Not all consumers are looking for the same thing in a product or service.

Some consumers are looking for

the best overall value while others are looking for the absolute lowest price.

Some are looking for a specific feature that they

value above anything else and that could be price.

In our beer example,

we saw that there is a group of consumers who

prioritize good taste more than overall value.

In marketing, we want to group

these consumers together so that we can be more efficient about

targeting specific consumers and making

the best use of the marketing resources we have available to us.

In this lesson, we'll define this grouping of consumers as segmentation.

By the end of this lesson,

we'll also be able to discuss how segmentation can be

useful and explain how segments are visualized.

Segmentation is where you group customers who are similar together.

So what this means is that,

if you find that some customers are similar along

characteristics that are relevant

to the product that you're launching into the marketplace,

or the product that you're selling right now,

then you want to try and put them all together because

this allows you to better target your product and marketing.

The key point of segmentation is not just so you can

group customers who are similar along certain characteristics together,

but rather so you can design products or design your marketing instruments such

as mailings or TV ads to target the preferences of these group of customers.

For example, if you think about laundry detergent in the marketplace,

you have standard detergents but then you also have detergents with varying sense,

and varying packet sizes,

and of varying types like powder or liquid.

Now, the reason for that,

is because there are people who prefer a different sense or different types of product.

And so, if you find that there are large enough segments of individuals who

prefer lavender scented detergent to your unscented detergent,

or who prefer unscented detergent to lavender scented detergent,

then you'll want to design products that meet the needs of these groups of individuals.

So segmentation is really this idea of grouping customers into a few clusters.

This grouping can occur along multiple variables and

these variables are generally known as segmentation basis.

Now, the advantage of this,

is that it breaks up your mass market.

So for example, the market for detergent is basically

everyone because everyone needs laundry detergent to wash their clothes.

So you could enter the market by designing just one product

but chances are pretty likely that you're not going to satisfy the entire marketplace.

And that's why, there are always dozens of

laundry detergent brands with different options at any store hence,

you would want to have more targeted offerings.

For example, you could have different size of

detergents or use different types of

detergents that meet the needs of individuals better.

Segmentation schemes are usually useful when

you have people in different segments who behave differently towards

the products and especially when you need

different marketing elements to reach

these different segments and tell them about your product.

You should also know that

the segmentation process makes use of both primary and secondary data.

For example, your price, packaging,

or scent may need to be changed or your marketing tactics may need to change.

And it's important to understand that people within

these segments tend to behave similarly.

So with segmentation, you can target different customer segments,

or you can create different product designs to match customer taste,

or you could offer different sales, promotion,

advertising to these varying segments

based on how you think they might respond to the offer that you intend to put out.

Take a look at this graphic which represents what segments could look like.

The type of data, which was primary and secondary as we talked about earlier,

that you would collect is similar to what we saw in the example earlier.

For example, let's say you are offering

a particular coupon and you want to target it to a very particular segment,

then people in each segment might behave

differently towards that coupon in terms of their preferences.

That is, you might get different responses

from different segments for the same coupon then,

you would identify the factors that are important.

So it's the same concept where you have to

know your segmentation basis and you group them

into a small set of factors that allows you to

plot the population respondents along these factors.

For example, you could have factor one and factor

two and you have individuals distributed.

Some high in factor one, some high in factor two and

you have a few in between who prefer a combination of factor one and factor two.

And so, a key thing to understand segmentation is

that when you segment your population in this way,

you'll have high similarity within groups and high dissimilarity between groups.

Okay. In the next lesson,

we are going to go over

some specific segmentation techniques, methodologies and benefits.

Market Segmentation

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