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Essentials of Segmentation and some Simple Alternatives

Choosing the golden segment

All br ands and services need to choose a group of customers that they are going to satisfy, since it is impossible to satisfy everyone most of the time. This means that you need to make a choice and agree to ignore some of the category users you could appeal to, in order to totally satisfy your target customer.

Although this may sound counter-intuitive, segmentation is the only way to ensure you have the best possible chance to satisfy the needs of your targeted customers. 

 

Where to start

When deciding who to target, most companies conduct some sort of analysis. This can be as simple as identifying your users by what you observe, such as young men, or large families, or as complex as looking to appeal to those who value freedom and are looking for br ands that can provide or suggest this dream, which would come from a values and motivational segmentation. As already discussed in an earlier post on the 3 Rules of Effective Targeting, the deeper the underst anding of your target customer is, the more likely it is to provide you with a competitive advantage.

 

The MIDAS touch

Whatever method you use for segmenting and choosing your target customers, the results of your exercise of customer grouping needs to meet the following five conditions, known collectively as the MIDAS touch:

  • Measurable: The individual groups need to be clearly defined and quantifiable using KPI’s such as size, market share, value share
  • Identifiable: Each segment must have a distinct profile and each customer must be attributed to only one segment
  • Definable: Every cluster must be easy to describe and share with others, so that you have mutual underst anding of each of them
  • Actionable: The groups must be easy to identify, in order to be able to target your actions and communications to them
  • Substantial: The chosen segment must be financially viable to target, which means that it should in general be stable or growing, and durable over the long term

All good segmentations or clusterings will fulfil these five key conditions, so it is easy for you to evaluate the segmentation you are currently using to see if it is valid and robust enough. If it does not meet these conditions, then you will struggle to activate it and target your actions to your chosen group of customers.

Since underst anding your target as completely as possible is vital to the success of the business, I would suggest you review your own segmentation and decide how it can be improved. This may mean simply completing the information you have on each group, or may mean having to run a whole new segmentation exercise. However, it is definitely worth getting your segmentation and target customer choice right, as this forms the foundation for your br ands’ customer centricity.

 

A solution if you don’t have the time or money to do this

If you do not have the time, money, or expertise to run a detailed segmentation study, you can still make an informed decision based on simple criteria, and using an analysis similar to the Boston Matrix, first developed in the 70’s by the Boston Consulting Group. At the time it was created to help corporations analyse their business units and was based on market growth and relative market share. Today this scatter plot is used with various elements combined to make up the two axes. Whilst the criteria you use for each axis can vary, this simple method has the advantage of being able to be completed over time, as you get more information. Examples of the criteria that can be used are:

  • Attractiveness: Segment size, segment growth, segment value, competitive environment, fit to the company or br and
  • Ability to win: Product attractiveness to your customer, your distribution channels, your media mix, your reputation

Once you have positioned the different segments or groups of customers on the axes, you can easily see what needs to be done for each:

  1. Maintain: these are your core users as they are both attractive to the business and easy for the company’s product or service to attract them, so they need to be protected from competitors’ attacks
  2. Convert: these users can be attracted to your product or service but your ability to win them is currently low; you probably need to consider improving one of the elements of the mix to attract them
  3. Grow: your product or service can easily win these groups but perhaps they are not as profitable as you would like; review them from time-to-time or develop a different strategy to attract them
  4. Ignore: many organisations struggle to make the decision NOT to go after a group of category users, but if you have neither the product / service nor the segment size that would be profitable to you, why spend time, money and energy going after them?

 

Choosing the right group of customers to attract with your product or service is essential for business success, as is doing everything you can to underst and them as deeply as possible. Truly customer centric organisations excel at doing this; do you?

Need help in segmenting and identifying your target customers? Let us help you catalyse your customer centricity; contact us hereor check out our website: https://www.c3centricity.com/home/engage/

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