■ Introduction
At a fundamental level an organisation’s marketing objectives become a
decision about which products or services they are going to deliver into
which markets. It follows that decisions about the markets to be serviced
are a critical step in strategy formulation. The segmentation process is there-
fore central to strategy and it can be broken into three distinct elements:
segmentation, targeting and positioning. This chapter will examine the seg-
mentation aspect of both consumer and organisational markets.
Successful segmentation relies on a clear understanding of the market.
Knowledge of consumer behaviour is the crucial foundation on which
that market understanding is built. This chapter will briefly summarise
both consumer and organisational buyer behaviour as an introduction to
market segmentation criteria.
■ Why segment?
There are a number of reasons organisations undertake segmentation
(Doyle, 1994):
● Meet consumer needs more precisely: In a generic market customer’s
demands will differ, by developing a distinct marketing mix for each
consumer segment an organisation can offer customers better solu-
tions for their needs.
● Increase profits: Different consumer segments react in contrasting ways
to prices, some are far less price sensitive than others. Segmentation
allows an organisation to gain the best price it can in every segment,
effectively raising the average price and increasing profitability.
● Segment leadership: In any particular market the brands that have dom-
inant shares of the market will be highly profitable. Their market lead-
ership gives them economies of scale, in marketing and production
they will also have established access to distribution channels. Small
companies or new entrants in a market are unlikely to be able to gain
leadership; they can however take a dominant share of a particular
market segment. This focus can allow them to develop a specialist
The segmentation process is a crucial aspect of strategic marketing. This chapter explores both
consumer and organisational segmentation. Initially both consumer and organisational
behaviour is summarised to illustrate the areas from which segmentation criteria have developed.
A full analysis of segmentation is then undertaken, to provide the foundation of the targeting
and positioning activities that will be addressed in Chapter 9.