There used to be a time when companies could launch their products to all. Not any more. The proliferation of products and services with minute differentiation has demanded finer segmentation of market in order for even mere survival.
Today, segmentation is an elaborate exercise by most companies we work with. However, barring a few companies that are leaders in categories, very few companies are adept at doing the right segmentation. Majority goes by the standard verticals or SEC based segmentation, which will no more be competitive in the current era. What is more alarming is that when firms look at developing new products or services, they hardly spend enough time in understanding consumers and the segments, resulting in one in every four new product a failure.
Those companies who are segmenting their markets and strategising against key consumer and targets do spend crores on research to fine tune segments. Yet, for many marketers, the larger question remains “So what do we do now?” Is there a way to make the market segmentation process more practical? How do we take the final results beyond just descriptive in nature?
To really deliver actionable findings from any strategic segmentation, here are a few considerations from our experience with AIM Institute in Cleveland: Start with an understanding of both current and potential targets. The segmentation project will be limited to those chosen for the survey. Because it is not feasible to speak with a bottomless sample of consumers or businesses, considerable thought should be given to selecting subjects to poll. Most segmentation projects speak to “category users” but other sub-populations such as lapsed or non-users need to be considered as well. A discriminant function analysis run on these groups can help discover the degree to which they hold attitudes, values or needs similar to those in key segments of the population.
Next is about selecting a reasonably good sample to allow for a natural segmentation. Segmenta-tion often can lead to the identification of a segment that may be as small as one tenth of the target group. Without a sample of respondents large enough to provide full details on a small segment, you may end up with a segment profile lacking in significant differences. If so, and if this smaller group happens to be one of your brand’s critical segments – one with a large proportion of current or anticipated use or purchase – the value of the research will be greatly diminished. Once this is done, match and profile chosen segments against the balance population. Frequently, segments are profiled against the total sample. While not a fatal flaw, this approach often diminishes the power of the differences you seek. A better approach to segment profiling is to examine the segment contrasted with the balance of the population by asking, “How is this segment different from the rest of the target sample?” By taking this analytic approach, differences are more visible and patterns of behaviour and needs can be more readily identified.
It is important now to conduct a significance testing at multiple levels for making conclusions from the research. Choose a more stringent level for what you want to use to optimally describe the segments. Additionally, run the data with a less stringent, more qualitative level to help flush out and fill in profile areas where differences may be subtler and more difficult to recognise. Even if your research agency is hesitant at multiple level significance testing, make the rules very clear from the time of commissioning the research. It is not a question of money and efforts; it is a question of making valuable decisions after the research. Once this is completed, recommend product or service configurations to better appeal to each segment. The product or service most persuasive to one segment may not be optimal for another. Research should identify specific combinations of flavours, styles, colours, features, pricing, etc that optimise appeal among all targets.
Subsequently, you must plan a prioritisation of the segments. Researchers and marketers should have a clear sense of which segment priorities are most critical to current and future revenues. The prioritisation should be based on all available information at your disposal – current purchase and use behaviours, propensity for future purchase and adoption, “openness” to products or services currently under consideration, size of market, having similar or “like-minded” attitudes and/or needs, etc. These priorities should help dictate the course of short-and long-term future efforts against the segments critical to the brand’s success.
Segmentation is rarely a one-sided effort. The power of segmentation is enhanced when all parties contribute based on their areas of expertise.
Consider holding work sessions with key research agency people to enable them to understand your business better. This often helps prevent wrong turns. Segmentation is the beginning for everything!
(The writer is CEO & MD of CustomerLab Solutions)