In every market customers are different. We can assume that every market is made of different customers and why are customers different? Basically they are different because they expect different things from products and services. When they buy value propositions, they are expecting different value, but we put ourselves in the shoes of the companies, managers, and entrepreneurs, how can we deal with such a difference? How can we serve so many different customers in the market? So one very important strategic decision that a company has to make is market segmentation. That is to say making evidence of that difference and trying to leverage on that difference in order to provide consumers with different value propositions. So the idea of market segmentation is very clear. In the market there are many different segments which are basically groups of customers made by customers which are more similar within the segment and more different from customers within other segments. So the idea of market segmentation is exactly this: grouping customers together according to some similarity. Why is this so? Because at the end of the story, companies should be able to serve different segments of the market with different value propositions. Since different segments are made of customers who expect different benefits and to make different sacrifices when buying products and services, serving these different groups of customers means designing different value propositions which are more effective in satisfying their expectations. So basically market segmentation is a process. When a company starts the process of segmenting a market, it has to go through different steps: The first one is identifying the segmentation criteria. What are the segmentation criteria? Segmentation criteria are exactly the characteristics according to which different customers can be grouped together. Once I identify segmentation criteria, I'm able to build segments. The second step of the segmentation process is customer profiling. What does that mean? It means that once I’ve identified different groups of customers, different because they have different expectations, I can try to identify other variables which can better describe those customers from customers who belong to other sectors. This is called customer profiling. What about the third step? The third step is targeting, that is to say, once I have identified different segments in the market I have to choose which ones I want to sell to. A company can decide to serve the whole market, all of the segments in the market, or it can decide to sell to only a few segments in the market. The point is, what are the segmentation criteria that a company can choose in order to segment the market? Criteria can be very different, they can be linked to the individual characteristics of customers. Let's remember that the question we want to ask is, “Why do customers expect different benefits and to make different sacrifices?” Some of these differences are linked to the differences in individual characteristics of customers. There are demographic features like age, gender, residence, and geography; there are social characteristics like the social networks they belong to, profession, primary social groups, and secondary social groups; there are values, so it can be based on the values that are important in their life. Some are psychological characteristics and traits. Are they introverted or extroverted? Are they innovative or against innovation, maybe they’re very sensitive to innovation or less sensitive to innovation. Are they adverse or prone to risk? There are many different individual characteristics that can be used as segmentation criteria. But the most important one, is the benefits they seek. So basically we can group different customers according to the different weight they give to different combinations of benefits. This is called benefit segmentation. Once I have identified different groups of customers, different segments in the market, according to the different combinations of benefits they seek, then I can add new variables in order to profile those customers. Let's take, for example, the beer the industry. There could be one segment which is very sensitive to taste, I’ll make it very simple, another segment which is very sensitive to convenience, another segment which is very sensitive to the origin and heritage, and another segment which is very sensitive to the quality in terms of matters of production, so you can identify different segments seeking different benefits. The point could be, in terms of customer profiling, what are the distinguishing features of customers who seek convenience? By convenience I mean the combination of price, availability, service. Why are these customers different from other customers? convenience? By convenience I mean the combination of price, availability, service. Why are these customers different from other customers? Maybe it's a matter of age, maybe it’s a matter of income, maybe it’s a metter of expertise, so there are some individual characteristics which can distinguish certain customers from other ones. Once I have identified the segments, I have to choose, so the company has to choose what kind of segments of the market it wants to target. Targeting is, again, another very important strategic decision because when I target a segment I decide what part of the market I want to compete in. Maybe I want to compete in the overall market, I want to compete with some specific groups of customers in the market, or maybe I want to compete on one single segment. This is a decision which is very important for the company. Once it is made it is very difficult to change it in the short term. The point is, how can I decide what segments to target? In this case the most important evaluation to do is assessing the attractiveness of each target customer. How can I have already attractiveness of one single segment. Attractiveness can be evaluated in many different ways but the typical three ways a company is used to evaluating the attractiveness of a segment aree: financial attractiveness, a segment is financially attractive if it is big enough and consistently big with the expectations of the effectiveness and efficiency of the company. It is growing enough, so it's a matter of rate of growth, and so it can allow the company to grow with the segment itself. The potential market is interesting. Customers are not served by many competitors and so from a financial point of view, the investments needed to compete in that segment are not so huge. The second feature is competitive attractiveness, that is to say, an assessment of how fierce is the competition on that segment? So I able could be the company to build a competitive advantage in that segment. How many competitors are competing in that segment? How strong are they? What are the value propositions? Are customers appreciating their value propositions? Are customers loyal to their value propositions? The third thing to be considered in terms of assessment of the attractiveness is the non-financial returns of competing and serving one segment, that is to say, the returns in terms of image for example. If I serve a segment which is recognized as made up of expert consumers, my image as a supplier would be improved or again expert consumers usually expect highly sophisticated value propositions. So if a service certain segment of the market, I can be recognized as a supplier who is able to satisfy highly sophisticated customers. We have only talked about end consumers, but we can also talk about business customers. For example, if I’m a wine producer and I’m able to be in the wine list of top restaurants, this will contribute a lot to my image and to my reputation. On the other side, if I’m only able to serve low end restaurants, obviously my image is consequently affected. The attractiveness can basically be assessed in three main ways: from a financial point of view that is basically what kind of financial returns I can get out of that segment, from a competitive point of view which basically means what kind of competitive advantage can I expect by serving that segment so which kind of market share which kind of sales can I get when I sell that segment, and thirdly and lastly which kind of non-financial returns they can I get by serving that segment? Usually in the food and beverage business there are two most important non-financial returns which are the image of my company and the reputation that a company can get in terms of the competence it has in serving specific segments.