Define market segmentation and explain the progressive and conventional bases of Segmentation?

The purpose for segmenting a market is to allow your marketing/sales program to focus on the subset of prospects that are "most likely" to purchase your offering. If done properly this will help to insure the highest return for your marketing/sales expenditures. Depending on whether you are selling your offering to individual consumers or a business, there are definite differences in what you will consider when defining market segments.

Category of Need

The first thing you can establish is a category of need that your offering satisfies. The following classifications may help.

For businesses:

• Strategic - your offering is in some way important to the enterprise mission, objectives and operational oversight. For example, a service that helped evaluate capital investment opportunities would fall into this domain of influence. The purchase decision for this category of offering will be made by the prospect's top level executive management.

• Operations - your offering affects the general operating policies and procedures. Examples might be, an employee insurance plan or a corporate wide communications system. This purchase decision will be made by the prospect's top level operations management.

• Functional - your offering deals with a specific function within the enterprise such as data processing, accounting, human resources, plant maintenance, engineering design, manufacturing, inventory control, etc. This is the most likely domain for a product or service, but you must recognize that the other domains may also get involved if the purchase of the product or service becomes a high profile decision. This purchase decision will be made by the prospect's functional management.

For the individual consumer:

• Social Esteem or Pleasure - your offering satisfies a purely emotional need in the consumer. Examples are a mink coat or a diamond ring. There are some products that are on the boundary between this category and the Functional category such as a Rolex watch (a Timex would satisfy the functional requirement and probably keep time just as well).

• Functional - your offering meets a functional requirement of the consumer such as a broom, breakfast cereal or lawnmower.

Segmentation of Needs

Then you should establish what the need is and who is most likely to experience that need. Your segmentation will be determined by a match between the benefits offered by your offering and the need of the prospect. Some "need" categories for segmentation include:

Reduction in expenses

Prospects might be businesses that are downsizing (right sizing), businesses that have products in the mature stage of their life cycle or individuals with credit rating problems.

Improved cash flow

Prospects might be businesses that have traditionally low profit margins, businesses that have traditionally high inventory costs or individuals that live in expensive urban areas.

Improved productivity

Prospects might be businesses that have traditionally low profit margins, businesses that have recently experienced depressed earnings or individuals with large families.

Improved manufacturing quality

Prospects might be businesses with complex, multi-discipline manufacturing processes.

Improved service delivery

Prospects might be service businesses in highly competitive markets, product businesses requiring considerable post-sale support or individuals in remote or rural areas.

Improved employee working conditions/benefits

Prospects might be businesses where potential employees are in short supply.

Improvement in market share/competitive position

Prospects might be new entrants to a competitive market.

Need for education

Prospects might be businesses or individuals looking for books on business planning, or seminars on Total Quality Management.

Involvement with social trends

Prospects might be businesses concerned with environmental protection, employee security, etc. Or individuals who believe in say 'no' to drugs, anti-crime, etc.

Specific - relating to product/service characteristics

Prospects might be businesses or individuals interested in safety, security, economy, comfort, speed, quality, durability, etc.

Factors that segment prospects

Having determined the more general segmentation characteristics you can proceed to a more detailed analysis of the market. There are literally thousands of ways to segment a market, but the following are some of the more typical segmentation categories.