Segmentation is the process of dividing potential markets or consumers into specific groups. Market research analysis using segmentation is a basic component of any marketing effort. It provides a basis upon which business decision makers maximize profitability by focusing their company’s efforts and resources on those market segments most favorable to their goals.
There are four main types of segmentation used in market research analysis: a priori, usage, attitudinal and need.
a priori (most commonly used)
a priori is defined as relating to knowledge that proceeds from theoretical deduction rather than from observation or experience. For purposes of market research analysis this means making certain assumptions about different groups that are generally accepted as pertaining to that group. For example, deducing that adults over 50 are not as tech savvy as twenty somethings is a safe assumption based on the reasoning that high tech devices were not as widely available to the older generation than they are to the younger. However, be careful to check your assumptions since they can change over time. In 30 years, that statement may no longer be true.
Usage Segmentation (also used frequently)
Usage segmentation is completed either by decile or pereto analysis. The former splits the groups into ten equal parts and the latter distributes according to the top 20% and the remaining 80%. Usage segmentation helps to drill down more deeply then a priori because it indicates which priori group is the heaviest user of your product.
Attitudinal (Cluster analysis)
Using cluster analysis to create customer psychological profiles is difficult because it is limited by the input data used. Demographic data is the least helpful, whereas preference data (scaling) is better suited toward this type of analysis.
However, once a usage segmentation is created, it’s exceptionally helpful to know the motivating factors behind the purchasing decisions of the heaviest users of your product.
Needs Based Segmentation
Needs based segmentation is the concept that the market can be divided based on customer need. This type of analysis is used to develop products that sell rather than trying to sell products a business developed.
Needs based segmentation uses conjoint analysis to separate the groups according to functional performance. Using cluster analysis, it’s goal is to determine the driving forces behind the performance data.
Knowing which segmentation to use is often as critical as the analysis itself because it is driven by cost and the stated business goals of the decision makers.