Using the Criteria for Effective Segmentation

 

Market segmentation evaluation criteria example

In the following example, we have considered two different furniture manufacturers. Both of these firms have conducted a market segmentation exercise and have created four market segments. As you will see, the first example will generally meet the criteria for effective segmentation. However, the second set of market segments fails the evaluation test on a number of points. Therefore, the second furniture manufacturer will need to revisit their market segmentation process

Defined market segments for firm one

First homers Young couples establishing their first home, looking for a range of low-priced furniture Simply the best Consumers that are very focused on their homes as a display of status, and prefer expensive and high prestige brands
Busy families Families with children at home, needing furniture that is durable, functional and safe Design focused Consumers who are very attracted by the look and style of furniture – may be attracted to both expensive and budget furniture

Defined market segments for firm two

Heavy users Consumers who regularly upgrade and change their furniture Retirees Looking for either budget furniture (because of limited income) or expensive furniture to enjoy their retirement years
Light users Consumers who only buy furniture every few years Rural people People who live out of the city regions

To identify why firm one’s segmentation outcomes are more appropriate that firm two’s approach, let’s work through each of the segments against an evaluation criteria as shown in the table:

Evaluation Criteria

Firm One’s Segments

Firm Two’s Segments

Homogeneous Seems to meet this evaluation test quite well, as each segment appears to have been grouped around similar needs. Does not meet this first test. For example, in their retirees market, they have described the consumers as either being budget conscious or possibly the opposite. Therefore this segment does not contain consumers with similar needs.
Heterogeneous Looks good here as well, with each defined segment appearing to be significantly different in furniture needs. This test is a major concern as well. For example, the ‘rural people’ segment could also be allocated to any of the other segments, so there are insufficient differences between the segments.
Measurable Would probably meet this test of being measurable. Would probably meet this test of being measurable.
Substantial Most of these segments would probably be substantial enough. Most of these segments would probably be substantial enough.
Accessible Would probably be able to utilize different media and distribution channels to access these different segments. This may be of concern. For example, it would not be clear how you could directly access heavy users as opposed to light users.
Actionable/practical We may assume this to be the case, as we do not know much about the firms – typically we would assess this point against the firm’s capabilities. We may assume this to be the case, as we do not know much about the firms – typically we would assess this point against the firm’s capabilities.
Responsive Given the needs of each segment appear to be distinct, then different styles of furniture products (and supporting marketing mix) could be developed that would be more/less attractive to each of the segments. This would also be a concern as some of the segments have been defined quite generically, such as rural people, so it is unclear whether they would respond to a distinct marketing mix offering

As demonstrated in the discussion in the above table, firm one’s market segment development appears to meet all the necessary criteria. This means that the segments are valid and the process of evaluating the segments and then selecting target market can continue. However firm two’s approach has failed a number of evaluation tests, particularly in regards to be homogeneous (generally similar in need) and being heterogeneous (each segment having distinctive needs). In this case firm two would need to repeat their market segment development process in order to find a more suitable set of segments for their consideration.