Market segmentation is sorting potential buyers into groups that have common needs and will respond similarly to a marketing action.
A straightforward approach to segmenting, targeting, and reaching a market involves five steps: (a) form potential buyers into segments by characteristics such as their needs, (b) form products to be sold into groups, (c) develop a market-product grid and estimate size of markets, (d) select target markets, and (e) take marketing actions to reach the target markets.
Marketing variables are often used to represent customer needs in the market segmentation process.
Usage rate is an important factor in a market segmentation study. Users are often divided into heavy, medium, and light users.
Nonusers are often divided into prospects and nonprospects. Nonusers of a firm's brand may be important because they are prospects ¾ users of some other brand in the product class who may be convinced to change brands.
Criteria used (a) to segment markets and (b) to choose target segments are related but different. The former includes potential to increase profits, similarity of needs of buyers within a segment, difference of needs among segments, and whether or not a resulting marketing action is possible. The latter includes market size, expected growth, the competitive position of the firm's offering in the segment, and the cost of reaching the segment.
A market-product grid is a useful way to display what products can be directed at which market segments, but the grid must lead to marketing actions for the segmentation process to be worthwhile.
In positioning a product, a company can consider consumer judgments in the form of perceptual maps to locate its brand or product relative to competing ones.
