Mkt Segmentation Guide #8

Each product category has its own unique segmentation solution.

One can’t take a segmentation solution for automobiles and apply it to the soft drink category.  Nor can one take a segmentation solution for breakfast cereal and apply it to deodorants.  Each product category has its own uniqueness in terms of consumer behavior.

There are some research suppliers who have syndicated overall segmentation schemes for consumers across all product and service categories.  These research suppliers are competent; their overall segmentation schemes probably describe the aggregate behavior of consumers across all product and service categories.  The problem, however, is that consumer behavior varies by product or service category.  Thus, while this syndicated research may describe the aggregate behavior of consumers across all product and service categories, it fails to describe consumer behavior in any given product or service categories.  If you have access to such research, use it to assist you in your understanding of consumer behavior.  However, remember that it is not directly applicable to your product or service category.

Mkt Segmentation Guide #7

In business-to-business categories, segmentation can be accomplished by studying the different types of customers.

Unlike consumer markets, you can study customers in business-to-business product categories and determine what the segments are.  The motivation of businesses is economic in nature.  It isn’t difficult to understand.  A business wants to make money, and marketers satisfy that need by either assisting the customer in reducing their costs or increasing their revenue.

Moreover, businesses of the same size in a given industry tend to have very similar operating profile.  As an example, once you’ve documented the operating profile of a large, long-haul trucking operator, the operating profile of other large, long-haul trucking operators is going to be very similar.

Because of the lack of behavioral complexity in businesses, business markets tend to be segmented along easily understood characteristics such as application of the product, size, extent of usage, industry, etc.  Anderson and Narus, in their Business Market Management: Understanding, Creating, and Delivering Value, encourage business-to-business marketers to consider what they call “progressive bases of segmentation” in addition to the more conventional bases of segmentation.  These include customer sophistication regarding the marketer’s product category, the degree of vertical integration, contribution to the supplier’s profitability, etc.

Mkt Segmentation Guide #6

In consumer goods categories, segmentation can only be accomplished by rigorous marketing research.

Market segments are the result of differing wants/needs within different groups of consumers.  One can’t have a conversation with a few consumers and determine what wants/need motivate their behavior in a product category.  It takes research.  Consumer markets are large.  One would never be able to talk to enough consumers to generalize about the consumer market overall much less to generalize about the segments within that overall market.  It takes consumer research.

The typical consumer segmentation study probes all aspects of the consumer that may contribute to influencing their behavior – product or service category knowledge, attitudes and/or opinions toward the category and brands within the category, prior purchase behavior, personality characteristics, lifestyles, demographics, etc.

One cannot observe consumers in a given product category and determine what segments exist.  You need research.

Mkt Segmentation Guide #5

In business-to-business categories, customers’ wants/needs can change quickly so that segmentation needs to be reviewed periodically.

Demand in business-to-business product categories is “derived” demand.  Business demand is derived from the demand for consumer goods and services.  The automobile industry’s demand for steel and aluminum is derived from the consumer demand for automobiles.  Sometimes one will have to trace the demand for business products and services backwards through multiple suppliers before the demand for a consumer good or service will be evident, but eventually it can be found.

Business markets are smaller than consumer markets.  Thus in many industries, a shift in demand by a few businesses will greatly influence the demand for any given business-to-business product or service category.  This is why business-to-business markets tend to be more cyclical than consumer markets.  For most business-to-business marketers, when sales are good they are very good; but when sales are bad they are very bad.

Mkt Segmentation Guide #4

In consumer goods categories, good segmentation work can last for decades.

Segmentation is based upon differing wants/needs.  Good marketers are able to understand and appeal to the fundamental wants/needs of their target customers.  These fundamental consumer wants/needs do not change rapidly.  People have always wanted a full stomach, shelter, and clothing (physiological needs).  They’ve always wanted to be free of fear of the future (safety needs).  They’ve always wanted companionship (social needs).  People, especially men, have always had self image needs to be satisfied (ego needs).  These needs don’t change rapidly.

Consumers’ wants/needs are usually set early in life and greatly influenced by their parents.  Despite the fact that children tend to rebel in adolescence, consumers end up having wants/needs that are similar to their parents.  Thus, wants/needs can remain relatively constant over multiple generations. 

What changes with more rapidily than consumer wants/needs are marketers’ solutions to those wants/needs.  Using the automobile category as an example, Americans have always loved big vehicles.  There are a couple of explanations for this phenomenon.  Firstly, Americans usually think that bigger is better … in houses, in meals, and in automobiles.  Secondly, Americans tend to be materialistic; we judge ourselves and others by how much we own.  Think of the bumper sticker, “He who dies with the most toys wins.”  We need big vehicles in which to carry our possessions because we are materialistic.  In the 1950-60’s, the typical family vehicle was the big, full sized station wagon.  In the 1970’s, the station wagon was supplanted by the minivan.  Finally, in the 1990’s, the minivan was replaced by the sport utility vehicle.  The fundamental want/need remained the same over this 50 year period; it was the marketers’ solution to the want/need that changed.

Of course, there can be events in the marketing environment which cause rapid shifts in consumer demand.  The two gasoline shortages of the 1970’s caused a shift from the traditional large American car to smaller, more fuel efficient models.  The high gasoline prices of prices of 2008 also shifted consumer demand to smaller, more fuel efficient models.  Once the gasoline shortages of the 1970’s were over and the high prices of 2008 declined, consumers reverted back to larger vehicles which was really what they wanted in the first place. 

Mkt Segmentation Guide #3

Price is not a segmentation variable.

Remember from Marketing Guide #1 that markets are always people and thus market segments always consist of different groups of people. 

One will sometimes see market segments being described as being “high price/mid price/low price.”  This is unfortunate as price is not a people, human characteristic.  Have you ever met a person whom you would describe as being a “high price person” or a “low price person”?  I hope not or you’re doing something illegal.  Price is not an appropriate descriptor of a person.  Thus, it is not an appropriate basis for defining nor describing market segments.  Pricing is a tactical marketing activity.  Pricing is something the marketer does.

Admittedly, there is a consumer characteristic that is related to marketers’ price point, and that is price sensitivity.  Some consumers have a high degree of price sensitivity, meaning they want low prices; while others tend to have low price sensitivity, meaning they will accept higher pricing.

If you find yourself in a situation where a marketing researcher has submitted to you a market segmentation scheme where price sensitivity is one of the segment-defining characteristics, ask the researcher what is driving price sensitivity?  It has been my experience that there tend to be two drivers of price sensitivity: (1) demographics and (2) attitudes.

Demographic drivers of price sensitivity include low income.  Closely correlated with low income are down-scale occupations, low educational, and age with younger consumers being less affluent than older consumers.  Thus, there tends to be a series of demographic characteristics which drive price sensitivity.  Note that demographics do not define market segments (review Marketing Guide #2). Wants/needs and behaviors – such as price sensitivity -- define market segments.  Then demographics are used to describe the segment.

The attitudinal drivers of price sensitivity revolve around how customers view your product category.  If some customers believe that there are distinct differences between the brands in your category, those customers will have less price sensitivity.  You’re your vantage point there may be great difference between brands in your product/service category, but that doesn’t matter.  The issue is whether consumers believe there is a difference.  If they do, then some are going to pay the premium to get the best.  If other consumers view all brands as being basically the same then the category is tending toward commodity status for those consumers. They will have higher price sensitivity and will not be willing to pay a premium to get a particular brand. 

Mkt Segmentation Guide #2

Marketing Guide #2:  Markets are always people so market segments always consist of different groups of people.

Extension:  Your firm and your competitors do not make up the market; you serve the market. 

Extension: The different types of products that you market do not constitute different market segments.

It’s not often in marketing that one speaks in absolutes and uses the word “always”, but I can’t think of an exception to this marketing guide … markets are always people.   

What about business-to-business you ask?  I may be stretching the guide a little.  Yes, the prospective businesses for a given product or service constitute the marketing.  However, in those businesses people make the decision on which brands to buy.  A characteristic of business-to-business marketing is multiple buying influence which means that several people often are involved in the purchasing process.  Thus. I’ll argue that even in B2B categories people make up the market.

Marketing textbooks tells us that businesses tend to have one or a combination of three orientations.  (1) A business may be product oriented where it is believed that product features and product quality are the keys to long term business success.  (2) It may be sales oriented where the belief is that profit stems from the firm’s ability to sell product. (3) A marketing oriented firm believes that its mission is to create value for its customers.  If they are successful in creating value, customers will purchase their brand.  It’s the customers purchasing the brand that drives the business; sales and profits are the result of customer purchases.  Some firms demonstrate one of these three orientations.  Technology firms tend to be product oriented.  Some firms are dominated by their sales organization.  Some other firms may demonstrate all of these orientations.  The R&D and manufacturing groups are product oriented; the sales organization is sales oriented; and the marketing group is marketing oriented.

I mention these three business orientations because while marketing oriented firms understand that markets are made up of people, product oriented and sales oriented firms often fall into a trap. 

Product oriented firms often define the market by the varieties of products that make up their product category.  Probably the worst offender of this marketing guide is the automobile industry.  They constantly refer to the SUV segment, the sport compact segment, the near luxury segment, etc.  Thinking that the products you offer each appeal to a different and unique group of consumers will lead your marketing astray.  Marketers in almost all product categories like to group their products into logical groupings.  This, however, is the marketer’s view of the product category; not the customer’s view of the product category.

Sales oriented firms often define the market as themselves and their competitors.  You will find charts and graphs of competitor characteristics such as their product assortments, their customer base, their sales actions, etc.  This over-focus on one’s competitors by a sales dominated organization is understandable.  The salesperson makes a call on a customer; and as he/she walks into the customer’s place of business, the competitor’s salesperson is walking out.  Their view of the world is that business is a battle with the objective being to defeat the competitor.

The problem with defining markets as products or competitors is that these definitions cause marketers to lose their focus.  Marketers’ primary mission is to create value for their target customers, and marketers’ focus should be on their target customers.  Yes, marketers need to be knowledgeable about the varieties of products in their category.  And yes, they need to know what their competitors are doing.  But their focus needs to be on their target customers.

In almost all marketing-decision making, start with your target customer and work backwards to your market offering.  Follow this approach, and you’ll be a good marketer regardless of your background.

Mkt Segmentation Guide #1

Market segments are determined by differences in customers’ wants/needs.


Some marketing textbooks state that markets can be segmented by customers’ demographics, psychographics, geography, etc. This is wrong! What actually creates market segments are differences in target customers’ wants/needs. After the marketer figures out what wants/needs define the various segments, then the segments may be described in terms of demographics, psychographics, geography, etc.



Recognize from my first posts, which served as an introduction to these Marketing Guides, that wants/needs differ in consumer marketing compared to those in business to business marketing. In consumer marketing, wants/needs are internal to the individual; whereas, in business to business marketing, wants/needs tend to be economic in nature.

Using the toothpaste category as an example, some target customers want/need white teeth. Their internal want/need is probably a social need; that is, these target customers want hugs and kisses from attractive people. Once this want/need has been identified by the marketer, then the marketer may describe this segment demographically. The target customers tend to be both male and female; they tend to be 15 to 34 years of age, and they are unmarried. The learning point of this example is that it is the want/need that defines the market segment. Demographics do not define the segment although members of this segment tend to share similiar demographics.