The PDMA Handbook of New Product Development

18.4. Segmentation: "Which Customers Should We Target?"

Segmentation is a quantitative tool for placing customers into "buckets" of similar customers so that the company can decide on which to focus during NPD (see Chapter 13). This is important because one product seldom appeals to the entire spectrum of customers. Companies find it useful to identify a target customer segment for NPD efforts. For example, the Marriott Corporation has successfully targeted its various products to distinct segments of the market:

• Marriott Suites: Permanent vacationers

• Fairfield by Marriott: Travelers on a budget

• Residence Inn: Extended stay customers

• Courtyard by Marriott: Business travelers

The first step in segmentation is to have many customers complete a survey. Kraemer (1987) suggests from 300 to over 1000. The survey can be very simple, depending on the type of segmentation desired. The list that follows gives some segmentation types, ranked from least to most useful:

• Demographic: Dividing customers by age, family type, income, geography, and other characteristics

• Firmographic: Dividing business customers by SIC code, geography, dollar sales, number of employees

• Purchases: Dividing customers by heavy users/light users, brands used, price paid

• Benefits sought: Dividing customers by what's important to them (price, performance, customer support, reliability, etc.)

Once the survey data are collected, segmentation "buckets" are created by-using a statistical clustering routine. Each segment is then ...