by Kenneth Rudich
You may recall that market segmentation is about moving away from a one-size-fits-all mentality when it comes to delivering value.
Instead of viewing customers as a single-minded group, all with the same motives and needs, it investigates how motives and needs might differ among them, and how those differences might influence their consumption patterns.
It then divides the larger potential market into smaller groups based on those differences.
The intent is to improve the level and quality of interaction with each group by targeting the value chain components to match up with the customer motives and needs. This can increase both the effectiveness and efficiency of the marketing initiative.
a market segmentation illustration
Here’s a fairly obvious illustration to demonstrate how it works, and what makes it so potentially worthwhile for almost any business venture to consider.
Let’s start with the demand for a canister of mixed nuts that contains an assortment of peanuts, cashews, almonds, Brazil nuts, hazel nuts, beer nuts and pecans. Let’s say sales are brisk and it’s profitable. Let’s also say we’re in the habit of treating customers as one-size-fits-all, and that this is the only product we sell.
What happens if some people want only almonds, or only cashews, or only pecans? Would they be willing to buy the entire mix of nuts to fulfill their desire for, say, almonds? Or would they forgo the purchase due to a lack of value?
Or what if they do want a mix of nuts, but only with hazel nuts, cashews and pecans in it? Perhaps now they’ll buy the canister and then throw away the nuts they don’t want. In this case, the compromise they must make to fulfill their desire will have reduced the value of the product offering.
As you can see from this simple example, the demand for nuts can be divided into target groups or segments based on preferences and motives. It might even be further divided into sub-segments, such as salted versus unsalted, a premium brand versus a generic brand, a large package versus a small package, and so on.
value chain implications
If we evaluate these different desires and motive against the components of the value chain, it becomes apparent there’s an opportunity to improve the match between the demand for nuts and what is being offered. The one canister of mixed nuts tends to under serve the real market opportunity that exists. Potential customers will be lost, and you’ll be inviting competiton from others who will gladly fill that gap while also trying to win customers away from you.
Perhaps the ideal solution is to put bins of nuts separated by category on the store floor so customers can make their own individual choices. If allowed to fill their own container, they can get the nuts they specifically favor in the desired amounts they want. This relates to the concept of modular thinking and how it supports mass customization.
But not many stores can afford to give up such an allotment of space for nuts. So you may have to work around a distribution channel constraint (i.e., shelf space) by pre-packaging the nuts in a manner that still matches up better with the targeted needs and desires than does the current single canister of nuts.
Perhaps you’ll face other value chain implications and need to address them as well. Or maybe you’ll have detected something during the course of a market opportunity scan that unlocks a hidden opportunity, one that will leave you with a competitive advantage after it’s been executed.
market segmentation for your business
This simple example barely scratches the surface for using market segmentation. But it does illustrate the rationale for considering the possibility of a segmented demand, and for tailoring the product offering to match as closely as possible with motives, needs and desires.
Have you taken the time to consider how market segmentation might apply to the products and services you offer?
In the next post to MSM, I’ll explore another circumstance where a poor response to a market segment opportunity left the door open for an aggressive competitor to come in and seize it.