First, market segmentation research is needed to identify and define market segments. This process is fairly involved and is described elsewhere. (See for example the whitepapers at http://www.deftresearch.com.) The research helps firms decide which segmentation strategy to use. These strategies may be based on purchasing behavior, consumer characteristics, lifestyle information, or other market information.



Second the team must ask, “which segment or segments does the health plan wish to target?”

The market research will provide objective information facilitating this decision. Most experts would agree that it is foolish to target a segment to which you do not now have a reasonably good fit (e.g. the GMC truck division pursuing a "green", hybrid-oriented segment).

Finally, the fun begins. Once target segments have been decided on, there are at least seven ways to use segmentation.

1. Positioning. Take health care as an example. Most health plans offer multiple plans where premiums and access to branded drugs and providers differ. There are segments of the market willing to trade lower premiums for more restrictions on access. But other segments are not willing to make this trade. Market segmentation will help companies re-position their “basic” and “premier” plans to match segments' motivations and concerns Sticking with health care for an example, some seniors are motivated to act because of service, convenience, or help with health maintenance. If segmentation is implemented, more seniors will find the right product for them.

2. New markets. Products or brands could be positioned to meet the needs of a segment the company does not now serve very well. For example, many limited income seniors have been automatically enrolled in Medicare's Part D plans, but they don't have to stay there. If a health plan knows what this segment's concerns are, it could induce them to switch.

3. Geography. Health plans have found it productive to emphasize different products and selling strategies in different geographies depending on the mix of segments in those geographies.

4. Direct marketing is all about segmentation, but it is often focused narrowly on internal sales analysis. Segmentation can leverage the value of in-house data and make additional data worth the cost.

5. Advertising agencies often drive segmentation research and use it well. For example, the client has chosen to target the "mass affluent" as defined by some combination of assets and attitudes. Media buyers need to know the magazines this segment reads and the types of web sites and search engines they use. Copy writers will incorporate the deep values of this segment into commercial scripts. Creative directors will insist that the visual imagery of advertising be consistent with what the "mass affluent" look like, talk like, and do. Account planners will concentrate their research on the target segment,

using the classification tool to recruit and screen the right people.

6. Call centers. Health plans can ask segment classification questions in their response call-in customer interviews and in their telephone enrollment interviews. The classification can help find the best plan for each caller and this will help assure better retention.

7. Channel mix. Segments may have different affinities for different distribution and sales channels. Perhaps one segment of buyers is unreceptive to e-mail communications; another segment may never accept a personal visit but will read your

e-mail.

It is the exceptional firm, but some have literally organized themselves around segments. In these firms, any employee can tell you who their target is, and who the target is not. If they have multiple brands, each brand is adapted to fit one segment. Brand tracking is done at the segment level. The advertising agency for each brand is expected to zero in on that segment in its messaging and media selection. Because some segments inherently offer higher or lower unit margins, financial expectations of the brands are adjusted accordingly. In health care, one example is Wellpoint's commercial operation organized around products and services for different segments of employers.

Conclusion

Market segmentation is a far-reaching strategy that can benefit health plan players. Once the targets have been set, the firm has an opportunity to consolidate management of operations around its segmentation strategy. Every business function can be mobilized to take full advantage of the opportunities that market segmentation offers.