be more logical to organise products in terms of their size.
The company moved away from its strict product boundaries to launch three new divisions dealing with large, medium and small equipment. This had two benets. First, it highlighted the fact that selling very large equipment, such as crawler excavators, through the dealers, was not particularly efficient.
Most dealers were unable to hold stock of this machinery, so delivery times suffered. The company therefore decided to encourage sales of this equipment direct from the factory The sec. The customer research had shown that those buying the smaller equipment usually wanted to buy a number of different machines. Yet dealers who regarded them as too small to bother with were ignoring these customers needs.
In order to deal with these problems, the company launched a division specically to cater for the sale of smaller equipment. The marketing efforts of a number of product groups were merged, and staff within dealership were specically allocated and trained to deal with these particular customer needs. Although this was not a heavily quantitative exercise, it was based on detailed analysis and did take a realistic view of the business existing structure.
This view was then used to build a more appropriate and simpler segmentation structure. As a result, the business was better able to develop marketing programmes which closely matched customer requirements. This had immediate benecial effects for a range of product launches in which the business was involved. What should I do with the data? Do I need a statistics expert? What variables should I use to segment my market? How will I know if I have used the right variables?
How will I know if I have reached a sensible solution with robust segments? What do I do with the segments once I have them? How will I know if my segmentation is effective? When will I need to change or update the segmentation? Using these questions as a checklist, it is clear that there are three points in the process at which help is required. Before the project begins, there is a need to understand the sorts of factors that will contribute to a successful outcome.
During the analysis, it is important to establish the qualities which emerging segments should exhibit. After the segmentation output has been nalised, guidance is needed about the criteria to use to appraise the attractiveness of the different segments.
The most commonly cited guidance is in the form of a simple checklist, which states that segments should demonstrate measurability, so that segment size and potential can be measured; substantiality, in order that segments are sizeable enough to be protable; accessibility, so that customers in the segments to be reached; actionability, allowing segments to be served effectively with marketing programmes and; stability, so that resources can be safely invested Kotler, This guidance is clearly aimed at managers during the segmentation process, insofar as it provides a checklist of characteristics against which emerging segments can be matched.
Help appraising the attractiveness of different segments after the segmentation process is complete, is also readily available. During the targeting stage, marketers must consider a range of internal and external attractiveness issues. This helps with decisions about whether or not to target particular segments. Marketing academics have devoted considerable attention to this important issue.
This is reected by coverage in market segmentation, portfolio management and competitive strategy literatures. Thus the segmentation literature has considered the question of resource allocation to particular segments in some detail Frank et al. For example, Abratt identies the following attractiveness criteria: ability to reach buyers, competitive position, market size, expected market growth and market t with organisational objectives and.
Practical guidance for segmentation success Managers undertaking segmentation analysis for the rst time often express surprise at the lack of practical guidance and step-bystep approaches to help.
This discussion begins by reviewing the kinds of questions which practitioners ask when carrying out segmentation analysis, then examines the extent to which available guidance matches up to these requirements.
The following questions, which are typical of those asked by practitioners undertaking segmentation for the rst time, are drawn from discussions with managers at several divisions of an industrial chemicals business. Is there a process that I can follow? Where should I start, and what data do I need? De Kluyver and Whitlark provide a similar list. The portfolio management literature, which explores the sharing of resources among an organisations product portfolio, is also a useful source of ideas about attractiveness criteria Hedley, ; McDonald, ; Morrison and Wensley, Matrices used to examine the balance between cash usage and cash generation, such as BCG and General Electric and the Directional Policy Matrix, usually apply some form of market attractiveness criteria, based either on univariate or composite dimensions Wind and Mahajan, In the competitive strategy literature the question of market attractiveness is also considered.
Porters ; ve force model of competition suggests that the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitutes and the jockeying for position among current industry players determine industry competitiveness.
In many respects this is simply another way of expressing attractiveness criteria The diverse range of attractiveness criteria in use is illustrated in Table II. This framework, which is adapted from the work of Abell and Hammond , is taken from Hooley and Saunders Guidance about the kinds of factors which contribute to segmentation success and which can be considered before the process, is perhaps the hardest to nd.
While many marketers accept that is it hard to conclusively prove which variables are responsible for success, it is surprising that so little help is offered regarding conducive organisational conditions. Particularly as for practitioners seeking the benets of a segmentation approach, the value of practical guidance which improves the likelihood of success seems obvious.
Although there is a lack of quantitative research on the question of segmentation success factors, some qualitative contributions have been made to the debate. Well designed planning Weinstein, , commitment and involvement of senior managers Engle et al.
Haley , p. Careful organisation, usually involving a multi-functional project team. Market factors: Size of segments Segment growth rate Stage of industry evolution Predictability Price elasticity and sensitivity Bargaining power of customers Seasonality and cyclicality of demand Competitive factors: Competitive intensity Quality of competition Threat of substitution Degree of differentiation.
Economic and technological factors: Barriers to entry Barriers to exit Bargaining power of suppliers Level of technology utilisation Investment required Margins available Environmental factors: Exposure to economic uctuation Exposure to political and legal factors Degree of regulation Social acceptability and physical environment impact Business strengths. Current market position: Relative market share Rate of change of market share Exploitable marketing assets Unique and valued products and services Economic and technological position: Relative cost position Capacity utilisation Source: Adapted from Hooley and Saunders Capability prole: Technological position Management strength and depth Marketing strength Forward and backward integration.
Considerable up-front work, considering past research, promotion and market trends. Three-phase research design, where the second phase involves developing sensitive and reliable attitude measures. Implementation plans which, at a minimum, include testing and tracking studies. In view of the costs associated with implementing new segmentation schemes, it seems likely that the question of success factors will receive more attention.
In particular, there is a need for further research providing quantiable evidence of the impact of segmentation and the role of success factors. What can be done to reduce the chances of segmentation failure? The benets of following a plan for the entirety of the segmentation project are clear. Planning encourages the setting of clear objectives, so that marketers establish from the start exactly what they want to achieve from the exercise. This also increases the likelihood that measures will be designed to check that objectives have been achieved.
A range of processes designed to help businesses plan their segmentation are available e. Some of these take the form of books, others are presented in software format. Whatever the format, these processes should encourage the user to undertake a series of analysis, so that customers, competitors, business strengths and the wider trading environment are better understood.
The results of this analysis should then be applied in the development segments, to make decisions about targeting and to determine positioning. These strategic decisions can then be used as the basis for developing appropriate marketing programmes. Being critical about the quality of data and information is a vital part of any marketing strategy exercise. It is important to question the source of data used, as well as considering how and when it was collected.
The method of data collection should be appropriate and robust and data which forms the basis of a segmentation analysis must be as up-to-date as possible. If the analysis of data is handled in-house, it is helpful to use tried and tested statistical packages. Software packages offering quick and easy solutions should be regarded with suspicion. The complexities of segmentation analysis mean that it requires a careful, methodical approach.
When planning the approach, it is important to think about segmentation in three. This highlights the questions which should be addressed at each stage. In particular, it is helpful to maintain an awareness of segmentation success factors. Although research in this area remains at an early stage, some broad guidance is available which can help businesses increase the chances of a successful outcome.
For example, marketers should seek to establish inter- and intra-departmental commitment and communication before the project begins. As the relationship marketing literature has clearly demonstrated when co-operation is developed at an early stage, it often builds as the project progresses Morgan and Hunt, There may be circumstances in which it makes sense to buy in support from outside agencies.
The value of a statistics expert has already been established. Sometimes businesses without internal expertise buy in support from outside agencies or management consulting companies.
In view of the difficulties which the statistically unskilled can face, this may well be a logical step. However, even within agencies and consulting companies the level segmentation analysis skill is highly variable.
It therefore makes sense to select organisations with proven expertise in this particular area of marketing strategy In particular, beware of companies. Consultants who appear to know what the segments will be before conducting any analysis, probably fall into this category! Finally, as the macro-micro model for business-to-business segmentation illustrates, it is vital that a segmentation process is used which takes into consideration the current situation and operational constraints which the business faces.
The output must be sensible, robust, but also meaningful in terms of these constraints. If these factors are ignored, it may be impossible or impractical to implement the segments which result. Conclusions Despite the well-documented benets which segmentation offers, businesses continue to encounter implementation difficulties. This raises important concerns about the cause of these problems and how they might be overcome.
These concerns have been addressed in this paper by considering three questions: 1 Is segmentation a good idea? There are many practitioner and academic publications which debate the merits of segmentation. Although problems of measurement and control make it difficult to quantify the segmentation benets, many qualitative advantages are cited.
These suggest that segmentation leads to a better understanding of customers, greater competitive responsiveness and more effective resource allocation. Despite these apparent advantages there are many documented cases where segmentation has failed: that is, it has not resulted in a solution which can be implemented. Poor understanding of segmentation principles, inappropriately oriented literature and lack of practical implementation guidance are just some of the possible causes.
In order to overcome these problems, marketers need practical guidelines at three points in the process. Before the project begins they must understand the factors which will contribute to a successful result. The literature on these sorts of success factors is at an early stage of development. However, careful planning, commitment from senior management and clear implementation recommendations are just a few of the variables which are known to help. During the segmentation project it is important to clarify the qualities which emerging segments should exhibit.
Kotlers checklist, which states that segments should be measurable, substantial, accessible, actionable and stable, is probably the best known. There is considerable coverage in the segmentation, portfolio planning and competitive strategy literatures on this area. Further research is needed to address the issue of segmentation success factors.
In particular, this should address whether and how segmentation success can be quantied. To be useful to practitioners applying segmentation in the real world, this research must translate into clear and simple guidance on how to create the best opportunities for successful application. Related to this, it is necessary to consider the differing orientations of academics and practitioners carrying out segmentation.
For practitioners in particular, the segmentation literature remains difficult to access. It is overly concerned with complex questions about quantitative analysis with insufficient focus on practical implementation questions. As marketing moves towards the millennium, a further bridging of the academic and practitioner divide would be a positive move forward for segmentation theory. References Abell, D. Abratt, R. Aldenderfer, M.
Bonoma, T. V and Shapiro, B. Brown, H. Choffray, J. Wiley, New York, NY. Coles, G. Curran, J. Dibb, S. Doyle, P. Engle, J.
Everitt, B. Frank, R. Green, P. Haley, R. Hedley, B. Hooley, G. Kalwani, M. Kotler, P. Littler, D.
0コメント