Design Management Group

Market segmentation

In all markets, different groups of customers have different needs. The market for any product can be split into individual segments, comprising clusters of users and customers who have similar requirements, characteristics and tastes. In a well-defined market segment, customers can be viewed as having a similar response to the marketing mix ( Product characteristics, Promotional approach, Pricing strategy and Place of purchase).

Market segmentation and positioning are critical activities in product design and are crucial to ensure that the product features match the requirements of the target customers. The process can be considered in four stages:

• Defining the total market
• Segmenting the market
• Targeting an opportunity
• Positioning a potential solution

Defining the total market

It is impossible to segment a market unless it is first clearly defined. A market can be defined very tightly (for example the small car market) or much more generally (the personal transport market). How a market is defined impacts on the way in which it can be segmented. Thus a segmentation of the personal transport market may include segments called 'small car' and 'bicycle'. Whereas, a segmentation of the bicycle market may result in 'sporting male', 'office worker' and 'family shopping' segments. It is preferable to define a market in a way that will yield useful and definable segments.

Segmenting the market

A market can be segmented in many ways. Effective segmentation aims to identify the needs, purchasing motivations and desires of different clusters of customers. The choices of the bases of segmentation are critical. There is no one correct approach and a market can be segmented by dimensions such as demographics, behavioural characteristics and purchase behaviour, psychographics, geography or benefits.

Benefits based segmentation is often effective as it focuses the mind on why particular groups of customers are motivated to buy your product. It is useful to explore different approaches to segmenting your core market, especially if you traditionally view your products as 'entry level', 'mid-range' and 'high performance'.

The perceptual map

The perceptual map provides a visual way of representing a market and the way in which different clusters of customers or users perceive the importance of different product attributes. Typically, two bases of segmentation are chosen as X and Y-axis of a chart, to enable proposed, current and competitive offerings so be compared. The most effective charts explore the benefits which customers may gain from the product and avoid the need for a 'price' axis, which reinforces the 'entry level, mid-range and premium' perspective.

An alternative approach is to select critical product attributes or elements of the design mix, to enable comparison of the primary competitive characteristics. This can be most appropriate in technology driven products.

An effective perceptual map will enable clusters of users to be identified and preferably named. This is a prime driver in identifying customers to interview, observe or involve in the design of a new product.

Targeting an opportunity & positioning a solution

The primary goal of market segmentation is to target interesting or attractive market segments and position proposed products as closely as possibly to the ideal requirements of the typical customers within that segment. The perceptual map provides a powerful visual tool for identifying gaps in the market place where there is either little or poor competition and provides a focus for careful positioning of potential solutions. Useful segmentation always enables the needs and characteristics of specific groups of customers to be established.

Further information

• Cooper R G, (1993), Winning at new products: accelerating the process from idea to launch 2nd edition, Perseus Books Publishing, USA
• Hague P, (1992), The industrial market research handbook 3rd edition, Kogan Page, UK
• Urban G L, Hauser J R, (1993), Design and marketing of new products 2nd edition, Prentice Hall, USA