Segmentation and Valued Customer

In the previous stage, we tried to understand customers. However, customers are heterogeneous and they should be
divided into homogenous groups. The art of classifying heterogeneous groups is called segmentation. Have you heard
an entrepreneur suggesting, Everyone is my target market? Do you agree with this assumption? If not, then
entrepreneurs need to understand that a good segmentation strategy is the only way to know who entrepreneurs should
target and how to do it. For example, if entrepreneurs decide mothers of children ages 5 to 12 with family income of
Rs. 60,000 is their target market, they can determine the best way to promote their products to them. For promotion,
they would select certain magazines, blogs, etc. as per the preferences of their target market.
Once the segmentation analysis is completed, companies have to make the decision, Whom to serve. The most
important questions are, can we serve the segment(s) and would it be profitable? If the answers are affirmative, then
the segment(s) would be the target market for the company. Classification of the target market is the most critical part
of an effective marketing strategy. Therefore, entrepreneurs should be asking some additional pertinent questions1
such as, whether customers are unhappy with all the current offerings of the industry?; whether customers have a need
that is not being served effectively by the industry?; whether customers are unware that they need an offering? If so,
is it possible to communicate to customers about this latent demand?; what is their DMP and who are the most
important DMUs?; what is the growth rate of the target market?
Previously, the segments were identified on the basis of demographic (e.g., age, income, gender, occupation), socioeconomic (e.g., employment status, household income, property ownership, residential area), and geographical (e.g.,
local, regional, national, international) variables. Currently, the most popular segmentation is Psychographic
Segmentation2. It uses psychological factors to classify consumers, such as personality traits, lifestyles, attitudes, and
values. Entrepreneurs can also segment the current buyers on the basis of perceived benefits, usage patterns and rates.
Such segmentation is called Behavioural Segmentation3. In most of the cases, consumers within the same
demographic and geographical segments exhibit different psychographic profiles. Smart entrepreneurs use the
combination of different types of segmentation to develop the exhaustive profiles of customers.
To make segmentation more useful, the groups should be identified on the basis of five key variables4:
1.
2.
3.
4.
5.

The segments should be measurable with respect to their size, purchasing power, and characteristics of the
segments.
The size of the segments should be substantial to be profitable for a company.
The segments should be accessible so that it should be communicated and served.
The segments should be differentiated conceptually and should respond to the offering differently. Otherwise,
they would not be classified as heterogeneous segments.
Companies should be able to develop actionable plans to serve the segments

Figure C shows five segments of burger eaters. The segmentation profiles are bassed on psychological factors.

Adopted from Nirmalya Kumar, Marketing as Strategy. (Boston, MA: Harvard Business School Press, 2004), p. 26.
Adopted from P. Kotler and K. L. Keller, Marketing Management, 14ed (Upper Saddle River, NJ: Prentice Hall, 2012), p. 225.
3
Adopted from P. Kotler and K. L. Keller, Marketing Management, 14ed (Upper Saddle River, NJ: Prentice Hall, 2012), p. 227.
4
Adopted from P. Kotler and K. L. Keller, Marketing Management, 14ed (Upper Saddle River, NJ: Prentice Hall, 2012), p. 231.
2

Figure C:

Profiles of Burger Eaters5

Taste & Freshness Lovers (21%): They can be categorized as

connoisseurs in the domain of burgers. They do not give
importance to price in their decision making and are willing to
pay a hefty amount for burgers they rate high on taste and
freshness. Once clung to a particular burger, they expect the same
experience every time thus favoring standard chef proven recipes
and outright rejecting experimentation and customization.

Condused Burger Easters (14%): They eat burgers because

either they do not have any other option or are influenced by
friends and peers. They have no penchant for burgers in terms of
taste and freshness, neither do they think of it as a healthy food.
Overall, they can be considered as people who least prefer burgers
over other meals.
Conscious Esperimental Eaters (CEE) (44%): They not only
like to eat burgers but also want to try new combination of
ingredients in burgers. These people are health conscious and
want to be in control of what they eat. They do not shy away
from experimentation and are looking for a renewed experience
every time they eat burgers. However despite liking
customization options they remain cognizant of their budget
and avoid being extravagant in their spending. They do not get
fixated to a taste, and will accept different tastes and
experiences every time. Majority of them are students from all
the income groups. Females would be more CEE as compared
to men. They'll be more influenced by word-of-mouth and
social media.
Utility Maximisers (16%): Those who look for good taste and
freshness in burgers and also want the most out of their spending,
fall under this segment. They keep an eye on their budget all the
time and are not interested in customization or health aspect of
their burgers. They are loyal customers and do not easily shift to
new restaurants.

Value for Money Seekers (5%): They consider burgers to be a

true fast food and seek value for money in burgers. For them
internal utility of burgers do not hold much importance in
comparison to its value for money. They always appreciate
greater serving sizes over taste and freshness. They have no desire
of burger customization for health or flavor experimentation
purposes as long as they are getting more than what they paid for.
Exercise 6: Can you identify groups amongst your customers? Which group is the most profitable for you? The group
would be the most profitable if it brings in the most revenue to you at the least cost to you. This is also a chance to
look at new segments people you could be serving that you are not already? Tip: Use Exhibit 6.

The segmentation was development by one of the groups of Consumer Behaviour & Marketing Research MBA course at SDSB, LUMS. The
group used factor and cluster analyses to develop the segmentation.