There are following criteria for an effective segmentation:
The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data.
It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important especially for demographic and geographic variables. For an organisation with direct sales (without intermediaries), the own customer database could deliver valuable information on buying behaviour (frequency, volume, product groups, mode of payment etc).
The size and profit potential of a market segment have to be large enough to economically justify separate marketing activities for this segment. If a segment is small in size then the cost of marketing activities cannot be justified.
The segment has to be accessible and servable for the organisation. That means, the customer segments may be decided considering that they can be accessed through various target-group specific advertising media such as magazines or websites the target audience likes to use.
The segments should be substantial to generate required returns. Activities with small segments will give a biased result or negative results.
This means the extent to which the base is directly associated with the differences in needs and wants between the different segments. Given that the segmentation is essentially concerned with identifying groups with different needs and wants, it is vital that the segmentation base is meaningful and that different preferences or needs show clear variations in market behaviour and response to individually designed marketing mixes.
The market segments have to be that diverse that they show different reactions to different marketing mixes. If not then there would have been no use to break them up in segments.
The segments must be appropriate to the organisation’s objectives and resources.
The segments must be stable so that its behaviour in the future can be predicted with a sufficient degree of confidence.
The needs and characteristics of each segment must be similar otherwise the main objective of segmentation will not be served. If within a segment the behaviour of consumers are different and that they react differently, then a unique marketing strategy cannot be implemented for everyone. This will call for a further segmentation.
It has to be possible to approach each segment with a particular marketing programme and to draw advantages from that. The segments that a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel and capability to take them all. Hence, depending upon the reach of the company, the segments must be selected.
Apart from the above-mentioned characteristics, the segment must have some other features:
i. Growth potential
iii. Less risk prone
iv. Less competition intensive