Perhaps the most important analytical process of marketing is segmentation. By segmenting the market, one obtains a very clear understanding of customers and ultimately provides a basis for clear and precise targeting and positioning. But segmentation is also very difficult and, especially without customer data, is what I would admit as an art form in marketing.
You can become quite confused about segmentation by reading the popular press, most marketing textbooks, and tons of Internet companies because the term has been used to signify many things.
Typically, you'll find the term segmentation applied to demographics and lifestyles in consumer markets and size, industry, and geography in business markets. On the internet, people use age, gender, etc. for segmentation (or worse yet, confuse segmentation with terms like one-to-one marketing as though people are so unique and share little commonality).
It's all very confusing, but there is a way to make this clearer and the answer lies in the work of Russell Haley (Journal of Marketing, July 1968) who first used the term "benefit segmentation." Also known as Needs-Based segmentation, benefit segmentation is essentially the idea that customers should be segmented on the basis of their needs. Simply put, customers in different benefit segments have different needs.
In previous tutorials, we explained the idea of benefits and tradeoffs so you can use these terms to crystallize the idea of segments having different needs. The different segments allocate their 100 points differently across the various benefits. This allocation results in the needs of different segments clustering around different benefits.
Here is Haley's original segmentation of the toothpaste market. Notice how the segments seek a different cluster of benefits. Again, the segments tradeoff the possible benefits differently.
| The Sensory Segment | The Sociables | The Worriers | The Independents | |
| Principle Benefit Sought | Fruity or minty flavor, product appearance | White, bright teeth | Decay prevention, plaque and gum disease avoidance | Price |
| Demographic Correlate | Children | Young People | Families, Older Consumers | Men, Large Families |
| Behavioral Correlate | ? | Smokers | Heavy users of dental supplements | Heavy users of toothpaste |
| Personality Characteristics | High Self-Involvement | High Sociability | Hypochondriacs | High Autonomy |
| Life Style Characteristics | Hedonistic | Active | Conservative | Value-Oriented |
You could easily imagine that the market for consumers buying on the internet is similarly broken up into four or 5 segments with names like "Music Aficionados", "One-Stop Shoppers", "Techno-Media Types" etc. In fact, recent studies have shown that Internet users break into 6 categories, including "E-bivalent Newbies", "Clicks and Morter", etc.
Two key ideas to note from this chart. First, the labels given to each segment are arbitrary. They are called the segmentation bases and are simply used to label a group of customers who care about a different cluster of benefits.
Second, along the left column you will also see segment descriptors, or things that describe the customers in each segment. These descriptors may correlate with the basis of the segmentation (and if a descriptor is very highly correlated it could be used as a basis for segmentation). In the above example, we can see that maybe life style is highly correlated with the segmentation basis so this could also serve as a good label for the segments.
