I have just updated my notes for my MRS Workshop (London, February 25) and wanted to share the following five key points about segmentation:
1 Segmentation is useful when the number of products or services that can be offered is limited.
If you could offer an almost infinite range of products, as some online services can, then segmentation is often less relevant. But, if you can only make 4 varieties, or the store will only stock 12 lines, then segmentation helps optimize options.
2 Segmentation is useful when people need help to organise a complex world.
A great example of this use of segmentation is music. If there were no genres, music selection would be much harder, segmentation is one of the key constructs that supports this multi-billion dollar industry.
3 In marketing and market research, ‘real’ segments do NOT exist!
In fields like biology there is a case for believing in real segments. When dealing with human behaviour, segments are typically the assignment of credible descriptions applied to patterns in the data. The key to segmentations whether they are useful, NOT whether they are real. Indeed, we do not need to worry about a segmentation being the ‘best’ possible segmentation; we need to focus on it being a ‘really useful’ segmentation.
4 Not all segmentation is based on cluster analysis, and not all cluster analysis is based on K-means clustering.
Tools such as decision trees can produce useful segmentations, and tools like latent class analysis can produce really useful cluster analysis solutions.
5 Segmentation is essentially a qualitative process.
The most common way to conduct a segmentation is to run it several times until a useful solution is found. The solution needs to triangulate with what is already known about the market (or can be gleaned from additional sources) and the solution needs to be capable of being utilised. The solution is not the solution with the best numbers, the smallest error terms, or the most statistically significant. The solution you are looking for is a really useful solution.
Want to learn more?
I run courses for the UK’s MRS on segmentation and the next two are: 25 February and 20 November, in London. If you are based outside the UK and would like one of these courses to be run, ask your local trade body or organisation to get in touch with me.
Why the flower?
Would love to hear if anybody can identify the flower above AND link it to the topic of segmentation?