Analyze This
By Glenn Iwata and Kathy DeBoer

This week your boss says, "Let's do something different, creative ... how about a market segmentation analysis." You swallow hard... and think... "I've heard that term before ... just where are those old marketing textbooks, anyway?" Wait — before you dust off those books and spend countless hours trying to pull it all together — read this easy to understand discussion of market segmentation put together by your pals at WestGroup. Go ahead, read it. We promise it won't bite.

Market Segmentation Analysis

Remember taking a quiz in some magazine and finding out that your score of 58 meant you really should have taken that circus job? A well-executed segmentation analysis provides a more "statistically sound" technique for splitting your marketplace into manageable segments.

Market segmentation is used as a strategic marketing tool for defining markets and thereby allocating resources. Segmentation studies use statistical techniques called factor analysis and cluster analysis to combine attitudinal and demographic data to develop segments that are easier to target. In many situations it is better to identify your target groups and aggressively market to smaller, more defined segments.

From a marketing management viewpoint, market segmentation is the act of dividing a market into distinct groups who might be attracted to different products or services. This technique is widely accepted as one of the requirements for successful marketing. By dividing the market into relatively homogenous subgroups or target markets, both strategy formulation and tactical decision making can be more effective.

Market segmentation is concerned with individual or group differences in response to specific market variables (e.g. preferences, lifestyles, media habits, etc.). The strategic presumption is that if these response differences exist, can be identified, and are reasonably stable over time, and if the segments can be efficiently reached, the company may increase its market share beyond that obtained by assuming market homogeneity.

Example:
WestGroup conducted a segmentation study for the Arizona Lottery in 1996. The objective of the project was to help the Lottery design an effective marketing strategy to maximize the return on their marketing dollars. The study identified six segments of the population (those opposed to the Lottery were excluded from the study).

The segments were identified as Optimists, Critics, Dreamers, Managers, Analysts, and Pessimists. (Click here for detailed definitions of the Lottery segments.) Among the six segments, the Optimists and Dreamers had the greatest frequency of play in the lottery. Thus, based on the demographic information we collected for each group, the Arizona Lottery made a concerted effort to direct their advertising campaigns to members of these segments. Information from the segmentation study helped provide direction for constructing campaign messages, purchasing media that will reach the demographic groups found in the target segments, and identifying the most appropriate media to use.

For final review
Put simply, segmentation is the process of partitioning a market into groups of potential customers who share similar defined characteristics and who are likely to exhibit similar purchase behavior. The key to a successful segmentation strategy is the ability to capitalize on similarities within a segment that are important from a marketing point of view.

If you are interested in learning more about how to apply market segmentation or other techniques to your organization's market research projects, please feel free to call us at 602-707-0050.

References used as background for the definition of market segmentation:

• Kotler, Philip. Marketing Management, 1997, 9th edition, pp. 249-268.

• Lehmann, Donald. Market Research and Analysis, 1989, 3rd edition, pp. 546, 819.

• Crask, Melvin and Fox, Richard and Stout, Roy. Marketing Research Principles and Applications, 1995, pp. 335-351.

NOVEMBER 2000 Answers:
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