In this session, we are gonna discuss the importance and methods of market segmentation, one of the most important aspects of marketing strategy. S-T-P, segmentation targeting positioning, is the foundation of sound marketing strategy. In fact, you could liken it to the backbone of effective marketing strategy formulation. The chances that a high tech company, or to be very honest any company for that matter, will be effected in developing a marketing strategy without getting the S-T-P equation right are slim to zero. That's how important this is. Segmentation targeting positioning. In this particular session, we are going to examine segmentation, in the next two you will examine targeting and positioning. Now first before we go any further, what's the business rationale for market segmentation? Well the most important one is very obvious, being all things to all customers is inept marketing. Why? Because not every customer has a need for what you have to offer. Let's just imagine that I don't like to go to the gym. So if you have a technology based product that allows me to keep track of my fitness on gym machines. Well, guess what? I'm not going to be a candidate for that product because I don't like to go to the gym, so I am not part of your segment pool. The second more, and equally more, important reason is that there is not a single company on this planet that has infinite resources. And because companies have finite resources and skills to satisfy the multitude and varied needs that exist in the market, they have to, by definition, they have to resort to market segmentation. They don't have a choice. Market segmentation helps a company or brand where it stands the best or highest chance of success. Why? Because customers will embrace the company's offering, and because the company gets the highest return for its investment dollars, ROI, return on investment. So those are some business decisions as to why companies absolutely have to invest in market segmentation. The S-T-P process works something like this. First, we stratify the total market, current and potential buyers. Not just current buyers. Current and potential, those that are not buying today but could be buying tomorrow, into groups of customers to meaningfully distinguish between their needs and behaviors. The the idea is to take a total market and partition it into bits, into pieces, so that we can distinguish between their needs and behaviors. Because not everybody has antithetical needs, but everybody behaves the same way. Next, we profile each segment. Third, based on the profile and its relevance to our business, we select the group that is the most attractive, the target market group, or the target group, whatever you want to call it, that has the greatest attractiveness for our business. And finally, we position our product or brand within that target market, within the target market that we select. So more formally, what is market segmentation? I've already talked about it, but it's important to mention it again. It is the process of stratifying the total market, current and potential buyers, into groups of customers. Smaller groups than the total market, using criteria that meaningfully distinguish between their needs and behaviors. That's the end goal. We need to select criteria that would then meaningfully distinguish between their needs and behaviors. The above definition, as you can see, also has the how built into it. How do we segment the market? By selecting criteria that will produce those meaningful differences in needs and behaviors. However, there is a big but, and the big but is this. There is no one right way of segmenting a market. For example, if I was to give you a deck of 52 playing cards. If you are a bridge fan and you are an expert bridge player, you would immediately take the cards and you will stratify or segment it into four segments. Spades, clubs, diamonds, hearts. Why? Because that's how a bridge player approaches cards. But if you're playing poker, that's not what you may want to do. You may want to stratify the 52 cards by face value. Why? Because aces are higher than kings, they have more value. Kings have more value than queens, etc, etc. So now you gonna stratify into 13 segments. Which ones right, which ones wrong? Here is the issue, both are right. There is no such thing as right or wrong, and the same segmentation criteria is unlikely to satisfy different companies. So different companies will select different segmentation criteria depending upon what meets their needs. So, if there is no one right way, well what are the many ways? Here are a few of them. I can segment a market based on organizational demographics, small companies, medium companies, large companies. Why? Because their needs for cloud based information and communication services are likely to be very different. The usage is likely to be very different. Their behaviors are likely to be very different. I can further complicate this and call it, I can also include home based businesses. Okay, and so organizational demographics is one way. Lifestyle or entertainment habits. If I am a gaming company like Blizzard, or like Sony, Xbox, that I might like to segment the market based on lifestyles, or on entertainment habits. How frequently do you play a game, how long do you play a game for, etc. Building type. I am in marketing programmable thermostats. My ability to appeal to customers is going to be very different when I am talking to a residential buyers than when I'm talking to commercial buyers in a commercial building. The benefits sought, okay. Whether am I going for CAD/CAM capabilities? Am I going for big data analytics? Am I going for mobile solutions? Am I looking for a desktop application? All these kinds of issues determine the appropriateness of benefits as a segmentation criteria. And finally, what are the outcomes that I desire? Am I looking for gains in productivity? Am I looking for better scheduling? Am I looking for a swifter response to a crisis like a natural disaster, or an explosion in a plant, or a line breaking down, or stopping, are the manufacturing processes getting impeded by a shortage of raw materials? Things like that. And there are lots of others. But I've only given you a sampling. Okay, now here is an example of segmentation from Cisco, taken from their website, where we just looked at their enterprise and service provider solutions. What they are providing to the enterprise and service provider market. They are providing cloud solutions, data center solutions, Internet of Things solutions, mobility, security, and service solutions. So that's how they segment their market, by enterprise and service provider and then different sizes of business. And within that, they have all these services, but all services may not be offered to all segments. So the question that we have to ask ourselves at the end of the day is that the segments that we came up with, are they useful to us? And a few of the questions that are asked are, are the segments identifiable? Can I understand who lives in which segment? Are they measurable? Can I understand how big is it? Is it accessible? Can I get to them? Because I need to reach them with distribution, with pricing, with communication. Is it big, is it growing? I don't want to be addressing a shrinking market because it may disappear tomorrow. Is it responsive to marketing initiatives? I'm not gonna be very happy if I reduce my price thinking that people will buy more and nobody responds, okay. So that is what is meant by are they responsive to marketing initiatives? Can I defend my position in the segment? Can I actually act on the segments references? And those are some of the criteria that I use to determine whether segments are useful or not. And finally, it's very important to keep in mind that the concepts of customer value and market segmentation are intertwined, they really are one and the same. So here is example from Intel, they have several different types of chips and each of those chips is providing different value. Each of those chips is addressing a different market segment. One is addressing the power segment, people who require a lot of power in a very short amount of time. So, speed, the brute force of a computer. There are others who are looking for security, for mobility. Their needs are going to be very different than the power users needs. In summary, segmentation, targeting, position are the backbone of marketing strategy. Segmentation helps a company focus on the needs of specific customers. There are several ways to segment a market, okay, not just one. There is no one right way of doing it. Demographics is one, lifestyles is another, benefit sort is a third. Whichever basis a company picks should result in meaningful and actionable differences. And the most important thing to remember is that customer value and market segmentation, those two concepts are intricately intellect or irrevocably intellect.
