Product segmentgation chapter two - segmentation types

In my former post about segmentation I described the basic aspects of pricing and used bicycles as an example. In this post I will try to show you more techniques and methods to segment your product or service.

Before I start, here is a small reminder of what segmentation is all about.

When you build a product, in most cases you do not want to have a one-price-fits-all strategy for the following reason:
There are 3 groups of potential clients -

• One that the price is indeed more or less appropriate,
• One that this price is too high and they cannot afford to pay it. Some of them might still buy your product and complain about the price
• One that is more than willing to pay much more. 

If you choose a single price point then basically you sacrifice much of your market.
Therefore you wish to come up with a flexible pricing scheme that will be appropriate for all of your potential buyers and different clients know about the different pricing they will grasp it as fair.

Featured based segmentation

This is the simplest method of segmenting a product. The more features you get, the more you pay. Examples:

1. iphone with 8Gig, 16Gig or 32Gig
2. ipad without phone abilities (or iPod touch vs. iPhone)
3. antivirus - basic and premium

Usage based segmentation

This model has been in use for years in Electricity and phone companies - if you consume more you pay more.

I am not sure but I believe that Xerox started this method for physical goods. They used to give a Xerox machine basically for free and charge only per copies made on the machine.

Gillette uses the razor/razor blade scheme where you buy the handle for modest price (well, not so modest today) but you have to switch blades constantly and hence the more you shave the more you pay.

HP uses a similar model in printers - the more you print the more you consume ink, the more you pay.

In the IT arena this is quite popular - You pay per user with  ERP systems. You pay per bandwidth, storage, memory, CPU power you consume in a cloud.

Value based segmentation

This is the most difficult way of charging. The price you get correlates with the value you bring to your client. Examples can be a form of consulting agreements based on bonuses when profitability goes up, or a portion of the savings you bring to your clients. You can give the same consultation and receive a totally different amount. It is obvious that the consultation can be just an "envelope" of your product.

When you build your product or service, think upfront about the pricing schemes, it may affect the way you build your product.

And for a smile, I cannot think of sales and marketing without recalling a great episode from the movie "Jerry Maguire". It is not about segmentation but who cares. Here it is


Good luck,
Amir