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Value-Based Marketing Segmentation

People are not all the same but want different things is the foundation of marketing segmentation.  We’ve already seen that the first question in developing a marketing strategy is who is my customer. Segmentation is how you begin the answer that question. 

Market conditions and marketing data

If time and budget allow the best way to segment the market is always to invest in some good marketing research, but even when you have the time and money to conduct good research market data alone will not be enough to create a good segmentation.

Grouping people together in useful ways require some creativity and some insight using some basic principles that underly a good segmentation analysis whether it’s conducted with the best data available or conducted with less-than-perfect market data as often happens when firms are under tight timelines or budget constraints.

The context for marketing segmentation

There is no single right way to segment the market, different brands can successfully segment exactly the same market in radically different ways, because segmentation is not a one time prospect. Markets are fluid, new customers come in, existing customers move out, competitors come and go and gain and lose market share.

It’s simply not enough to segment the market once and never return to it again, re-segmenting the market is something you should do periodically.  Segmentation is a great way to identify new opportunities or to fix existing problems. So, when you conduct your segmentation analysis your segments should be both mutually exclusive and collectively exhaustive.

Avoiding mistakes, segmenting by value

Everyone in the market should be in a segment in each segment should be distinct and to the extent possible not overlap with other segments. Here’s where most people make their first mistake the segments that you form should be based on what people value and not based on differences in demographic characteristics.

Not based on age, or gender or geography, but based on what people want and need. In this way you will eventually create demographic profiles of your segments but it’s usually not helpful to start with demographics, even if this idea of segmenting by value and not by demographics is counterintuitive.

Psychographic segmenting

Segmenting people by demographic descriptors alone will not tell you anything about the underlying values that drive their decision-making. If you create segments based on surface differences only you won’t know what to do with the segments when you’re done.

So what’s the alternative? In contrast to demographic profiling using things like age and gender, race and ethnicity, income and ZIP Code, savvy marketers try to create psychographic segments. Grouping people together based on what they value similarities in their psychological needs and desires and in that the images they want to project to the world. These are the similarities that really matter.

Value-based segmentation

This kind of segmentation is harder to do than a demographic segmentation not least because it requires additional information than what was already available in the company’s database. Often this kind of segmentation requires additional marketing research but once you have a value-based psychographic segmentation it’s infinitely more useful.

But, there is no single right way to segment the market but there are wrong ways and demographic segmentation is the wrong way to do it.