Management and Strategy

Segmentation is one of the key functions of marketing. Company’s profitability depends on customer segmentation. Value based segmentation techniques talks about defining segmentation based on value placed by customers on the product. Following are 6 steps in defining Value based segementation

1. Determine basic segmentation criteria that create “natural fences” between customer groups
2. Identify discriminating value drivers
3. Determine your operational constraints and advantages with regard to those value drivers
4. Create primary segments based on overlap of customer needs and your internal constraints, and secondary segments based on most important needs
5. Create detailed segment descriptions for easier identification in the field
6. Develop metrics and fences to operationally separate conceptual segments

Good value based segmentation has following characteristics:

• Based on the segment’s profit potential — i.e., the value the segment receives relative to your operational ability to service the segment
• Needs between segments are different enough that you can design different offerings at different price points
• Able to facilitate the creation of product/service offerings
• Based on identifiable criteria that easily separate one segment from another
• Helps managers to make better marketing and pricing decisions (statistical significance is a nice-to-have, not a necessity)

Actionable in the field, i.e. easily enabling customers to make trade-offs between offerings and willingness to pay

Source:
The Strategy and Tactics of Pricing