Segmentation: Criteria for Evaluating Segments

Segmentation means to divide the marketplace into parts, or segments, which are definable, accessible, actionable, and profitable and have a growth potential. In other words, a company would find it impossible to target the entire market, because of time, cost and effort restrictions. It needs to have a ‘definable’ segment a mass of people who can be identified and targeted with reasonable effort, cost and time.

Once such a mass is identified, it has to be checked that this mass can actually be targeted with the resources at hand, or the segment should be accessible to the company. Beyond this, will the segment respond to marketing actions by the company (ads, prices, schemes, promos) or, is it actionable by the company? After this check, even though the product and the target are clear, is it profitable to sell to them? Is the number and value of the segment going to grow, such that the product also grows in sales and profits?

Segmentation takes on great significance in today’s cluttered marketplace, with thousands of products, media proliferation, ad-fatigue and general economic problems around the world markets. Rightly segmenting the market place can make the difference between successes and shut down for a company.

Segmentation allows a seller to closely tailor his product to the needs, desires, uses and paying ability of customers. It allows sellers to concentrate on their resources, money, time and effort on a profitable market, which will grow in numbers, usage and value.

Criteria for Evaluating Segments

There are following criteria for an effective segmentation:

1. Measurable and Obtainable

The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data.

It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important especially for demographic and geographic variables. For an organization with direct sales (without intermediaries), the own customer database could deliver valuable information on buying behaviour (frequency, volume, product groups, mode of payment etc.).

2. Relevant

The size and profit potential of a market segment have to be large enough to economically justify separate marketing activities for this segment. If a segment is small in size then the cost of marketing activities cannot be justified.

3. Accessible

The segment has to be accessible and servable for the organisation. That means, the customer segments may be decided considering that they can be accessed through various target-group specific advertising media such as magazines or websites the target audience likes to use.

4. Substantial

The segments should be substantial to generate required returns. Activities with small segments will give a biased result or negative results.

5. Valid

This means the extent to which the base is directly associated with the differences in needs and wants between the different segments. Given that the segmentation is essentially concerned with identifying groups with different needs and wants, it is vital that the segmentation base is meaningful and that different preferences or needs show clear variations in market behaviour and response to individually designed marketing mixes.

6. Unique or Distinguishable or Differentiable

The market segments have to be that diverse that they show different reactions to different marketing mixes. If not then there would have been no use to break them up in segments.

7. Appropriate

The segments must be appropriate to the organization’s objectives and resources.

8. Stable

The segments must be stable so that its behaviour in the future can be predicted with a sufficient degree of confidence.

9. Congruous

The needs and characteristics of each segment must be similar otherwise the main objective of segmentation will not be served. If within a segment the behaviour of consumers are different and that they react differently, then a unique marketing strategy cannot be implemented for everyone. This will call for a further segmentation.

10. Actionable or Feasible

It has to be possible to approach each segment with a particular marketing programme and to draw advantages from that. The segments that a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel and capability to take them all. Hence, depending upon the reach of the company, the segments must be selected.

11. Some general considerations

Apart from the above-mentioned characteristics, the segment must have some other features:

• Growth potential
• Profitable
• Less risk prone
• Less competition intensive