Overview

Benefit segmentation is a method of dividing a total market into submarkets (market segments) based on the similarity of product benefits sought in a product by consumers. Instead of segmenting a market by some other variable, for example income, and then determining the needs of consumers in each particular income category, benefit segmentation uses needs as the basis for segmenting the market, then profiles the characteristics of consumers in each group.

Coupled with demographic data, this direct approach to segmentation offers many insights into the marketing of a product, such as what features to emphasize in advertising, what media to use in advertising, what products are or are not satisfying certain segments of a market, and what segments might be overlooked by competitors. Benefit segmentation is recognized as one of the most widely used methods of segmenting markets.

Examples

In the automobile rental industry, convenience is a major benefit sought by the business segment of the market. As such, most rental agencies cater to this large segment by locating at airports and featuring quick rental procedures.

However, Rent-A-Wreck has built a substantial franchise operation by appealing to customers who seek low cost, dependable transportation when their own cars are for some reason unavailable. Therefore, Rent-A-Wreck franchises are located in smaller towns, often next to car dealerships.

The cars they rent are used, not new, and their prices are lower than traditional rental agencies. In effect, they have adjusted their marketing mix to appeal to a benefit segment which is different than the one targeted by most national car rental agencies.

A classical benefit segmentation study uncovered four different benefit segments in the toothpaste market. Included in the four segments was a group that was most concerned with brightness of teeth and another group that desired a toothpaste that was particularly effective in the prevention of tooth decay.

After segmenting the market by benefits sought, each segment was profiled in terms of demographic characteristics, lifestyle characteristics, and brands strongly preferred. For example, the segment concerned with prevention of tooth decay, labeled the “worrier segment,” was composed of large families. They used a great deal of toothpaste, preferred Crest toothpaste, and tended to be conservative. This profiling provided a great deal of useful information in deciding how to market toothpaste to each of the segments.

Benefits

Most market segmentation approaches are based on the assumption that con¬sumers who are similar in one respect, say income or education, will have similar needs, tastes, and will react the same way to marketing efforts. This is not always the case.

A group of people who are similar in age, income, and education may all use a product, but for different reasons. For example, tennis shoes may be bought for comfort, because they are inexpensive, or for the prestige lent by their label. In this and many cases, the true division of a market results not from who the customers are but from what they want.

Benefit segmentation, when properly implemented, does an excellent job of identifying different types of customers and understanding those customers. By illustrating important benefits, it guides new product development by enabling a firm to translate benefits into features, which in turn can be stressed in advertising.

The process of benefit segmentation also provides a better view of the total market and competition when segments are linked to competitor’s products. In effect, it results in a map of the market and suggests possible strategic moves (which segments are ignored or poorly serviced) and tactical moves (how products should be designed, priced, and promoted).

Implementation

There are a number of tasks necessary to implement benefit segmentation. Through survey or past experience, a variety of benefits sought must be generated. For instance, a survey of shampoo users might show that consumers want a product that adds body to their hair, prevents dandruff, repairs split ends, or conditions the hair.

The next step is to group consumers according to benefits strongly desired. Statistical techniques such as Q-factor analysis, cluster analysis, and multidimensional scaling are used to group individuals. All of these statistical techniques look at the relative importance of benefits and cluster or group respondents accordingly.

The important point is that while most consumers want many, if not all, of the benefits possible in a product, they tend to emphasize or more strongly desire some benefits over others. Thus, while everyone may want a car to be stylish and get good gas mileage, one segment will forego appearance for economy, while another will spend more on gas to enjoy the prestige of driving a stylish car.

After segmenting consumers by benefits, each segment can then be profiled to find the predominant characteristics of that segment. For instance, respondents to a survey may be grouped into three benefit segments.

From each segment it can then be found that the “taste sensitive” group tends to be 20-25 years old, career oriented, active in their community, and have an average of three years of college. This step may be as simple as averaging the ages of everyone in a segment by hand to get the average, or involve multi-step techniques.

Evaluation

Once a benefit segmentation study has uncovered a number of segments, management must decide which segments it should target (attempt to sell to), and make appropriate marketing mix decisions for each of the segments in which it will compete.

As in any type of market segmentation scheme, benefit segments must be accessible, measurable, profitable, and meaningful. A firm must be able to identify who is a member of each benefit segment, the size of that segment, and the competition it will face within that segment. This is necessary to determine the profitability of the segment and the probability of success.

Further, a firm must evaluate its own resources to determine if it is able to compete effectively. A segment may be large and attractive but beyond the organization’s financial and production capabilities.

Conclusion

Benefit segmentation is widely used because it is the most marketing oriented and most direct approach to segmenting a market. Segments are not developed but uncovered, and are based on needs, not other variables such as age, income, and education.

Tied into demographic variables, benefit segmentation provides a great deal of information about members of a market segment. Benefit segmentation provides answers to many questions such as:

• What new products should be introduced into the market?
• What changes should be made in present products to better fit the needs of a particular segment?
• What products presently on the market are well suited to a particular segment, and, conversely, what needs are not being met by current product offerings?
• How should advertising be developed to emphasize the needs of a particular market segment?

Applications to Small Business

In many instances, benefit segmentation can be a useful and feasible tool of small business. Many small businesses, especially those that deal directly with consumers, can gather enough information to successfully implement benefit segmentation.

Salespeople are a good source of information. After calling on a given territory for a period of time, they usually know what their customers want. A firm can conduct a study of the market by requiring call reports that specifically state customer characteristics such as:

• size of business,
• average amount or yearly amount of sales to the customer,
• industry in which the customer competes,
• location,
• purchasing set up, and, of course,
• what benefits customers feel are most important in purchasing the firm’s type of product.

Call reports can then be grouped by benefits, and characteristics can be tabulated. While every characteristic in a benefit group will not match, there are usually some predominantly similar ones.

Given the benefit segments with profiles, management can then adjust their marketing mix. For instance, a supplier of chemicals may find that there is a group of customers who is concerned with safety. The supplier might then start a marketing program that includes sending monthly newsletters listing changing regulations passed by OSHA and highlighting the safety features or aspects of one product.