Market segmentation tool

Click here for free tools and know-how materials from the Mud Valley™ strategy & brand marketing community.

Question - why should I segment my market?

Answer - most success in strategy and brand marketing is improved by tightening your focus on your target customers and your products & services, so knowing what you aim to sell to whom. By focusing on the best opportunities, you optimise your resources against your opportunities.

Key Action Points

The aim of this tool is to help you segment your target customer base to ensure that you focus your activities on the groups of customers, and potential customers, who are potentially the most valuable to you.

This model works in 3 stages:

1. Segments - define the segments you would consider doing business with
2. Market offer - define the products & services you are offering each of these groups, which leads to…………
3. Market potential - what is the specific financial value (typically sales opportunity) of each customer group, today and potential?
4. Priority - what is:
   • their overall financial value to you?
   • their strategic value to you?
   • your competitive likelihood of winning?

In more detail .........

Segments

We recommend that you define the segments you would consider doing business with using:

• situational
• needs / values / attidutes
• behavioural
• demographic

descriptions. We find that describing the situation the customer group finds itself in is the most discriminating (e.g. planned purchase vs. distress purchase; informal vs. formal event; single decision maker vs. group decision maker etc.).

The needs / values / attitudes descriptor focuses on what they are looking for or, better still, what they really need. These are usually emotional, based on:

• the desire to avoid pain
• the desire to reduce pain
• the desire to increase pleasure

Behavioural descriptors relate to how they behave - how loyal they are, whether they buy frequently or infrequently etc..

Demographics are descriptors such as male/female, age, income, industry type, size of company etc. (this is possibly the least discriminating description, but the easiest to apply and the most commonly used)

Market offer

If you have a wide product/service range, the chances are that not everything is equally attractive to each segment.

Generally, customers do not want a long list of your products/services, only 5% of which is relevant to them. So, applying pareto principles, which are the ones you should spend most airtime on?

Market potential

What is the financial value of each customer group, today and into the future?

This comprises a calculation not only of what is being bought by them from you today, but also:

• what you can win off competition
• increased usage of the product or service
• new use of the product or service from target customers entering the market

Priority

We use a GE matrix model to discriminate between customer groups.

How much you can sell to a target customer group is not the only issue. You also want to prioritise:

• their overall financial value to you, to include profitability, cashflow etc.
• their strategic value to you. Some customer groups may not be worth a lot directly, but they are critical references for other customer groups who are. In other words, there are some customers who are loss-leaders, as well as products, promotions etc.
• your competitive likelihood of winning. To what extent do you have a proposition that this customer group finds differentially attractive. The more attractive you are, the more efficiency you have in your conversion model from awareness to loyal purchase

• Belgium tel: +32 (0)2 747 0945
• France tel: +33 (0)1 76 63 74 09
• UK tel: +44 (0)208 099 7385

or by e-mail at enquiries@mudvalley.co.uk.

© 2005, Mud Valley ™ brand marketing community.

Related answers