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Market Segmentation

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Market Segmentation This document prepared and presented by

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Market Segmentation

The purpose for segmenting a market is to allow your marketing/sales

program to focus on the subset of prospects that are "most likely" to

purchase your offering. If done properly this will help to insure the

highest return for your marketing/sales expenditures. Depending on whether

you are selling your offering to individual consumers or a business, there

are definite differences in what you will consider when defining market


Category of Need

The first thing you can establish is a category of need that your offering

satisfies. The following classifications may help.

For businesses:

Strategic - your offering is in some way important to the enterprise

mission, objectives and operational oversight. For example, a service

that helped evaluate capital investment opportunities would fall into

this domain of influence. The purchase decision for this category of

offering will be made by the prospect's top level executive management.

Operations - your offering affects the general operating policies and

procedures. Examples might be, an employee insurance plan or a corporate

wide communications system. This purchase decision will be made by the

prospect's top level operations management.

Functional - your offering deals with a specific function within the

enterprise such as data processing, accounting, human resources, plant

maintenance, engineering design, manufacturing, inventory control, etc.

This is the most likely domain for a product or service, but you must

recognize that the other domains may also get involved if the purchase

of the product or service becomes a high profile decision. This purchase

decision will be made by the prospect's functional management.

For the individual consumer:

Social Esteem or Pleasure - your offering satisfies a purely emotional

need in the consumer. Examples are a mink coat or a diamond ring. There

are some products that are on the boundary between this category and the

Functional category such as a Rolex watch (a Timex would satisfy the

functional requirement and probably keep time just as well).

Functional - your offering meets a functional requirement of the

consumer such as a broom, breakfast cereal or lawnmower.

Segmentation of Needs

Then you should establish what the need is and who is most likely to

experience that need. Your segmentation will be determined by a match

between the benefits offered by your offering and the need of the

prospect. Some "need" categories for segmentation include:

Reduction in expenses

Prospects might be businesses that are downsizing (right sizing),

businesses that have products in the mature stage of their life cycle or

individuals with credit rating problems.

Improved cash flow

Prospects might be businesses that have traditionally low profit

margins, businesses that have traditionally high inventory costs or

individuals that live in expensive urban areas.

Improved productivity

Prospects might be businesses that have traditionally low profit

margins, businesses that have recently experienced depressed earnings or

individuals with large families.

Improved manufacturing quality

Prospects might be businesses with complex, multi-discipline

manufacturing processes.

Improved service delivery

Prospects might be service businesses in highly competitive markets,

product businesses requiring considerable post-sale support or

individuals in remote or rural areas.

Improved employee working conditions/benefits

Prospects might be businesses where potential employees are in short


Improvement in market share/competitive position

Prospects might be new entrants to a competitive market.

Need for education



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