Market Segmentation
We help organisations to achieve a competitive advantage by adopting targeted marketing strategies that focus on objectively defined customer groups.
What is segmentation
Segmentation is also referred to as ‘cluster analysis’ which describes a group of techniques whose purpose is to group members of the target audience based on characteristics that they possess. These characteristics may reflect different needs, behaviours or attitudes. The end result is that each member of a defined group is very similar to others within the same group and different from those in other groups.
How do we help?
We examine the data to objectively determine differences and similarities that individuals display, and therefore the extent to which they can be placed into distinct groups. The overall objective is to achieve a number of clusters that each display high homogeneity of those within each group while maximising the heterogeneity between groups.
The process is often referred to as more of an ‘art’ than science and it is true that segmentation involves decisions around the appropriate number of clusters to form, and therefore how clusters themselves may be grouped. This means that there a number of pitfalls and challenges associated with market segmentation and to help overcome these, we ensure that the final cluster solution is based on both objective and subjective considerations.
What is our approach?
Firstly, we work to understand the marketing issue and what the client organisation is striving to achieve, together with the practical constraints that exist. It is only then that we develop questions that will be used to differentiate the target audience. This is a critical step since the relevance and usefulness of the resulting clusters is dependent on all the important differentiating measures being included.
Defining the number of clusters then involves examining the outputs from different cluster solutions while also considering the practicalities. Overall, we aim to achieve clusters that genuinely represent unique groups that will respond in a similar way to a given marketing message or offer. Stated differently, we aim to minimise the variation within each group, while simultaneously maximising the variation between groups. This is illustrated in the diagram below:
Finalising market segments
Once segments have been developed, we ensure that these are practical, believable and represent groups that the business can market itself to.
In finalising the market segments there are a number of tests that we apply:
1. Ensure that the segments are believable. It is important that these resonate with the wider organisation and that the segments are genuinely able to be targeted.
2. Avoiding a narrow focus. While segments may be presented or conceptualised as distinct groups, the reality is that this is seldom the case and it is more common for there to be overlap between the groups. This may have implications for the design of targeted campaigns.
3. Making it real. Segments need to be quantified in terms of market potential considering size of the opportunity and likely response or uptake.
Other areas of expertise
