Single-base and multi-base segmentation
So far, we have talked about the use of individual bases for market segmentation. The use of a single-base segmentation strategy is a simple way to segment markets, and is often very effective. Clearly, the use of bases such as sex (cosmetics), or age (health care products, music), or income (automobiles), provides valuable insights into who uses what products. But the use of a single base may not be precise enough in identifying a segment for which a marketing program can be designed. Therefore, many organizations employ multibase segmentation strategies, using several bases to segment a total market. For example, the housing market might be segmented by family size, income, and age.
American Log Home, for example, offers a wide variety of packages and options to its customers based on their needs, incomes, skills, family size, and usage. Packages range from one-room shelters designed primarily for hunters to a 4,000 square-foot unit complete with hot tub, chandeliers, and three decks. Customers can select to finish part of the interior, part of the exterior, or to have the entire structure finished by American Log Home.
The resulting huge array of products is a disadvantage of multi-base segmentation as a strategy. Using several bases that vary in importance, considering all to be equal, could produce misdirected efforts.
Qualifying customers in market segments
Clearly, it is important to employ appropriate factors to identify market segments. Equally important is qualifying the customers who make up those segments. Qualifications involves judgment. Marketers must be able to differentiate between real prospects and individuals or firms who have some similar characteristics but cannot be converted to purchasers.
It should be clear that not all market segments present desirable marketing opportunities. Traditionally, five criteria have been employed to gauge the relative worth of a market segment:16
• Clarity of identification: The degree to which we can identify who is in and who is outside the segment. Part of this process also involves the delineation of demographic and social characteristics that make it easier to measure and track the identified segment. Unfortunately, obtaining segment data is not always easy, especially when the segment is defined in terms of behavioral or benefit characteristics. Sex is a clear basis for segmenting a product such as brassieres.
• Actual or potential need: Needs that reflect overt demands for existing goods and services, or needs that can be transformed into perceived wants through education or persuasion, constitute a segment. It is further assumed that this need exists in a large enough quantity to justify a separate segmentation strategy. This criterion requires the ability to measure both the intensity of the need and the strength of the purchasing power supporting it. A 40-story building has a clear need for elevators.
• Effective demand: It is not enough for an actual or potential need to exist; purchasing power must also exist. Needs plus purchasing power create effective demand. The ability to buy stems from income, savings, and credit. Purchasing power derived from one or more of these three sources must belong to the members of a market segment in order for it to represent a meaningful marketing opportunity. The possession of a valid Visa or other credit card meets this criteria for most products.
• Economic accessibility: The individuals in a market segment must be reachable and profitable. For example, segments could be concentrated geographically, shop at the same stores, or read the same magazines. Regrettably, many important segments—those based on motivational characteristics, for instance—cannot be reached economically. The elderly rich represent such a segment.
• Positive response: A segment must react uniquely to marketing efforts. There must be a reason for using different marketing approaches in the various segments. Different segments, unless they respond in unique ways to particular marketing inputs, hardly justify the use of separate marketing programs.