Marketing Insights From a to Z: 80 Concepts Every Manager Needs to Know

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Marketing Insights from A to Z

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to the ultimate segmentation scheme, 
segments of one
, namely indi-
vidual customers.
Today more companies are guilty of undersegmentation than
oversegmentation. They imagine more high-potential prospects for
their offerings than really exist. The antidote is to divide the market
into several levels of potential. The first level consists of those cus-
tomers who would be the most responsive to the offering. This
group should be profiled in terms of their demographic and psycho-
graphic characteristics. Then a secondary group and a tertiary group
should be defined. The company should then focus its initial selling
on its primary prospects; if they don’t respond, the company either
has mis-segmented or its offering is of little interest.
Segments can be identified in three ways. The traditional ap-
proach is to divide the market into 
demographic groups
, such as
“women between the ages of 35 and 50.” This has the advantage of
ease of reaching this group. Its disadvantage is that there is no reason
to believe that women in this group have similar needs or readiness
to buy. Demographic segmentation is more about identifying a pop-
ulation
sector
than a population 
segment
.
The second approach is to segment the market into 
need groups
,
such as “women who want to save time in shopping for food.” This
is a clear need that can be met by a number of solutions, such as a su-
permarket taking telephone orders or Web orders that would be de-
livered to the home. The hope would be to identify demographic or
psychographic characteristics of such women, such as being more
highly educated or having a higher income.
The third approach is to segment the market by 
behavior groups
,
such as “women who order their food from Peapod and other home
delivery groups.” This group is defined by their actual behavior, not
just needs, and the analyst can then search for common characteris-
tics that they may have.
Once you identify a distinct segment, the question is whether it
should be managed within the existing organization or deserves to
Segmentation
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be set up as a separate business. In the latter case, Nirmalya Kumar
calls it a 
strategic segment
. For example, food companies such as Kraft
and Unilever focus primarily on their retail sales and only secondarily
on food service systems. But food service requires different quanti-
ties, packages, and selling systems. It is a strategic segment and
should be run independently of the food retailing group and manage
its own strategy and requirements.