The concept of segmentation has its roots in companies like Proctor & Gamble where consumer-marketing companies recognized the value of dividing customers into groups or segments. These packaged goods companies could effectively focus resources promoting specific products into specific customer groups where they would produce the highest possible revenue, at the lowest possible costs.

Initially, simple demographic segmentation was used as packaged goods companies promoted products such as perfumed soaps to women, while to men, they would promote a more sharp and spicy fragranced soap, smelling much like an aftershave. It was eventually discovered that not all men and women wanted the fragranced soaps. Some because they did not care for the smells the soaps imparted, and others for the simple fact that some needed to avoid the scented soaps so as to avoid an allergic reaction. These types of discoveries illustrate the value of segmentation to help provide a means to divide (and conquer) a market.

We experience segmentation today in virtually every facet of our lives, whether it is the commercials we see on TV, the advertisements we see in magazines and the customized ads we see online, the targeted mailings we get both online and offline, the packages that are offered from our phone and cable providers, and others. Virtually everywhere we turn we are being segmented and served advertisements and products that have been tailored to meet the needs of the segment we are a part of, sometimes, even if the segment is very, very small.

Simply defined, market segmentation is the division of customers into groups we can target for future products, research, or market messaging. According to Philp Kotler:

What we are really trying to accomplish with segmentation is relatively simple and straightforward. We are working to divide a broad target market into subsets of customers, who have common needs and priorities, and then work to design and implement strategies and products to target them.

Segmentation is a key marketing tactic/strategy that has a large bearing on the organization both before a VoC analysis is undertaken, as well as after. Before we conduct a customer VoC initiative, we need to step back and figure out just who are our future and current customers? If I were an automobile manufacturer with a range of automobiles from an entry-level fuel efficient two-seater to a $100K luxury car, would it make sense to do a customer VoC for the high-end $100K luxury car with a middle-class recent graduate? Probably not. It is unlikely he will be in the market for this particular automobile so his wants and needs (and ability to pay) are not consistent with the target market. On the flip side, after a customer VoC is deployed, we may learn specific attributes or needs for a target segment that we can put into our new products, or deploy as part of our marketing campaign.

Organizations have a number of reasons to look at segmenting their markets. The main reason, as discussed earlier, is to develop a target market. Once this is accomplished, it is much easier for the marketing team to develop more in-depth understanding of customers within that segment, as it is a smaller group. By the same token, it also becomes easier to understand the competitive landscape within a more narrowly defined segment, it becomes more effective at developing marketing campaigns in a more defined segment, and opportunities for differentiation are more likely discovered in a narrower band. As we know, it is very difficult to have mass-market appeal for the majority of products in the market today, so segmentation allows companies to focus their resources where they will derive the most value.

This division into groups can be based on a number of factors, but usually, we like to see one or more of the selection criteria to be an important characteristic relevant to their purchase or usage behaviors. Some of the typical ways to segment a consumer market are as follows:

Like consumer markets, business markets can also be segmented using similar variables like geography, benefits sought, and usage. The variables defining the segments vary somewhat from the consumer markets, but are very similar in concept and execution as the consumer segmentation. Some business segment variables could be considered as follows:

Once the preliminary market segmentation is complete, it is necessary to evaluate the segments against a set of criteria to insure the segments are properly defined. The following set of evaluation criteria should be followed to guarantee the segments are useable and businesses should only target the segments if it is:

The following is an example segment analysis done for a hypothetical automobile manufacturer:

In this example, you see that each segment has been grouped according to a shared need, each segment is significantly different in what their purpose is for the vehicle, using demographic data we should be able to measure each segment, each of the segments are substantial enough to be targeted, the company likely has dealers that can address the needs of each segment, and we would assume the manufacturer has the capabilities to develop the vehicle to meet the needs of the various segments.