Analysis 4: Segmentation by Cost Driver Brainstorming Exercise

APPROACH: This analysis finds segments of customers, each segment making up at least 5% of the total market, where the segment differs from the average customer on one or more of the bases of segmentation.

This exercise lists, in bold in the left hand column four major customer need characteristics. A company would segment all customers in the marketplace on each of these characteristics. The right hand column lists potential bases of segmentation, using several different examples to initiate the brainstorming exercise. The brainstorming team should review each of the potential bases of segmentation to begin to identify market segments that exist in their market.

The segmentation for the four different cost drivers (that is, buyer, user, location, and time) is done assuming that the total market is segmented with each characteristic. That means that the brainstorming team segments 100% of the market on buyer characteristics, 100% of the market on user characteristics, and 100% of the market on both location and time considerations.

Cost Driver Examples »

The objective of this segmentation is to identify potential customer segments who have needs that can be met, or met better than they are being met currently.

COST DRIVER	POTENTIAL BASES OF SEGMENTATION
1. BUYER CHARACTERISTICS
a. Knowledge	Knowledge of purchaser about supplier Of the supplier's brand/image Of the supplier's product range Of the supplier benefits compared to competition Of the culture and language of supplier
b. Quality	Quality Interests Quality of after-sale service Problem resolution between buyer and seller Tolerance for failure Concern for others
c. Availability	Availability Interests Product in stock Service after sale Breadth of products sold by supplier Tolerance for outages
d. Cost	Cost Interests Competitiveness of price, e.g., price information Lowest price, e.g., price leverage Impact on user's ""system"" costs Price range of products purchased
2.USER CHARACTERISTICS
a. Purpose	Purpose of Use Work Play Use at home
b. Physical	Physical Characteristics of User Size Age Color Sex Strength Dexterity Acuity
c. Pattern	Pattern of Product Use Frequency Peak Range Duration Range of products used Independence of product use
d. Knowledge	Knowledge of User About Process Product knowledge Process knowledge Market Knowledge User's customers' knowledge of user Culture and language of user
e. Experience	Enjoyment or Experience preferences Sustenance Comfort Entertainment Ambience Camaraderie Security
f. Style	Style and Image Preferences Interest in "latest" Status Other "ego" needs
g. Resources	Resource Requirements product related resources User energy User health
3. LOCATION CONSIDERATIONS
a. Number	Number of Locations Where Product Used Standard Few Many
b. Usage Space	Product Usage Space Limited Not limited
c. Distance	Distance From supplier Distance from other customers Distance customer delivery to use point Distance from competitive supplier
d. Location	Location of Use Work Home Leisure
4. TIME CONSIDERATIONS
a. Purchase	Purchase Timing Regular Periodic Sporadic
b. Delivery	Delivery Timing Standard Anytime Specified
c. Use	Use Time of use Time urgency of user Occasion of use

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Recommended Reading

For a greater overall perspective on this subject, we recommend the following related items:

Analyses:

Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.

Perspectives: Conclusions we have reached as a result of our long-term study and observations.

"When Product Mix Matters": There are several price point specialists. Some are better positioned than others for long term success in a hostile market place. (1991)
"Why Do Leaders Lead?": There are four potential kinds of leaders in the marketplace. In order to be successful, each must follow its own particular rules. (1986)
"The Big Slice of the Pie": The head of one industry leader explains his company's insistence on being a key supplier to each of his customers: "The guy with the big slice of the pie doesn't go hungry." The workings of the typical hostile market provide solid support for this philosophy. (1995)
"The Choice of New Products": Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation. (1995)