Market segmentation is all about identifying customers who share similar needs and satisfying them rather than trying to satisfy the all the customers in the market. [To read about introduction to market segmentation click here] As the second stage of the segmentation strategy we need to assess the viability of the segment. Marketers need to assess the effectiveness of a chosen segment based on following criteria:
The size of the chosen segment has to be measured in terms of the number of customers in the market, frequency of purchase and volume of purchase. The formula for measuring the size of a segment is given below:
Size of a segment = Number of potential customers x Volume of purchase x Frequency of purchase
As an example if a firm is targeting to sell clothing products to a high income earning females in a particular area they need to know the size of the segment based on the number of high income earing females in the area, level of income that they spend on clothes and how often they engage in shopping for clothing.
The chosen segment needs to generate adequate income to break even and recover the investment. In other words the chosen segment needs to generate adequate cash flows and justify the investment made in the segment.
The chosen segment has to be accessible by the firm and firm needs to reach the customer in order to effectively sell the product to customer. Sometimes there can be accessible barriers, such as bans for certain products to be sold in certain countries. As an example, some countries ban imports and if a firm targets to import goods to those countries it can be seen as an unaccessible segment.
The segment has to be differentiable from other segments. There can be segment which are overlapping but for it to be an effective segmentation the segment has to be differentiate from other segments and segment boundaries have to be stated clearly.
As the final criteria of evaluation the firm should have the ability to actually end up selling goods to the chosen segment and the chosen segment should have the need to actually end up purchasing the product. In other words the firm should be able to effectively sell the product in the market and the plan for the segmentation has to be actionable in the chosen segment.
Above mentioned criteria for segmentation is also known as MASDA (Measurable, Accessible, Substantial. Differentiable, Actionable).