Issue: What is the ‘Market’ to be segmented?

This question forms the first step in the segmentation process and requires decisions on two important dimensions:

  1. The geographic area;
  2. The product/service range.

A brief discussion about each of these dimensions appears below.

  1. Determine the geographic area.

    Keeping it to a single country is a manageable starting point (once you have completed the market segmentation project for one country you can then test the applicability of the resulting segments in other countries). If you want to go beyond a single country then the next guideline is to keep the project’s geographic area within a homogeneous zone, homogeneous in terms of the stage of market development, the available routes to market and the pattern of marketing activity that is found there.

  2. Determine the product or service range that will be included.

    This refers to both your own and your competitor’s products or services. Given that the most appropriate approach to segmentation is to take a customer perspective, then it would also seem appropriate to take a customer perspective when viewing the ‘range’ of products or services to be included in your project.

    How do you define the parameters of a customer’s ‘perspective’? The answer to this question once again lies with the customer. When a customer sets out to make a purchase, be it either spontaneous or planned, they have a specific purpose or intended use in mind, based around a need they want to satisfy. There are often many different products or services they could buy to satisfy this particular need, and your company’s offer is just one of them. So, the appropriate range of products or services to be included is best captured by describing the need the customer is looking to satisfy. This will define the 'market' to be segmented.

    ‘Market’ definition

    A market is the aggregation of all the products or services which customers regard as capable of satisfying the same need.

    To arrive at a market definition, complete the following sentence (avoiding the use of specific products or services):

    The customer need is to . . .

Conclusion: The scope of the segmentation project should take into account a sensible geographic boundary and a specific need customers are looking to satisfy with their purchase of a particular product and/or service.

Pragmatism

It may be necessary to refine the geographic area and/or the product/service range so that the scope of your project is meaningful in terms of your company’s capabilities and therefore represents opportunities that are realistically available to you. Further refinements may be necessary to take into account internal company ‘boundaries’, such as those imposed by company structure, so that the conclusions from your project can be implemented. Further discussion about product/service range capabilities and company structure considerations can be found on the refinements page.

Comprehensive guidelines on how to determine the scope of a segmentation project can be found in Chapter 4 of Market Segmentation: How to do it and how to profit from it (2012 edition published by John Wiley & Sons, ISBN 978-1-1184-3267-9).