Needs-Based Market Segmentation, still the bedrock of business success

There is a widely held belief that new media and changing patterns of behaviours have made traditional market segmentation irrelevant.  They haven’t, nor will they in future.  These are feeble excuses from lazy and incompetent marketing departments, who fail to use the tried and tested process of needs-based market segmentation to understand these new consumer behaviour patterns.  Given the current fearsome economic circumstances, this is one of the biggest challenges and opportunities we face if we are to survive in a fast-changing world.

A whole edition of the Journal of Marketing Management in 2009 was devoted to market segmentation, discussing issues such as what segmentation bases to use, such as size of purchase, customer characteristics, product attributes, benefits sought, service quality, psychographics and, more recently, with the advent of relationship marketing, one-to-one.  Such debates always have been largely irrelevant and ‘production-orientated’.  For example, it is clearly nonsense to segment on the basis of socio-economics demographics, geodemographics and the like.  Other than at a very high level of aggregation, not all As behave the same, Nor do all 18-24 year old women, nor does everyone in a specific geographical area.

The justification for saying this is that anyone who says “We segment markets by …..” is totally missing the point.  First any market has to be correctly defined in terms of needs, the very opposite of “we’re in the pensions market”, as a pension is only one of many ways of satisfying the needs for retirement income.  Remember what happened to IBM then they defined their market as mainframes, Gestetner who defined their market as duplicators, Kodak who defined their market as cameras and film and Nokia who thought they were in the phone market.  The history of commerce is replete with failed companies who defined their market in terms of what they sold rather than the needs to be satisfied.

Secondly, any market consists of 100 per cent of what is bought, where it is bought, how it is bought, who buys it, how it is used and why it is bought and used in these ways.

Needs-based market segmentation, as spelled out in detail in my book, Market Segmentation: how to do it; how to profit from it, is a simple step-by-step process, which space doesn’t allow to be spelled out here.  Suffice to say that the correct methodology for segmenting markets has always been to understand the many different actual purchase combinations that take place in a market.  Typically, the resulting micro segments are all actual purchase behaviours and there are usually as many as 40 of these in any market.

Since most companies can only deal effectively with up to 10, a simple clustering routine is used to bring together those micro segments that share approximately the same needs. The figure below is a fairly typical output from a robust, needs-based segmentation of buyers of information technology process. From this it can clearly be seen that unless the attitudes, needs and behaviours of these different segments are understood, most forms of selling and communication are likely to be wide of the mark, hence the research observation of the Marketo research project (Insights from 2,000 global consumers and marketers. “The state of engagement” “Most marketers broadcast identical messages across all channels and irrelevant content is the number one reason consumers don’t respond”

Market Segmentation

 

A propos the issue of whether new channels, new media (such as i-tunes, You Tube, etc.) and subsequent changing behaviours has made traditional segmentation irrelevant, the resounding answer is ‘NO’. This view of the author was confirmed in a McKinsey on line article on B2B digital marketing dated 26th July 2016. It said: “A B2B customer will regularly use six different channels throughout the purchase process and two thirds come away frustrated by inconsistent experiences. A customer journey differs by customer segment, with needs and expectations varying at each stage”

Finally, the link between shareholder value creation and needs-based market segmentation has been firmly established during 50 years of research.

REFERENCES

  • Jenkins M, McDonald M ( 1997 ). Market segmentation: organisational archetypes and a research agenda. European Journal of Marketing, vol 31, no 1 ( pp 17-30 )
  • Smith W ( 1956 ) Product differentiation and market segmentation as alternative marketing strategies, Journal of Marketing, vol 21, July,( pp 3-8 )
  • Wind Y ( 1978 ) Issues and advances in segmentation research. Journal of Marketing Research, vol 15 ( pp 317-337 )
  • Bailey c,Baines P, Wilson H and Clark M, Segmentation and customer Insight in cotemporary services marketing practice: why grouping customers is no longer enough. Journal of Marketing Management, vol 25 nos 3-4 ( p228-251 )
  • Coviello N (2002 ) Brodie R,Danacher P andJohnston W  How firms relate to their markets: an emoirical iexamination of contemporary marketing practice Journal of Marketing, vol 66, no 3 ( pp33-46 )
  • Rigby d, Reicheld F, Scheffer P Avoid the four pitfalls of CRM. Harvard Business Review vol 80 no 2 ( pp 101-109 )
  • Wilson H, Daniel e,and McDonald M ( 2002 ) Factors for success in relationship marketing. Journal of Marketing Management, vol 18, no ½ ( pp 199-218 ) Christensen C,Cook S and Hall T ( 2005 ) Marketing malpractice: the cause and the cure. Harvard Business Review vol 83 no 12 December, ( pp 74-83 )
  • Yankelovitch D ( 2006 ) Rediscovering market segmentation Harvard Business Review vol 84 no 6 February ( pp 122-131)

 

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