Measuring a Successful Segmentation
Segmentation is a central aspect of a marketing strategy, and must be constantly assessed, measured, validated, and refined through financial and statistical methods.
LEARNING OBJECTIVES
Recognize the variables involved in segmentation, and how different segments can be measured for profitability
KEY TAKEAWAYS
Key Points
- Selling to the entire market is often less efficient than identifying, filtering, and measuring the performance of various segments to find a preferred market segment, or target market.
- Geographic, demographic, psychographic and behavioral factors are all valid and commonly used starting points for the division of a broader market into segments.
- Once a segment is identified, organizations should consider the measurability, accessibility, sustainability, and actionability of that particular segment. This helps determine if the firm can maintain a strong position within the segment.
- It is also useful to run iterative tests across other potential target markets as a benchmark, justifying (or not!) the decision to pursue a given segment.
- From a practical point of view, all of this should allow the firm to determine if a given segment is profitable in the long term and optimal compared to other ways to segment the market.
Key Terms
- segmentation: The process of identifying different consumer groups within a broader market, focusing on identifying the ideal segments for a marketing plan.
Segmentation
Strategically speaking, trying to sell to the entire market is often less efficient than identifying, filtering, and measuring the performance of various segments to find a preferred market segment, or target market. When pursuing the ideal target market(s), a key success factor is the ability to measure successful and unsuccessful segmentation attempts.
Measuring Market Segments
When measuring different market segments, there are countless variables organizations can consider when developing a marketing plan. Geographic, demographic, psychographic, and behavioral factors are all valid and common starting points for the division of a broader market into segments, based on variables like age, gender, buying behavior, culture, location, values, climate, spending power, marital status, profession, education, and religion.
Demographic Segmentation: When measuring market segments, variables can be utilized visually to identify specific target segments within a population.
By dividing the population based upon segments such as these, organizations can begin to consider how each variable impacts the likelihood of an initial purchase and/or repeat purchases over a given period of time. This allows the qualitative variables above to begin accumulating quantitative data points, which helps organizations look at trends in the past to predict or forecast future outcomes.
For example, a shoe manufacturer finds that the likelihood of turning an advertisement online into an online purchase is 50% higher with females between the ages of 18-30 than with males in the same age bracket. Similarly, the shoe manufacturer notices that specific cities with relatively mild climates convert 25% more often than cities with extreme climates. As a result, a segment is developed for young females in those cities. Instead of paying for advertising across an entire market, the organization can spend significantly less capital and procure a much better success rate on marketing efforts.
Determining Successful Segmentation
Once segments are identified, the organization should be investing enough into each segment to procure meaningful data on performance. As each segment is a small piece of a broader market, it’s useful to carefully consider if the organization is focusing on the ideal consumer group. There are four useful characteristics to consider when measuring segmentation:
- Measurability – First and foremost, the segment itself should be easily measured. This means that information is available on the overall market potential (size of the market), as well as the competitive position of the companies competing for market share.
- Accessibility – Firms must also be able to communicate directly with key consumers in order to understand their core segment and tell the brand story.
- Sustainability – Overall profitability must be proven in a given segment in order to successfully do business. Long-term potential sustainability can be measured based on past consumer behavior coupled with the organizational ability to produce products at the right price.
- Actionability – Finally, the firm should be able to produce a competitive advantage within this particular segment. There should be actionable opportunities for the organization to build a strong and differentiated position within the segment.
If each of these attributes are measurable, the firm can look at a few key statistics of the marketing plan to determine if a given segment is sustainable. Most notably, the organization should be able to generate a strong position within the segment, where the overall remaining profit after a sale exceeds the cost of production alongside the cost of the marketing expenses required to get the product in front of the target market.
The organization should also run careful, iterative tests across other potential target markets as a benchmark. This allows the organization to directly see the value of working with a given segment (compared to other potential segments).
Marketing Strategy and Segmentation: A business plan integrates with the marketing strategy. The above table shows relevant metrics and considerations when identifying key segments.