What exactly do we mean when we say market segmentation? Market segmentation is a term that has different meanings to different functions, departments, and people. Your definition of market segmentation will depend on your own perspective.
This article explains what, in our experience, people mean when they say “market segmentation.”
How is market segmentation measured?
As I’ve described in other posts (see “Using Choice-Based Market Segmentation to Improve Your Marketing Strategy”, market segmentation is typically based on three different types of variables:
- Demographic variables, such as age, income, or gender. I have worked on many market segmentations that involved demographic variables, such as those that identified a target consumer in a particular age range. In business to business settings, demographic segmentations have targeted companies of a particular revenue size.
- Behavioral variables, such as the frequency or volume of purchases. I conducted a market segmentation based on behavioral variables that identified a target segment of consumers who were the frequent users in a particular category.
- Attitudinal variables, such as product needs or interest in a particular category. I have worked on a market segmentation for an insurance company that identified a target consumer group composed, in part, of consumers who were willing to pay to make sure they were well-covered.
Of the three different types of variables for market segmentation, demographic variables tend to be the easiest to understand, easiest to use, and easiest to evaluate. They are relatively inexpensive to evaluate in a market segmentation exercise. They work well with sales forces, because they are relatively easy to evaluate out in the field or over the phone.
By contrast, attitudinal variables tend to be more powerful in their ability to distinguish one segment from another. For example, it may be that two consumers live in similar houses and have similar incomes, yet they may have very different eating habits, risk profiles, or attitudes toward a particular product category.
However, compared with the other types of segmentation variables, market segmentation based on attitudinal variables tends to be more expensive, and yields segmentation frames that are more complex to understand, both in terms of how they were developed and what the segments represent.
Behavioral variables tend to be somewhere in the middle between the two. They tend to be easier to understand than attitudinal variables, but can be more complex to measure than demographic variables.
Which variable is best?
There is no “one-size-fits-all” solution to segmentation. The type of segmentation that is best for your organization depends on a variety of factors, including your budget, the use that the market segmentation will meet, the organizational clients for the market segmentation, and other factors as well.