A segment is where you identify the markets that you might serve. You should describe the market by size, growth and trends, and analysis by customer group—size, function, industry, geography, and other key elements. For example, retailers in Europe with more than 500 employees are considered a segment. A segment can also be loyal IBM customers who have a certain type of application. Some of the key questions to ask are What makes a segment attractive (size, growth, profitability, or others)? Where are the profitable customers? It is a continuous process of reviewing where the marketing is today and where the market is heading. Over two-thirds of best-of-breed companies segment their customer sets.
Determining which parts of the market your company can serve profitably (see Figure 1.5) involves identifying the most attractive customers and what and how they buy. Critical is the business value they require. A key part of segmentation is to review the viability of selected segments with respect to value and the ability to execute. You have to determine which segments you can add real value to and where you can create strategic control points to drive market leadership. What is a strategic control point? It might be an install base, brand, patent, or copyright, or it might be a cost advantage. Depending on your budget and skills, this aspect of defining a market can be done by a research firm. Based on what you are selling, you might need to identify the partners and channels necessary to meet the needs of the target customer segments.
Figure 1.5 Market segmentation.
This approach ensures the ability to execute. Many psychographic profiles are useful for messaging, but somewhat less useful for go-to market decisions. One big test is to think about how real the segment is—meaning, is it too narrow and esoteric? If so, that is a key sign that marketers are being a bit too academic.
However, with the new world, how does this segmentation process get modified? I spoke with one of IBM’s segmentation experts, Steve Gessner, market intelligence principal consultant, to learn more about this crucial task.
First, the act of segmentation and targeting is a fundamental marketing activity. It is the first step of marketing. You must establish targets and how to measure success. This has not changed and will not change. What’s changing is how we answer these questions in the global, electronic, personalized landscape of the future.
Segmentation used to be about segmenting buyers into groups with homogeneous needs, and the fundamentals of segmentation have not changed in 30 years. However, as technology, client insights, and customer expectation regarding personalization have improved during the last ten years, segmentation has followed suit and become less about the practice of fundamentals and more about driving segmentation down to the individual client company and more recently to the individual decision maker within the company.
This “individual segmentation” is a distinct challenge for B2B firms that, in the past, were accustomed to broad demographic segments and generalized targeting, but nowhere is this capability more important than in competition in the globalizing economies. This individual segmentation is moving the practice of segmentation to a new level of capability. Linking specific clients to behavior and needs-based segments has never been more important. This is niche-segmentation, which is the creation of relatively small microsegments with discrete needs and behaviors that can be accurately targeted for both marketing and sales actions. Arranging business value elements against these niche markets is an important capability of enterprises in the twenty-first century.
Another important dimension of segmentation in this new environment is measurability and trackability. Marketing effectiveness has never been more important or received more attention than in the last three to five years. Tools for measuring marketing impact on revenue streams around specific client target spaces are critically important as firms move forward in the global economies. So, not only must these “microsegments” be identified, they also must be measurable and their responses trackable. This is a challenge for firms that have historically created market segmentation definitions that are broad and difficult to measure impact around and are certainly not measurable at the client level.
Finally, the advent of social media marketing is changing the face of what we consider segmentation. Segmentation approaches during the next five years will include attitudinal groupings of buyers in the blogosphere, and firms will determine how to impact such attitudes using techniques and technologies only just being developed. We refer to these segments as blog-segments; influencing them will become a critical component that will accompany the new marketing capabilities required around segmentation in general.