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Market segmentation can trace its origins back to the 1930s, when the prevailing theories of perfect competition and pure monopoly no longer seemed to fit the situation. A new monopolistic theory emerged based on the idea that every company was unique in an important way. Each company was able to create its own local monopolistic position by offering a product that was somewhat different from others. This distinction could be based on certain product features, packaging, distribution, or the actual or imaginary value associated with a brand name, for example.

Economists called this process "product differentiation" and came to the conclusion that this resulted in different demand curves for each group of different buyers. The term and concept of "market segmentation" was attributed to marketing consultant Wendell R. Smith. His article "Product differentiation and market segmentation as alternative marketing strategies", published in the Journal of Marketing, vol. 21, 1: pp. 3-8 on July 1, 1956, won the Alpha Kappa Psi Foundation award as the most important marketing article of the year.

The fact that customers have different needs means that we have to organize our marketing efforts so that we can address them individually. Customers and potential customers must be organized into clusters or groups of "similar" types. For example, a carpet / upholstery cleaning company may have private and business customers as customers. These two segments are fundamentally different, with one segment more focused on costs and the other more focused on doing the work with the least disruption to the business. In addition, each of these customer groups is motivated to buy for different reasons and the advertising message must be changed accordingly.

Each company has segmentation criteria that are unique to its industry and the prevailing requirements. These are some of the more ubiquitous ways that markets can be segmented.

• Psychographic segmentation divides individual consumers into social groups such as "Yuppies" (young, up-and-coming professionals), "Bumps" (borrowed, moving forward, professional showoffs) and "Jollies" (jet-setting oldies with a lot of loot). Generation C, which emerged from the Covid 19 pandemic, has recently been added, although it is not surprising that there is hardly any firm agreement regarding its properties. These categories try to show how social behavior influences buyer behavior.

Forrester Research claims that when it comes to determining whether consumers go online or not, how much they will spend, and what they will buy, demographic factors such as age, race, and gender are not nearly as important as consumers' attitudes toward technology. Forrester used two categories: technology optimists and technology pessimists, and used them along with income and the so-called "main motivation" – career, family and entertainment – to split the entire market. Each segment is given a new name – "Techno-Strivers", "Digital Hopefuls" etc.

• Performance segmentation recognizes that different people can achieve different levels of satisfaction with the same product or service. Lastminute.com claims two very special advantages for its users. First, it should offer bargains to people who are attractive because of their price and value. Second, the company has recently placed greater emphasis on the benefits of immediacy. This idea is more similar to the impulse purchase products at the cash registers, which you only thought of buying when you came across them on the way out. Time will tell whether 10 days on the beach in Goa or a trip to Istanbul are the kind of things that people pop into their baskets before they turn off their computers.
• Geographic segmentation arises when different locations have different needs. For example, an urban location may be a heavy user of motorcycle shipping services, but a light user of garden products. However, locations can "consume" both products if they are properly presented. An inner city store may sell potatoes in 1 kg bags because its customers are likely to be walking. A shopping mall outside of the city can sell the same product in 20 kg bags, knowing that its customers will have cars.
• Multi-variant segmentation More than one variable is used here. This can give a more accurate picture of a market than just using one factor.

Here are some useful rules for deciding whether to sell in a market segment:

• Measurability. Can you estimate how many customers are in the segment? Is there enough to offer something "different"?
• Accessibility. Can you communicate with these customers, preferably so that they can be reached individually? For example, you could reach over 50 by advertising in a specialist magazine for older people with reasonable confidence that young people will not read it. So if you're trying to promote Scrabble with 50 percent larger tiles, you might want young people to hear nothing about it. In this case, the product could get an old-fashioned image.
• Open to profitable development. Customers need to have money for the benefits you want to offer.
• size. A segment must be large enough for you to be able to use it, but maybe not so large that it attracts larger competitors.

Segmentation is an important marketing process because it helps to focus more on customers and to divide them into manageable groups. This has far-reaching effects on other marketing decisions. For example, the same product can be rated differently depending on the intensity of customer needs. The post of the first and second class is a classic example. It is also a continuous process that must be carried out regularly, for example when strategies are being reviewed.

Contribution to the Branding Strategy Insider by: Colin Barrow, author of the 30-day MBA in Marketing (Kogan Page)

The Blake project can help: Contact us to learn more about our expertise in segmentation research.

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