You go on Facebook, you buy social advertising. And you can very cost-effectively target people who are in the market for your product from all over the world.

Marc Andreesen

… that not all consumers (or customers) are the same. Given that, it is not efficient to market to, or target, the entire population with the same offers or messaging. It then becomes advantageous to “segment” the market, with the segments differentiated by criteria such as attitudes, behaviors, psychographics, needs, or demographics.  

A solid Segmentation solution is signified as one where the segments are homogeneous within and heterogeneous without. That is to say, the consumers in a particular segment look very similar to one another (across the dimensions of interest) while looking very different from those in other segments (i.e. differentiable). Additionally, the final solution should be accessible, meaning future respondents can be typed into the segments with a high degree of confidence and accuracy. While not every segment may turn out to be a prime candidate for the product or service of interest, strong guidance should be given regarding which segments are the most open (or closed) to the marketing objectives. And of course, the final solution should be actionable, with sufficient market size to allow for appropriate marketing programs to be effective.

Analytically there are many ways to develop a Segmentation framework. The most basic of which would be based on something that could just be observed or determined a priori, without any real analysis at all, such as age and gender combinations (or other demographics). A more common approach, however, is somewhat more rigorous. Cluster Analysis techniques (i.e. k-means or hierarchical clustering) place people into groups based on their patterns of answers to specific questions or a similarity of behaviors. Those whose responses are very similar to one another are placed into the same group. Segmentation Analysis is as much art as science, often requiring multiple iterations to reach the solution the best meets the criteria above (differentiable, accessible and actionable.)

Once a Segmentation framework is adopted by an organization, it often becomes ingrained as part of the marketing “culture” and thus included in any future research studies. Any subsequent study can include a subset of questions (based on an algorithm developed using Discriminant Analysis, as part of the initial Segmentation study) that will classify each respondent into the segments of interest, or targets. This is particularly helpful when a client wants to test the attractiveness of a product (advertisement, service offering, etc.) to their targeted consumers.

Given the strategic nature of Market Segmentation studies, they can be extremely valuable to an organization, often resulting in longer term relationships between the client and the research provider. It is for these and other reasons that Market Segmentation development and application fits so well within our ResearchWISE® framework.

~ Marketing Workshop