Saturday, November 08, 2008

Strategic Planning: How Many Market Segments?

A common issue in strategic planning is "How many market segments should we have?". This issue is one that we address in the first day of our strategic planning process.

As a general rule, I like to keep market segments limited to a number that everyone can carry around in their head. Psychologists have studied what this number is, and their research suggests that the average person can recall a list of 5-9 items. Managers, who are (on average) more capable in this department, can recall 9-11 item lists. In strategic planning, this means you can expect a management team to keep a list of 10 segments straight while your average employee will only be able to keep 7 or 8 items straight. Because I like to see awareness of strategy driven through the entire organization, I suggest a guideline of 6-8 strategic market segments. This does NOT mean you shouldn't do a more thorough job of parsing data in your marketing analysis - it DOES mean you should use a list of segments that will be meaningful through the entire organization when setting strategy.

When CEOs tell me the issues they have with their strategic planning, "How many market segments?" is one of the first five questions I ask. This is because "too many market segments" is a very common problem - and one that is easily remedied in the course of strategic planning.

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