Quit yawning and start seizing on the wealth within segmentation data. Every department should demand to see this information.

By G. Michael Maddock and Raphael Louis Vitón

Part one of a two-part series on segmentation. Click here to read part two.

A refreshing thing is happening at marketing research conferences across the country: People who aren't researchers are showing up. What used to serve as a bastion of thoughtful number-crunchers is now becoming a gathering place for sales, marketing and promotion people, including those directly in charge of creating new products. That holds especially true when segmentation studies are on the agenda.

We may have just lost many of the "creative" folks in the audience. Too bad, because we were about to reveal why you should make data your new best friend.

To a handful of you—located within cutting-edge companies, as a rule—the idea that every section of the marketing department should show up at research conferences is old news. To everyone else, let us explain why segmenting your market in detail will pay off for years, no matter which department you reside in.

Having good data allows you to determine exactly whom you're trying to sell to and helps you create promotions that matter and point-of-sale materials that have true impact (because you will be able to speak to a specific need).

But to do all this, you probably will have to think about segmentation in a new way.

You already know that millions of ways exist to segment a market. For example, you can do it by demographics (age, income, region), corporgraphics (size of company, SIC code, region, revenue), zip code, interests ("Tell us what magazine is on your coffee table, and chances are we can tell you a lot about who you are/what you do/what you like to do."). All this, and the other segmentation types you know, are fine and can be useful later, but they are not your starting point in trying to figure out whom to pursue.

You need to employ a simple, three-part formula:

Step 1. Define success. Get as specific as possible. For example, you might say:

a. We want to create $100 million in incremental revenue in 24 months;

b. It must leverage our core competencies in manufacturing;

c. We must brand it under our name;

d. It has to be patent protected.

In other words, you're trying to make sure that in addition to bringing in additional revenue, the new product or service will fit with your company's specialities.

Step 2. Define the characteristics you want your segment to have. For example, you want your potential customers to be:

a. Growing (the last thing you want to do is target a decreasing segment);

b. Spending (you want to avoid a group unwilling to open its checkbook);

c. Open to your brand. If they are perfectly happy with what they have and can't imagine going with anyone else, you're going to end up beating your head against a wall;

d. Findable/reachable. It's lovely that you believe you want to sell to 43-year-old women who have a PhD in microbiology, two kids, two dogs, a cat, a hamster and live in the Midwest with their carpenter husband. But finding such people is going to present quite a challenge;

e. Decision makers. You want targets with the authority to make the buying decision on their own (or at least be able to answer honestly that they have only 50 percent of the ability to make a purchasing decision).

Step 3. "Simply" find what predicts/correlates with these variables.

Having decided whom you want to go after, find the variables that will lead you to these people. Say you are a huge packaged food company looking to create a $100 million brand that will fit with what you already have. (You have completed Step 1; you have defined what success will look like.)

You want your potential customers to like (or at least feel neutral about) your brand. If they say, "I am never going to buy something from the makers of brand X," you don't want them. You want them to be willing to try an additional product coming from you.

Only then do you ask them what kind of new prepared food product they are looking for. Again, you are not going into this with any preconceived notion; you are solving for their need.

Well, it turns out that the biggest need you discover is a large hunk of the market that wants a way to eat a high-energy food just before a workout. It should provide the calories these people need but not make them feel "too full" to exercise.

Asking Lots of Questions

Having identified this market, you go out and ask the potential customers within it as many questions as you can think of—how much they weigh, what snacks they eat, whether they have kids or a pet. Then you sort through the data and look for commonalities (Step 3).

In our hypothetical case, it looks as though the people we should pursue live in cities and have neither kids nor pets. Armed with this information, we look for the easiest way of targeting this segment. Graphically, everything we just talked about looks like this.

Now it is possible that your definition of success is so specific that your segmentation strategy will leap off the page. "We want as many upscale (household income greater than $100,000) grandmothers as possible purchasing our product for girls, under the age of 5, who are near and dear to them."

But most of the time we just don't have that kind of market need in mind, and that's why you need to execute this three-step process.

Next time: Selling this approach to your boss.

Part one of a two-part series on segmentation. Click here to read part two.

G. Michael Maddock is chief executive, and Raphael Louis Vitón is president of Maddock Douglas, an innovation consultancy that helps clients invent, brand and launch new products, services and business models. Maddock is author of the upcoming book Brand New: Solving the Innovation Paradox—How Great Brands Invent and Launch New Products, Services and Business Models (Wiley, April 2011).

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