Market research and segmentation – Part 2 and 3
Following with my previous post “Market research & segmentation – Part 1“, please find next the second and third chapter of the essay that take care of what is the propper defintion of the market to segment and who are the key decision makers of a segmentation exercise.
CHAPTER 2: A clear and appropriate definition of the market to be segmented – project parameters
The most critical success factor when conducting a strategic segmentation project is understanding the question: “What is the ‘Market’ to be segmented?” This question forms the first step in the segmentation process and requires decisions on two important dimensions: A) The geographic area; B) The product/service range.
A. Determine the geographic area. Keeping it to a single country is a manageable starting point (once you have completed the market segmentation project for one country you can then test the applicability of the resulting segments in other countries). If you want to go beyond a single country then the next guideline is to keep the project’s geographic area within a homogeneous zone, homogeneous in terms of the stage of market development, the available routes to market and the pattern of marketing activity that is found there.
B. Determine the product or service range that will be included. This refers to both your own and your competitor’s products or services. Given that the most appropriate approach to segmentation is to take a customer perspective, then it would also seem appropriate to take a customer perspective when viewing the ‘range’ of products or services to be included in each of the operations.
How do you define the parameters of a customer’s ‘perspective’? The answer to this question once again lies with the customer. When a customer sets out to make a purchase, be it either spontaneous or planned, they have a specific purpose or intended use in mind, based around a need they want to satisfy. There are often many different products or services they could buy to satisfy this particular need, and your company’s offer is just one of them. So, describing the need the customer is looking to satisfy best captures the appropriate range of products or services to be included. This will define the ‘market’ to be segmented.
Understanding this, the next question would be: what’s the ‘Market’ definition? A market is the aggregation of all the products or services which customers regard as capable of satisfying the same need. The scope of the segmentation project should take into account a sensible geographic boundary and a specific need customers are looking to satisfy with their purchase of a particular product and/or service.
Pragmatism. It may be necessary to refine the geographic area and/or the product/service range so that the scope of your project is meaningful in terms of the operator’s capabilities and therefore represents opportunities that are realistically available. Further refinements may be necessary to take into account internal company ‘boundaries’, such as those imposed by company structure, so that the conclusions from the project can be implemented.
CHAPTER 3: Focusing on key decision-makers – market mapping
A crucial decision in any segmentation project is correctly identifying in the market who it is you should be segmenting. This is not always as straightforward as it first appears. A market map will help you make the right decision.
Market mapping is used in market segmentation to help companies identify the target group(s) for their segmentation project and forms the second step in the segmentation process. It also has a number of other important applications, such as tracking changes in the channels to market, presenting your own company’s performance on these routes to market and illustrating where your sales and marketing resources are allocated, which can then be compared with how your key competitors allocate their resources.
The key Issue here is: Who in the market should you be segmenting? The simple answer is to segment those individuals who are the decision-makers, that is those individuals who are really determining which of the competing products and services should be bought.
However, in markets where your products and/or services are accessed by the decision-makers through independently run distribution channels or intermediaries, a successful sales and marketing strategy will require you to:
1. First, understand the requirements of the individuals who determine which offers to buy from the intermediaries (in order to develop the value propositions for the marketplace); and…
2. …Also understand the requirements of the different intermediary segments (in order to develop the value propositions that ensure the intermediaries make your products/services available through them and therefore accessible to the marketplace).
Next Chapter: Insight into how you win and retain different customer groups – market segmentation