Winning marketing strategy requires effective market segmentation. This is because customers in broad product-markets do not have homogenous needs. Nor do they desire comparable benefits. Customers in broad product-markets are more diverse and complex.
When my business clients are under performing, this is often where I look first. Surprisingly, many businesses I come across have applied this broad-brush approach to defining their market. They have erroneously chosen to target broad product-markets. As a result they miss the mark. Customers in these markets are just too diverse and complex to respond to a broad-brush marketing strategy.
To turn my client’s business around and develop a winning marketing strategy for them then becomes dependent on our ability to identify discrete submarkets, or customer segments, that do have homogenous needs and who desire comparable benefits. This will allow my client to leverage their organization’s unique capabilities in providing compelling value to their customer segments by understanding each segment’s needs and desires.
To do this I take my clients back to basics to:
- Help them quickly understand why market segmentation is so important
- Provide them a starting point so that they can immediately begin to conceive how broad product-markets might be segmented to improve the focus and performance of their business.
Focusing marketing strategy with segmentation and positioning
A great resource for this subject is, “Focusing Marketing Strategy with Segmentation and Positioning” Ch. 4, Basic Marketing-A Marketing Strategy Planning Approach 18th ed., (William D. Perreault, Jr., Joseph P. Cannon, and E. Jerome McCarthy). It is one of a number of excellent chapters in this text book.
It provides a practical and easy-to-use approach to segmenting markets.
To illustrate the author’s approach I have changed the fictitious case study presented by the authors to the Premium Hotels in Toronto product-market. (See table below)
The authors recommend a 7-step approach to segmenting broad product-markets into narrower market segments.
1) Select the broad product-market
Premium Hotels in Toronto.
2) Identify potential customer needs
Identify and capture as many relevant needs as possible for all the potential customers in this broad product-market. One way to identify many possible needs is to consider, “Why different people buy the present offerings in the broad product-market.”
3) Form homogenous submarkets—narrow product-markets
It is now possible to start forming submarkets—narrow product-markets— of customers with similar needs and seeking similar benefits. At this stage it is useful to capture the important need dimensions and customer-related characteristics of each submarket.
4) Identify the determining dimensions
“Review the list of need dimensions for each possible submarket segment and then identify the determining dimensions,” These are the dimensions that affect the customer’s purchase of a specific product or brand within a narrow product-market.
5) Name (Nickname) the narrow product-markets—submarkets
6) Evaluate why these submarket segments behave as they do
Consider one more time: “What you know about each segment to see how and why these markets behave the way they do.”
You may find that customers comprising a submarket share many similar but also some slightly different needs. This may mean that they represent more than one possible submarket. Alternatively, two of the submarkets previously identified may comprise customers who share very similar needs and desire the same benefits, in which case these submarkets might be combined and renamed.
7) Make a rough estimate of the size of each submarket
At this step of the process all available sources of secondary demographic data are interrogated to estimate the size of submarkets as a starting point towards estimating their economic potential.
This simple case makes explicit the crucial importance of market segmentation for conceiving a winning marketing strategy.
Validation of market segmentation for conceiving marketing strategy
Clearly, a marketer, seeking to enter the broad product-market, Premium Hotels, would be sadly mistaken to view it as a single homogenous market comprising potential customers with essentially similar needs and sellers offering various close substitute ways of satisfying those needs. Instead, using the author’s approach to segmenting, we are able to identify six specific narrow product-markets that each comprise of customers with homogenous needs and a desire for comparable benefits.
By applying this kind of market segmentation an organization:
- Can choose the customer segments it is best placed to serve given its unique capabilities
- Is better able to recognize which segments represent underserved or unserved submarkets with little or no competition
- Is in a stronger position to create and deliver a compelling value proposition to the customer segments it chooses to serve
And all of that leads to winning marketing strategy.