The segmentation process involves establishing criteria by which groups of customers with similar needs can be identified. These criteria require establishing customer groups with the following characteristics:

  • Customers within a segment respond similarly to a particular marketing mix.
  • Consumers within a segment tend to react distinctly differently from other consumer groups.
  • The group should be large enough to provide the return on investment required by the organization.
  • The criteria used to identify segments must be functional. A small company in the magazine market recently identified a group of customers whose needs were clear. Foreign nationals living in the UK wanted to buy magazines from their home country. The organization's proposed marketing offer is to import magazines from abroad and ship them directly to customers' homes. This was a potential customer group that all responded similarly to the proposed marketing mix. They worked distinctly differently from other groups in the magazine market. This potential segment was large and potentially profitable but the group was difficult to execute. You cannot easily identify foreign nationals because no official organization or foreign organization will give you names and addresses of foreign nationals. The only way to pursue this opportunity is to identify yourself as a foreign national. This can be achieved by attracting customers to respond to a promotional campaign and allowing the organization to build a customer database. However this was likely to be an expensive operation for a small organization and the idea was dropped in favor of other options.

Given the fact that segments must exhibit these four characteristics, the next step is to examine the variables used to usefully segment the market. An understanding of consumer buyer behavior theory is central to the successful development and use of segmentation criteria.


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