When teaching marketing, there are certain topics that a good number of students often struggle to comprehend. For instance, explaining various pricing methods or country restriction when engaging in global marketing can often have an educator looking out on a classroom filled with glazed eyes. Another area that some students find hard to grasp is market segmentation. While a critical component of marketing strategy, explaining the nuisance of slicing big markets into smaller markets, particularly the idea of the “bases of segmentation,” can also be perplexing for students.
One reason for the students’ blank stares when segmentation is discussed is that most marketing textbooks often suggest that to do segmentation correctly requires a time-consuming and expensive marketing research study be undertaken. While students may understand how a big company can do this, they may not see how this can translate to helping smaller companies. And the reason why this is important is that most students learning about segmentation have had little or no exposure to the workings of large corporate marketing department. In fact, if they have worked or had an internship position, there is a good chance this experience has been at a small-to-mid-sized company that does not have the funds to carry out extensive research.
So when discussing segmentation, there is some merit in not only presenting segmentation methods that require a significant outlay of funds but to also explore more affordable methods of segmentation that are practical for smaller companies.
Students should know that a large expenditure on researching markets is not always needed for effectively identifying market segments. In some cases, small-scale efforts at segmentation can offer valuable insights into a market. While the level of segmentation accuracy may not be as strong as what a marketer would get by doing expensive research, smaller efforts can still produce nice rewards.
For this reason, we offer a few additional ways for identifying market segments that may be of use to smaller organizations.
Look at Characteristics of Current Customers
The best low-cost approach for segmentation is to access existing customer history and examine previous purchase patterns. Combining customer purchase history with customer characteristics (e.g., geographic location, customer size, customers’ industries, etc.) may yield clearly identifiable customer groups. In many cases, a marketer may be able to do basic analysis using a spreadsheet program, such as Excel. For instance, some data analysis techniques found in Excel, such as Pivot Tables, Conditional Formatting, and Filtering, may be useful in identifying customer groups.
Check with Others Who Deal with Customers
If customer purchase data is not readily available, another approach is to check to see if customer categorizations have occurred in some way within other areas of the organization. For instance, query sales representatives to learn how they divide up their accounts, ask someone in accounts receivable if customers have been categorized, look for clues in results of past customer surveys or see if the distribution area (e.g., shipping) has a separate way of looking at customers. While information from these areas may not be optimal, it will at least begin the process of thinking about customer categories.
Evaluate Web Metric
For companies operating online, another option for determining segments from customer data is to evaluate behavior using web metrics programs. Though highly sophisticated metrics programs are expensive, installing a free website data analysis tool, such as Google Analytics, provides very good insight into how customers use a website, thus suggesting unique segments. Not only is Google Analytics free, the process for installing it is extremely easy. Its web-interface provides interesting reports, though to get the full power of this tool marketers may need to spend time learning how it operates. A good place to start is with the Google Analytics Help section.
Brainstorm and Role Play
As a final option, marketers can hold an internal market research event that brings together key members of the organization. At this event try several qualitative research methods to encourage discussion that may lead to an “executive judgment” for identifying the key segments an organization serves. Some techniques to consider are: 1) brainstorming where everyone is encouraged to say whatever comes to mind; and 2) role playing where members are asked to take on the role of the organization’s customers. The key point of this exercise is to find issues that are shared by certain customers. Addressing these issues could serve as a point of segmenting the market.
These are just a few ways marketers in smaller organizations can segment markets. Obviously, there are other ways and educators may find that asking students to come up with additional segmentation methods could serve as a useful topic for class discussion.