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Market Segmentation – Starting with the Basics

By M. Dana Baldwin

Strategic Planning Expert

Strategic Planning Expert

The basics of Strategic Planning can be misunderstood by those who need to determine what they are and how they apply to the overall development of your strategic plans. On one hand, some teams will overlook the importance of carefully defining the market segments so they can obtain the best analysis of how they and their customers do business. On the other extreme, some teams make the analysis somewhat more complicated than is necessary.

As your team approaches strategic planning, it is very important to recognize that the basics must be done thoroughly and well in order to provide a solid foundation for good decision making later in the process. The first set of worksheets in the Simplified Strategic Planning manual is ”Market Segment Analysis”. A worksheet is to be completed for each of your market segments. The starting point for this is the definition of those market segments.

Let’s begin with the overall picture. What are we selling, to whom are we selling it and where are we selling it? ”It” can be either a product or a service, or a group of products or services that have the same or similar characteristics or behaviors in the marketplace. What are the characteristics of this item or group of items that define its behavior well enough to distinguish it (them) enough from other groups of items/services?

You should be looking for common behaviors in the market place: Types of products/services sold, the characteristics of customers who purchase these items, common geographies where sold, channels through which they are sold, etc., are the usual bases for analysis. The process can be a simple as listing products or services down one side of a page or flip chart, then listing the types of customers to whom they are sold across the top and putting an X in each row and column where each is actually sold.

Most often, this will result in more combinations than we really wish to analyze, or than we can effectively work with. We should combine or group like items with like buying behaviors so we have a workable number of market segments to analyze. Reasoning is that when we get beyond the eighth or ninth market segment, we are spending time on a relatively small percentage of our overall business, and unless there is a significant reason to include such a small segment by itself, it should either be omitted or combined with a similar segment for analysis. On occasion, there may be a need for different combinations of product, market, geography and channel because of differing buying characteristics, and effective leadership is required to establish when this should be included in the overall planning process.

By consolidating the products/services and the customers to whom they are sold into groupings with similar behaviors in the market place and analyzing these groups as market segments, we begin to establish the discipline and rigor necessary for effective analysis. Care in defining each of your market segments helps establish the necessary foundation for our ongoing process of defining, analyzing and integrating the results into the overall program which comprises Simplified Strategic Planning.

Interested in more ways to improve your strategic planning process?  Download our Strategic Planning Tune-up book by clicking on Tune-up.

M. Dana Baldwin is a Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com

© Copyright 2014 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.