Segmentation

Segmentation is essentially the identification of subsets of buyers within a market who share
similar needs and who demonstrate similar buyer behavior. The world is made up from billions
of buyers with their own sets of needs and behavior. Segmentation aims to match groups of
purchasers with the same set of needs and buyer behavior. Such a group is known as a 'segment'.
Think of you r market as an orange, with a series of connected but distinctive segments, each
with their own profile.

Of course you can segment by all sorts of variables. The diagram above depicts how
segmentation information is often represented as a pie chart diagram - the segments are often
named and/ or numbered in some way.

Segmentation is a form of critical evaluation rather than a prescribed process or system, and
hence no two markets are defined and segmented in the same way. However there are a number
of underpinning criteria that assist us with segmentation:

 Is the segment viable? Can we make a profit from it?

 Is the segment accessible? How easy is it for us to get into the segment?
 Is the segment measurable? Can we obtain realistic data to consider its potential?

The are many ways that a segment can be considered. For example, the auto market could be
segmented by: driver age, engine size, model type, cost, and so on. However the more general
bases include:
  by geography - such as where in the world was the product bought.
 by psychographics - such as lifestyle or beliefs.
 by socio-cultural factors - such as class.
 by demography - such as age, sex, and so on.

A company will evaluate each segment based upon potential business success. Opportunities will
depend upon factors such as: the potential growth of the segment the state of competitive rivalry
within the segment how much profit the segment will deliver how big the segment is how the
segment fits with the current direction of the company and its vision.

The Segmentation Matrix Business Battlemap is a useful segmentation tool. There are two bases for
segmentation. Here we use beer brand versus ages groups. The various products are then plotted on the
matrix. The result is a 'battlemap'.

A Business market segment is a group of people or organizations sharing one or more characteristics
that cause them to have similar product and/or service needs. A true market segment meets all of the
following criteria: it is distinct from other segments (different segments have different needs), it is
homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus,
and it can be reached by a market intervention. The term is also used when consumers with identical
product and/or service needs are divided up into groups so they can be charged different amounts.
These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the
market into smaller groups.

"Positive" market segmentation

Market segmenting is the process that a company divides the market into distinct groups who
have distinct needs, wants, behavior or who might want different products & services Broadly,
markets can be divided according to a number of general criteria, such as by industry or public
versus private although industrial market segmentation is quite different from consumer market
segmentation, both have similar objectives. All of these methods of segmentation are merely
proxies for true segments, which don't always fit into convenient demographic boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to provide a

close match between specific products and individuals. However, a number of generic market
segment systems also exist, e.g. the Nielsen Claritas PRIZM system provides a broad
segmentation of the population of the United States based on the statistical analysis of household
and geodemographic data.

The process of segmentation is distinct from targeting (choosing which segments to address) and
positioning (designing an appropriate marketing mix for each segment). The overall intent is to
identify groups of similar customers and potential customers; to prioritize the groups to address;
to understand their behavior; and to respond with appropriate marketing strategies that satisfy the
different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct

segments can have different industry structures and thus have higher or lower attractiveness
(Michael Porter). With the right segmentation, the right lists can be purchased, advertising results
can be improved and customer satisfaction can be increased leading to better reputation.

Successful Segmentation

Successful segmentation requires the following

 homogeneity within the segment

 heterogeneity between segments
 segments are measurable and substantial
 segments are differentiable
 segments are accessible and actionable
 target segment is large enough to be profitable

Variables Used for Segmentation

 Geographic variables
o region of the world or country, East, West, South, North, Central, coastal, hilly, etc.
o country size/country size : Metropolitan Cities, small cities, towns.
o Density of Area Urban, Semi-urban, Rural.
o climate Hot, Cold, Humid, Rainy.
 Demographic variables
o age
o gender Male and Female
o family size
o family life cycle
o education Primary, High School, Secondary, College, Universities.
o income
 o occupation
o socioeconomic status
o religion
o nationality/race (ethnic marketing)
o language
 Psychographic variables
o personality
o lifestyle
o value
o attitude
 Behavioral variables
o benefit sought
o product usage rate
o brand loyalty
o product end use
o readiness-to-buy stage
o buying center
o profitability
o income status
 Technological segmentation variables
o motivations
o usage patterns
o attitudes about technology
o fundamental values
o lifestyle perspective
o standard of living
o profit is there in business from the existing clients

Personalisation vs segmentation

Personalisation’ is a term very much in fashion at present. It is used by vendors to sell their
products, and promoted by website and intranet managers as a way of delivering a brave new era
of functionality.

Separate from debates regarding the merits and approaches to personalisation, there is
considerable confusion about the meaning of the word itself.

As the use of personalisation spreads, this confusion has grown. Personalisation is now routinely
used for everything from ‘my links’ functionality, to fine-grained targeting of information to
specific staff roles.

The absence of consistent terminology in this space is now causing considerable difficulty for
purchasers of technology, and organisations in general. Without a clear understanding of what is
meant, it is often difficult to assess the value of products, and even harder to measure the success
of personalisation features.
At the risk of introducing still more terminology into this fragmented marketplace, this briefing
will draw a clear line between two separate functionalities:

 Personalisation, whereby individual users can choose or configure what is delivered to them.
 Segmentation, where organisations tailor or selectively deliver information or tools to specific
audience groups.

This briefing will explore each of these categories, hopefully bringing some measure of clarity to
this space.

Personalisation

This covers all situations in which the end user is given the capability to customise or tailor the
features provided, or how information is delivered to them.

This covers simple functionality such as:

 my links
 my documents
 choosing portal elements (’portlets’)

Personalisation also includes richer functionality such as selecting news channels, or setting
preferences in HR and travel systems.

Personalisation (as defined here) is the most commonly implemented functionality, and is often
the simplest to deploy.

Doubts are raised, however, about the degree to which users make use of this functionality, and
simple personalisation can struggle to demonstrate the benefits delivered to the organisation.

Segmentation

Instead of leaving it to end users to configure interfaces, segmentation involves the organisation
more actively tailoring what is delivered to specific groups or roles.

This may include:

 targeting the delivery of individual documents

 providing tailored ‘portals’ for specific groups
 segmenting the whole site by audience

There is a strong argument for benefits delivered by segmentation, particular as a way of

overcoming the ‘information overload’ experienced by end users.
The challenge is, and always will be, the considerable resources that need to be devoted to
planning and managing segmentation, recognising that the responsibility now rests with central
teams to ensure that users are provided the right information.

For this reason, segmentation is often only implemented in simple ways, with more powerful
capabilities left to future projects.

Conclusion

Both personalisation and segmentation are potentially valuable. Organisations can make the most
informed decisions when they can clearly distinguish between these two quite separate
approaches.

The division of a market into different homogeneous groups of consumers is known as market
segmentation.

A market segment should be:

 measurable
 accessible by communication and distribution channels
 different in its response to a marketing mix
 durable (not changing too quickly)
 substantial enough to be profitable

A market can be segmented by various bases, and industrial markets are segmented
somewhat differently from consumer markets, as described below.

Consumer Market Segmentation

A basis for segmentation is a factor that varies among groups within a market, but that
is consistent within groups. One can identify four primary bases on which to segment a
consumer market:

 Geographic segmentation is based on regional variables such as region,

climate, population density, and population growth rate.

 Demographic segmentation is based on variables such as age, gender,

ethnicity, education, occupation, income, and family status.

 Psychographic segmentation is based on variables such as values, attitudes,

and lifestyle.

 Behavioral segmentation is based on variables such as usage rate and

patterns, price sensitivity, brand loyalty, and benefits sought.
The optimal bases on which to segment the market depend on the particular situation
and are determined by marketing research, market trends, and managerial judgment.

Business Market Segmentation

While many of the consumer market segmentation bases can be applied to businesses
and organizations, the different nature of business markets often leads to segmentation
on the following bases:

 Geographic segmentation - based on regional variables such as customer

concentration, regional industrial growth rate, and international macroeconomic
factors.

 Customer type - based on factors such as the size of the organization, its
industry, position in the value chain, etc.

 Buyer behavior - based on factors such as loyalty to suppliers, usage patterns,

and order size.

Profiling the Segments

The identified market segments are summarized by profiles, often given a descriptive
name. From these profiles, the attractiveness of each segment can be evaluated and a
target market segment selected.

market segmentation - introduction

Markets consist of customers with similar needs. For example, consider the wide variety of
markets that exist to meet the following needs

• Eat
• Drink
• Exercise
• Travel
• Socialise
• Educate

As you can imagine, such markets (if they were not further divided) would be very broad.
Customers in a market are not the same. For example, within the market to provide meals,
customers differ in the:

• Benefits they want

• Amount they are able to or willing to pay
• Media (e.g. television, newspapers, radio stations) they see
• Quantities they buy
• Time and place that they buy

It therefore makes sense for businesses to segment the overall market and to target specific
segments of a market so that they can design and deliver more relevant products and services

A market segment can be defined as follows:

A customer group within the market that has special characteristics which are significant to
marketing strategy

Segmentation is most often applied to markets, but it is equally relevant to distribution channels
and customers. However, similar principles of how to segment apply to all three.

Overall definition of segmentation

Segmentation involves subdividing markets, channels or customers into groups with different
needs, to deliver tailored propositions which meet these needs as precisely as possible.

market segmentation - bases of segmentation

It is widely thought in marketing that than segmentation is an art, not a science.

The key task is to find the variable, or variables that split the market into actionable segments

There are two types of segmentation variables:

(1) Needs

(2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of customers
in a market, it is necessary to undertake market research.

Profilers are the descriptive, measurable customer characteristics (such as location, age,
nationality, gender, income) that can be used to inform a segmentation exercise.
The most common profilers used in customer segmentation include the following:

Profiler Examples

Geographic

• Region of the country

• Urban or rural

Demographic

• Age, sex, family size

• Income, occupation, education
• Religion, race, nationality

Psychographic

• Social class
• Lifestyle type
• Personality type

Behavioural

• Product usage - e.g. light, medium ,heavy users

• Brand loyalty: none, medium, high
• Type of user (e.g. with meals, special occasions)

market segmentation - behavioural

segmentation
Behavioural segmentation divides customers into groups based on the way they respond to, use
or know of a product.

Behavioural segments can group consumers in terms of:

Occasions

When a product is consumed or purchased. For example, cereals have traditionally been
marketed as a breakfast-related product. Kelloggs have always encouraged consumers to eat
breakfast cereals on the "occasion" of getting up. More recently, they have tried to extend the
consumption of cereals by promoting the product as an ideal, anytime snack food.

Usage
Some markets can be segmented into light, medium and heavy user groups

Loyalty

Loyal consumers - those who buy one brand all or most of the time - are valuable customers.
Many companies try to segment their markets into those where loyal customers can be found and
retained compared with segments where customers rarely display any product loyalty. The
holiday market is an excellent example of this. The "mass-market" overseas tour operators such
as Thomson, Airtours, JMC and First Choice have very low levels of customer loyalty - which
means that customers need to be recruited again every year. Compare this with specialist, niche
operators such as Laskarina which has customers who have traveled with the brand in each of the
last 15-20 years.

Benefits Sought

An important form of behavioural segmentation. Benefit segmentation requires Marketers to

understand and find the main benefits customers look for in a product. An excellent example is
the toothpaste market where research has found four main "benefit segments" - economic;
medicinal, cosmetic and taste.

market segmentation - demographic

segmentation
Demographic segmentation consists of dividing the market into groups based on variables such
as age, gender family size, income, occupation, education, religion, race and nationality.

As you might expect, demographic segmentation variables are amongst the most popular bases
for segmenting customer groups.

This is partly because customer wants are closely linked to variables such as income and age.
Also, for practical reasons, there is often much more data available to help with the demographic
segmentation process.

The main demographic segmentation variables are summarised below:

Age

Consumer needs and wants change with age although they may still wish to consumer the same
types of product. So Marketers design, package and promote products differently to meet the
wants of different age groups. Good examples include the marketing of toothpaste (contrast the
branding of toothpaste for children and adults) and toys (with many age-based segments).

Life-cycle stage
A consumer stage in the life-cycle is an important variable - particularly in markets such as
leisure and tourism. For example, contrast the product and promotional approach of Club 18-30
holidays with the slightly more refined and sedate approach adopted by Saga Holidays.

Gender

Gender segmentation is widely used in consumer marketing. The best examples include clothing,
hairdressing, magazines and toiletries and cosmetics.

Income

Another popular basis for segmentation. Many companies target affluent consumers with luxury
goods and convenience services. Good examples include Coutts bank; Moet & Chandon
champagne and Elegant Resorts - an up-market travel company. By contrast, many companies
focus on marketing products that appeal directly to consumers with relatively low incomes.
Examples include Aldi (a discount food retailer), Airtours holidays, and discount clothing
retailers such as TK Maxx.

Social class

Many Marketers believe that a consumers "perceived" social class influences their preferences
for cars, clothes, home furnishings, leisure activities and other products & services. There is a
clear link here with income-based segmentation.

Lifestyle

Marketers are increasingly interested in the effect of consumer "lifestyles" on demand.

Unfortunately, there are many different lifestyle categorisation systems, many of them designed
by advertising and marketing agencies as a way of winning new marketing clients and
campaigns!

market segmentation - geographic

segmentation
Geographic segmentation tries to divide markets into different geographical units: these units
include:

• Regions: e.g. in the UK these might be England, Scotland, Wales Northern Ireland or (at a
more detailed level) counties or major metropolitan areas

• Countries: perhaps categorised by size, development or membership of geographic region

• City / Town size: e.g. population within ranges or above a certain level
• Population density: e.g. urban, suburban, rural, semi-rural

• Climate: e.g. Northern, Southern

Geographic segmentation is an important process - particularly for multi-national and global

businesses and brands. Many such companies have regional and national marketing programmes
which alter their products, advertising and promotion to meet the individual needs of geographic
units.

market segmentation - why segment

markets?
There are several important reasons why businesses should attempt to segment their markets
carefully. These are summarised below

Better matching of customer needs

Customer needs differ. Creating separate offers for each segment makes sense and provides
customers with a better solution

Enhanced profits for business

Customers have different disposable income. They are, therefore, different in how sensitive they
are to price. By segmenting markets, businesses can raise average prices and subsequently
enhance profits

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to "trade-up"
after being introduced to a particular product with an introductory, lower-priced product

Retain more customers

Customer circumstances change, for example they grow older, form families, change jobs or get
promoted, change their buying patterns. By marketing products that appeal to customers at
different stages of their life ("life-cycle"), a business can retain customers who might otherwise
switch to competing products and brands

Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. If the target
market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost
of communicating to customers becomes too high / unprofitable. By segmenting markets, the
target customer can be reached more often and at lower cost
Gain share of the market segment

Unless a business has a strong or leading share of a market, it is unlikely to be maximising its
profitability. Minor brands suffer from lack of scale economies in production and marketing,
pressures from distributors and limited space on the shelves. Through careful segmentation and
targeting, businesses can often achieve competitive production and marketing costs and become
the preferred choice of customers and distributors. In other words, segmentation offers the
opportunity for smaller firms to compete with bigger ones.

Audience Segmentation Models

“Understanding the people who will ultimately engage with a product or service provides the
foundation for user experience design.”

Understanding the people who will ultimately engage with a product or service provides the
foundation for user experience design. Modeling those people and segmenting our models into
meaningful groups lets us explore different clusters of needs, then address our solutions to
meeting the needs of people belonging to specific clusters.

Audience segmentation models come in many shapes and sizes. So far, the practice of UX design
has focused primarily on the persona as the model of choice. This article explores alternative
ways of segmenting audiences and the design research we need to derive each type of model.

Personas
“Personas are archetypal representations of audience segments, or user types, which describe user
characteristics that lead to different needs and behaviors.”

In April 2009, I wrote a column for UXmatters titled “User Research for Personas and Other
Audience Models,” in which I focused primarily on the research techniques we can use to
generate personas, a particular type of audience segmentation model. Personas are archetypal
representations of audience segments, or user types, which describe user characteristics that lead
to different needs and behaviors. Where the characteristics of users overlap, we build up an
archetype, or persona, that represents those users collectively. Where the characteristics of users
differ, we must create other personas that represent different audience segments.

However, the discussion around personas tends to focus more on process and communication
rather than the type of audience segmentation we’re undertaking. So let’s take a look at some
different types of audience segmentation models and how we might go about deriving each of
them—that is, what we’re looking for and what research to do.

Audience Segmentation Models

“Typically, we know some members of such an audience are more important to our company than
others. To help us design for our most important audience segments, we need some methods of
identifying and representing them.”
Designing a Web site or application, product, or service for a large, heterogeneous audience can
be a daunting task. Typically, we know some members of such an audience are more important
to our company than others. To help us design for our most important audience segments, we
need some methods of identifying and representing them.

There are many different methods we can use to think about our audience segments, focusing on
differences that can help us prioritize and design the features that best meet the needs of each.
The type of segmentation we should choose depends on what characteristics would elicit the
most meaningful segments.

I’ve already touched on personas and discussed the type of segmentation they produce, but there
are many other useful segmentation models, like the following:

 market segmentation—Within the business and marketing communities, this has been the most
commonly used type of audience segmentation for decades.
 experience lifecycle—This segmentation model shows the end-to-end lifecycle of the customer
experience.
 mental models—This model comprises an affinity diagram of user behaviors surrounding a
particular topic.
 capability level—This segmentation model indicates the stages of capability our audiences go
through over time.
 mood—This type of segmentation draws on a concept Will Evans put forward, using mood
maps.
 game-play style—While this method of segmentation is somewhat specific to the world of
online games, this type of segmentation takes into account the way players want to play games
—solo or multiplayer.

Market Segmentation
“A market segment is a group of people or organizations that share one or more characteristics, causing
them to have similar product or service needs.”

A market segment is a group of people or organizations that share one or more characteristics,
causing them to have similar product or service needs. A true market segment meets all of the
following criteria:

 It is distinct from other segments. Different segments have different needs.

 It is homogeneous within the segment. People belonging to a market segment exhibit common
needs.
 It responds similarly to a market stimulus.
 It can be reached by a market intervention.

The term market segmentation is also used when a company divides consumers with identical
product or service needs into groups, so they can charge them different amounts of money.
This description of a market segment applies equally well to the other segmentation types I’ll
discuss later—particularly the needs for a segment to be distinct from other segments and for all
members of a segment to exhibit common characteristics, needs, and behaviors.

“The primary research tools for market segmentation are…surveys, interviews—

usually closed-question surveys—and focus groups.”

Surveys and other forms of analytic data generally drive market segments. Such data might
include information about purchasing intent and behavior, demographic information, and
frequency of activity in a problem domain.

The primary research tools for market segmentation are, therefore, surveys, interviews—usually
closed-question surveys—and focus groups. The analysis process focuses on identifying clusters
of characteristics that define distinct segments of an audience—tending heavily toward the
multivariate statistical forms of analysis. However, it is possible to derive market segments using
fairly simple tools like Excel—though this capability is advanced for such software.

Experience Lifecycle
“You can build experience lifecycles based on a wide range of design research techniques, including
observational research, interviews, surveys, analytics, purchasing behavior, and ethnographic studies.”

Experience lifecycle is a generic term that represents the start-to-finish series of interactions a
customer has with an organization. For example, LEGO uses an experience wheel like that
shown on Customer Experience Matters, depicting the end-to-end experience of a frequent flyer
traveling to New York from London.

With this form of segmentation, the goal is to target the design of a product or service to meet the
needs of consumers at different stages in their experience. On a recent project that I described in
an article on the Johnny Holland Magazine, I broke down the accommodation lifecycle for a
backpacker during his or her travels. Different lifecycle stages presented very different sets of
requirements and needs for the same person.

You can build experience lifecycles based on a wide range of design research techniques,
including observational research, interviews, surveys, analytics, purchasing behavior, and
ethnographic studies. The aim here is to understand both the overall structure of the experience
—as a lifecycle comprising stages with certain experiential characteristics—and the component
tasks of each stage in the lifecycle.

Mental Models
“A range of observational research techniques can drive mental models, as well as interviews and,
occasionally, focus groups.”

Mental models provide an excellent way of understanding how users approach a context for
which we’re designing a product. They let us gain an understanding of collections of activities
that make sense to a person—and communicate that understanding to others.
A range of observational research techniques can drive mental models, as well as interviews and,
occasionally, focus groups. The key determinant is that the research technique must provide
qualitative insights into the ways people approach a problem space, as well as how they cluster
tasks into activities and activities into an overall experience.

Capability Level
“Understanding the needs of users with different levels of expertise can involve an analysis of support
inquiries.”

People can have very different requirements during their early engagement with a product or
service versus the requirements they may have once they’ve become familiar with it, then,
subsequently, an expert. This is a common requirement for many systems. A user’s early
engagement with a system such as a game or social network often requires a great deal more
guidance and hand-holding than is necessary once the user has overcome his initial learning
hurdles.

To understand the needs of novice versus expert users, it may be necessary to undertake research
that is more akin to alpha testing, drawing on techniques from education and technical
communication for the solution design. For all its faults, Basecamp handles this progression well,
incorporating instructional material into the user interface to help novice users over their initial
exposure to the service that disappears over time with use.

Understanding the needs of users with different levels of expertise can involve an analysis of
support inquiries. After reviewing support tickets for recurring themes, you can address the
problems users are encountering through iterative design and implementation of your solutions.

Mood
“Contextual studies are key to mood mapping.”

In a recent article, “Design Ethnography & Mood Maps,” Will Evans proposed the use of mood
maps as a way of describing the various states people go through as they undertake an activity.
We can take this approach and modify it somewhat to create a segmentation model that is based
on a person’s mood—or frame of mind. For example, an insurance company with an informal
brand language may want to use a different style of error message in its online quoting system
from the one it uses for, say, its claims application for life insurance policyholders. A
segmentation that is based on mood can help highlight such distinctions and remind the design
team to take them into consideration. Here is an excerpt from the article that describes mood
mapping:

“The [mood map] describes the emotional ups and downs identified by study participants as part
of the design exercise conducted during in-home visits with participants. Note that the location
of the study is less relevant than the importance of observing the participants in the most likely
context in which they will engage in their experience with the brand’s product or service. During
the exercise, participants are asked to name each of the phases they went through, from framing
their problem through exploration and finally (hopefully) problem solving, and to then assign a
corresponding emotion to each phase.”—Will Evans
Contextual studies are key to mood mapping. When seeking information about a person’s frame
of mind or mood, neither surveys, interviews, or focus groups, nor Web analytics or other
quantitative methods can provide the insights that are available to an observer watching a person
as he goes about a task.

Game-Play Style
“Understanding the combinations of features that support different game-play styles can require a
design researcher to incorporate observational research with interviews, ethnographic, and sociological
research techniques.”

Joe Lamantia recently wrote about learning from games. People approach games in different
ways—as a personal escape, a way to socialize, a form of mindless entertainment that lets them
immerse themselves in a storyline, or a way of challenging their skills against others. A game
like Eve Online covers these different styles of game-play well, providing rich storyline content
and opportunities for solo play with cooperative opportunities for groups numbering in the
hundreds.

A large-scale, multiplayer online game should incorporate design features that combine each of
these styles and approaches. Understanding the combinations of features that support different
game-play styles can require a design researcher to incorporate observational research with
interviews, ethnographic, and sociological research techniques. Such combinations of features
tend to be fixed, but the expectations of players within each segment can vary—and it is these
variations we need to understand.

Segmentation As Framing
“When we adopt a particular audience segmentation model, we also adopt a particular perspective on a
problem space that, in turn, shapes our understanding of the solution.”

When we adopt a particular audience segmentation model, we also adopt a particular perspective
on a problem space that, in turn, shapes our understanding of the solution. This framing of the
problem allows us to focus our efforts, but can also leave us blind to other, potentially significant
characteristics of a potential solution. For example, if we use market segmentation and focus on
the differences in people’s purchasing triggers, we may miss opportunities to provide features
that customers have not requested, but would offer significant value. Alternatively, a focus on
the lifecycle of the customer experience can hide differences in audience needs within a
particular stage.

In the same way that we can overcome shortcomings in one research method by undertaking
several, complementary forms of research, combining or using multiple audience segmentation
models can help us overcome such structural blind spots, arising out of a particular perspective
on a problem.

Conclusion
“We can apply the underlying research techniques we use for one audience segmentation model to the
construction of other models.”
The use of a variety of different audience segmentation models can inform the design of products
and services in different ways. Perhaps just as important, we can apply the underlying research
techniques we use for one audience segmentation model to the construction of other models. The
key differences between the audience segmentation models I’ve described in this column lie in
the goals of the research and the characteristics we want to explore. Thus, we can build on the
work we do to produce one type of audience segmentation to develop other segmentation models
—and continually expand our toolkits.

THE USE OF SEGMENTATION VARIABLES, OVER THE LAST DECADE, IN

CHANGING THE CUSTOMER ASSOCIATIONS AND EXPECTATIONS FROM
CADBUURY'S and TITAN Wristwatches

Segmentation is an essential task for any marketer as it provides indispensable understanding and a
unique insight of the market place and an advantage over the competition.
Here the marketers try to divide the market into groups of customers, which when commercially viable
and accessible to the company, are known as segments. The concept of targeting such segments follows
and the organizations develop their marketing mix accordingly. It also helps include factors of customer
loyalty and bettering of one’s services and sales with time.
The underlying principle of the process is the notion that “There are different types of customers who
have different types of needs”.

Need-based segmentation is the undisputed champion when it comes to the ways a market can be
segmented. It may well be that a segment also has some other useful defining characteristic by which it
maybe identified.

The variable through which a market is segmented has an array of outlooks imbibed.
Such variables can be classified into:
1. Geographic variables
2. Demographic variables
3. Psycho graphic variables
4. Behavioral variables

To site an example,
Hindustan Lever (now known as Unilever) has had three different detergents in the offering including
Surf,Wheel and Rin but they have never eaten away each other’s market share due to efficient
segmentation that caters to the needs of different classes of people.
Over the last decade and many years before it as well, the marketers in terms of establishing market
control, gaining competitive advantage, customer loyalty and high revenues have put such segmentation
to good use. Having its origination in the consumer market, the concept of segmentation has reached
the business-to-business markets as well.

This brings us to the gist of the topic where we would analyze the use of similar segmentation by three
reputed companies and products namely, Cadbury’s Dairy Milk and Titan wristwatches .

While Cadbury’s Dairy Milk basically started out as a regular chocolate bar, and Titan made watches for
the masses .
These orientations differed with time as India, its society, its mentality and its people were undergoing a
massive change during the 90s.

The three of them have remained established business concerns in the Indian market throughout the
past decade in spite of facing new competitors and rivals. Their effective use of market segmentation
strategies along with sound understanding of the consumer mentality has provided them with
considerable weight on the balance sheet.

CADBURY’S DAIRY MILK

Right now Cadbury’s new advertisement campaign is doing the rounds over the television. “Meetha hai
khana,aaj pehli tareek hai” is the tagline that the chocolate-giant has come out with. It tries to bring
forth the excitement, which lies in the minds of the general public as they wait for the first date of each
month on the calendar. The monthly salary stashed in their hands enables them to celebrate and rejoice
by spending it on Cadbury’s Dairy Milk.
Cadbury’s Dairy Milk has come out with such memorable ad-campaigns, which settled into the hearts of
everyone.

The story starts with “Once upon a time in 1948…” when Cadbury entered the Indian market. It
originated from a town in the United Kingdom, Bournville(also the name of its recently launched high-
end chocolate) in 1905.
As the Cadbury’s official web site suggests, its journey in India has been an eventful one. In the early
1990s, it tried to cater to the sweet tooth of the children. Those days they steered the market and took
control over the company’s major market share. However, the strategy changed by letting out the secret
that “everyone has a child inside “ and thus everyone craves for the taste of chocolate. Cadbury
strategies went through a considerable change. It now catered from children to adults and from
chocolate to mithai. As the tagline goes “Khane walon ko kahne ka bahana chahiye”.

The hole-in-one for the company was when it identified sweets to be a very integral part of the Indian
culture. It made sure that the festive and jubilant moods of the society that had paved the way for kilos
and kilos of mithai, now made way for a large number of Cadbury’s.
Meetha did to Cadbury’s what thanda had done for Coco-Cola. Both helped them crawl their ways
through into hearts of the rural population of the country, which had an untapped and astounding
potential.
The advertisement campaign of Amitabh Bachchan, dressed up as a villager, proudly announcing that his
“daughter-figure” won beauty contests for cattle, brought out the laughs and struck a chord with the
same segment of people.
Later came the campaigns of “Pappu paas ho gaya” acknowledged the market potential for college-
going youth. The treats for passing exams were now a Cadbury instead of a mithai.

With Kuch Meetha Ho Jaye, we knew Cadbury’s was now a desert craving as well as a popular gift-item
for festivals such as Raksha Bandhan and Diwali. Cadbury’s also diversified its range of products with
Wowie(with Disney characters for kids),Crackle, Fruit and Nut(variations of the Dairy
Milk),Bournvita(health drink)Deserts,Perk(wafer ingredient) and éclairs(toffee segment).
Cadbury’s today holds 30 per cent markets share in the confectionaries industry and sells around 1
million bars a day.

TITAN wristwatches

Titan entered the Indian market of wristwatches in 1984, at a time when HMT watches were enjoying a
monopoly-situation.
The venture took birth from the TATA group and today is India’s market leader in wristwatches and the
sixth-largest watchmaker in the world.
The constant innovation and effective market segmentation has been the great boon of the company.
Today the company has a model for every price segment and every market.
Initially when the mechanical technology was the norm, Titan went against the tide and built-up its line
with Quartz.
Styling was not a factor initially with the Indian watch industry but Titan was there to make a difference
and gave a fresh breath of life to the age-old rusty style of wristwatches.
Titan is also capturing the rural market very efficiently. Its price range starts from
Rs.475-1200 for the basic consumers. It has also appointed Mahendra Singh Dhoni(himself belonging to
Ranchi) as the brand ambassador of its Sonata collection to reach out to the rural population. On the
other hand, his counter-part Aamir Khan was capturing the minds of the urban segments.
It brought out the Aqua, a trendy collection for the youth.
Raga was for the sophisticated Indian woman. This was a significant move as the women were now
more liberal in the society and the corporate culture was establishing its roots in India. The needs of
women throughout the nation were changing and the brand was aimed to cater these very needs.
Dash for the kids segment.
Sonata for the masses and the budget-conscious.
Fastrack for the cool and funky fetishes of the youth while Insignia, Steel and Nebula were all aimed
at the luxury watches segment.

Its brands like Bandhan were aimed towards couples while EXCTA and SPECTRA towards the common
class for office wear.
The unique designs and price variations enabled it to reach all classes and customers.
Today, the Titan group has its own retail shops throughout the country. One can now see the “World
of Titan” in almost every city and town of the India.
Today, Titan has also diversified into the eye-wear market thrugh these retail chains. Its Titan Eye+
brand is now set to give competition to the established eye-gear companies .

Customer Segmentation and behavior modeling for a telecom company

A leading Indian telecom company having countrywide market penetration wanted to develop
and implement segment wise customer strategy.

The challenge was to identify repeatable patterns in customer behavior using call transactions data for
post-paid subscribers, create homogeneous groups of customers on the basis of these patterns. 

One of the roadblocks faced during the project was poor quality or almost no availability of
customer demographic data. Tata Strategic developed an innovative solution by creating
segmentation model applying clustering techniques on historical calling data and billing data for
a representative cohort of customers. 

These customers were grouped into homogeneous segments using Ward’s clustering
methodology; the clustering parameters being call frequency, call duration, type of call, usage of
value added services, SMSes etc. Descriptive statistics for different parameters were evaluated
across the time of day and the day of week. The exercise also included the identification of
statistical distributions and the hourly patterns of the variables call duration, frequency of calls
and type of calls. Following this study, cluster specific predictive models were developed. 

This exercise helped the telecom company in establishing the mapping or alignment of new
customers to appropriate segments after an initial tracking period of their calling pattern. This in
turn facilitated the deployment of most effective strategy for a segment on a proactive basis.