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How to Sell More to Less People: Essentials of Segmentation

Businesses often make the mistake of trying to sell more to everyone.

Why is this a mistake? Well, if you try to please everyone you end up delighting no-one. This is why best-in-class marketing works with best-practice segmentation. Read on to find out how.

Every brand needs to appeal to a precise group of customers. This means that you need to make a choice of who to target amongst all category users. Making a choice also implies that you will have to ignore some category users who you could perhaps attract. Does that scare you?

It certainly worries many marketers and yet it’s the only way to sell more. Although this may sound counter-intuitive, segmentation ensures 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 it can be more complex, like trying to appeal to those who value freedom and are looking for brands that can provide or suggest this dream. This latter one would result from a values and motivational segmentation.

As already discussed in an earlier post called “The 3 Rules of Effective Targeting”, the deeper your understanding of your target customer, the more likely it is to provide you with a competitive advantage. Therefore segmentation alone is insufficient; you must then get as close as possible to your target customers in order to understand them as deeply as possible.

 

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. (>>Tweet this<<) 

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 understanding 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, or at least they did until recently. Today the last condition is being adapted thanks to personalisation. It is more important to assess whether or not it is sustainable rather than substantial.

Even with this change, it is still easy for you to evaluate your segmentation, to ensure it is both valid and robust. If it does not meet these five conditions, then you will struggle to activate it and target your actions to your chosen group of customers.

As already mentioned, understanding your target as completely as possible is vital to the success of your business. I would, therefore, suggest that you review your own segmentation and decide how it can be improved. (>>and%20the%20customer%20group%20deeply%20[tweetlink]%20%23segmentation” rel=”nofollow”>Tweet this<<) (There’s always room for improvement, isn’t there?)

This may mean simply completing the information you have on each segment. Or it may mean running a whole new segmentation exercise. However, it is definitely worth getting your segmentation and target customer choice right. After all, they form the very foundation of your brands’ customer centricity.

 

A solution for those with few resources

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. These could be gathered by mere observation, an analysis of who your purchasers are, or a review of contacts from your customer services group.

Once you have identified the different types of users you are attracting, you can then decide which is the most important group to you, using what is often referred to as the Boston Matrix. This analysis was first developed in the 70’s by the Boston Consulting Group. At the time, the matrix  was created to help corporations analyse their business units and was based on market growth and relative market share.

Today this scatter plot is created using various elements to make up the two axes. Whilst the criteria you use for each axis can vary, this simple analysis has the advantage of being able to be further refined over time, as you get more information.

 

Choosing the criteria for the axes

The two axes you specify for the Boston Matrix can be as simple or as complex as you like. Obviously, the more criteria you use, the more accurate your analysis is likely to be. Examples of the criteria you can use include:

Attractiveness: Segment size, segment growth rate, segment value, competitive environment, how well the group fits the company or brand – or vice versa.

Ability to win: Attractiveness to your customer, completeness of your distribution channels, your media mix, your reputation.

You can use any or all of the above suggestions for creating the two axes. C3Centricity provides an automated tool for calculating the two axes and then positioning segments on them. This is made available to all participants of the Customer Centricity Champions Classes. Find out more by signing up to one of the forthcoming webinars.

 

Choosing the actions to take on each segment

Sell more through better customer targetingOnce you have positioned the different segments or groups of customers on the axes, you can easily see what needs to be done for each:

Target: these are your core users as they are both attractive to the business and easy for the company’s product or service to attract. Therefore, they need to be protected from possible attacks by the competition.

Convert: these users can be attracted to your product or service but your ability to win them is currently low. To win these customers you probably need to consider improving one of the elements of the mix in order to attract them.

Grow: your product or service can easily win these groups but perhaps they are not as profitable as you would like. This might change, so it is important to review them from time-to-time or develop a different strategy to attract them.

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?

 

Conclusion

All businesses want to sell more. They also want as many customers as possible. However trying to sell to everyone is unlikely to meet with the success you hoped. Choosing the right group of customers to attract with your product or service is essential. But so is doing everything you can to then understand your chosen segment as deeply as possible. Truly customer centric organisations excel at doing both; do you? (>>Tweet this<<)

Need help in segmenting, identifying or understanding your target customers? Let us help you catalyse your customer centricity. Contact us here or check out our forthcoming Webinar Customer Centricity Champions. You’ll learn far more about segmentation, how to use the Boston Matrix and a whole lot more. Reserve your slot before it’s too late!

C3Centricity used an image from Denyse’s book “Winning Customer Centricity

This post is an updated version of one first published on C3Centricity.

Improving Ideation, Insight & Innovation: How to Prevent Further Costly Failures.

If you prefer to listen to the PODCAST of this post, click HERE. Don’t forget to subscribe on iTunes too!

As you know, I am a global customer centricity champion. My passion is helping organisations to grow faster by putting customers at the heart of their business. One of the most frequent requests I get is to help in improving ideation and innovation.

This is by far the most common area that my clients struggle with. Is it a challenge for you too?

Many companies create great new products and services – from their perspective – but they fail! They then ask if I can help them to identify to whom they should be selling. Of course, I do help them, but I also suggest that next time it would be better if they called me before they started innovating! In a failure situation, it is almost always due to an outdated innovation process in which the customer has not been involved.

I know it can be difficult to innovate in this new age of technology, but it remains vital for growth. This is why I was recently invited to run two workshops on improving ideation and innovation, as well as to speak about it at three different universities in Beijing and Shanghai.

China is an Innovation Hot-House

China joined the top 25 most innovative countries in the WIPO global innovation index for the first time this year. This is because they no longer rely on cost-effective manufacturing alone. They also applied for more patents than the next two countries, the United States and Japan, combined! This clearly shows that China is improving ideation as well as their innovation. But they know they must do even more. To become a truly competitive nation, they have to better understand their customers, especially their growing middle and higher-income residents, who continue to prefer primarily imported Western brands.

Let me share with you a few of the ideas that I spoke about during my visit. They may just save you too from more costly failures.

Innovation is Essential

Switzerland continues to lead the world in innovation according to the latest WIPO GII study. It was, therefore, a privilege for me to by invited to help China corporations and academics by proposing a new way to innovate.

Most companies innovate from a technical and skills-based foundation. It doesn’t usually work very well, if at all. In fact, according to Nielsen, IRI, Fortune and many others, it is estimated that between 85% and 95% of new consumer products in the US fail. In Europe, it’s just as bad, with only 25% of new consumer products still on the shelf just twelve months after launch! And less than half that number by the end of the second year.

With such disastrous results, you might wonder why companies continue to innovate. Well there are three main reasons why they do:

  1. It keeps brands fresh. Brands which innovate have something new to share with current and potential clients. We have come to expect it. What excites today, is normal tomorrow and then just boring after that. We have gotten accustomed to regular updates and constant new choices.
  2. It encourages switching. If brands and options remain the same, people would only switch if they became dissatisfied and the cost of switching was low. Since product performances are so similar in many categories today, new variants and offers suggest differentiation. The brand appears more vibrant and people like that.
  3. It revives brands through excitement and buzz. In today’s connected world, this is vital. People learn about brands as much from friends and family as through advertising. And they trust the former more than the latter, even if some of these “friends” are virtual ones they’ve never met. According to Nielsen’s report ” Global Trust in Advertising” more than eight-in-10 global respondents (83%) say they trust the recommendations of friends and family, and two-thirds (66%) others’ opinions posted online.

 

NPD Funnel copyRenovate your Innovation Process

It still surprises me that companies continue to use their same innovation process when their failure rate is so high. It often looks something like the diagram on the right. Is that what yours looks like? In fact, is your process a funnel? If so, then you are facing at least two problems:

1. That it is a funnel. This process is linear, with a beginning and an end. It assumes that there is only one “winner” from all the ideation and brainstorming. And it also supposes that only one concept developed from that “winning” idea will succeed.

But what if all your ideas are great? You would be throwing away all but one of them! Or suppose that they are all “losers” and you launch the least “awful” amongst them? There must be a better way, no?

Even IDEO’s iterative process still assumes “winners”, because they quickly move from brainstorming to prototyping and testing with customers. At least they do suggest co-creating with customers which is a positive element of their process and it is great fun to do – from my own experiences.

 

2. That it doesn’t include the customer. How can you have any chance of innovating for your customers if you don’t include them? You are relying on your own perspective to make choices. Are you the typical consumer for whom you are innovating? Probably not. In which case, why are you taking decisions based on your opinion? It’s pretty irrelevant!

Virtuous circle of better innovationThe second diagram on the right is the type of NPD process that I encourage my clients to use. It is, of course, adapted to their specific needs, based upon their current process. By doing this, it makes adoption of the new process much easier, by quickly getting everyone to support the needed changes.

The major difference from most current innovation processes is that it is a virtuous circle. It starts and ends with opportunity identification, in other words with the customer and insight. This, of course, means that we must know and understand our customers deeply.

Know your Target Audience Intimately

We all think we know our customers, but this is often not totally true. Not deeply enough anyway. One of the quickest roads to improving ideation and innovation is to know for whom you are innovating. (>>Tweet this<<)

The first thing I ask my clients to complete is the 4W™ Template of the “who”, “what”, where” and “why” of their target audience. Often times they struggle with the last “w”. If you want to try it yourself, check our post “How well do you know your customers?”

Even with the template filled, you still have to go further. Optimal understanding comes from regular connection. Our customers are changing – fast, so we need to keep our finger on the pulse of the market. Yesterday’s information is no use to manage today’s brands or innovate for tomorrow.

During my talk at Shanghai’s ECUST, someone asked how we can be better prepared for the future. I loved the question, as it enabled me to speak about another of my passions, that of scenario planning.

Change happens, and especially rapidly in China. My recommendation to the student was to not rely on trends alone. They are uncompetitive. To gain an advantage over the competition, you need to develop them into plausible future scenarios. If you are interested in learning more, then do check out our post “10 Steps & 5 Success Factors to Ensure your Business is Ready for Anything“.

Knowing why your customers do what they do, buy what they buy and consume what they consume, and then watching and listening to them, will put you in the best possible position for improving ideation and innovation. But there’s still more you can do.

Increase your External Partnerships

As mentioned above, many companies still rely on their own technology and skills to innovate. However, while technology can certainly help deliver improved benefits, it is unusual to be sufficient. In many areas, companies need to collaborate with others who are more specialised in certain areas.

Joint ventures and partnerships are useful for developing new products and services more quickly. You don’t need to build the needed skills internally and you can rely on the immediate support of external experts. Whether you team up with another corporation or a university is up to you, as long as you recognise the support you need. If you rely totally on your internal knowledge for improving ideation and innovation, you are unlikely to find those breakthrough ideas most companies are searching for.

There are many examples of large consumer goods companies partnering with external experts. The Laboratoires Innéov was a joint venture in nutritional cosmetics between L’Oréal and Nestlé, although the relationship ended in 2015. Nestle also created  Cereal Partners Worldwide as a joint venture with General Mills and Beverage Partners Worldwide with Coca-Cola.

Procter & Gamble and >Teva Pharmaceutical Industries announced the creation of a joint venture in consumer healthcare in 2011. The newly named PGT Healthcare partnership with president Tom Finn has since negotiated tens of JV’s, partnerships and strategic alliances.

Expand your Business Model

Another external lever from which more and more companies are benefitting today is a change in their business model. Take the food industry. It is moving more into health and wellness and could become a direct competitor to the pharmaceutical industry as it develops more nutraceuticals.

Pharma, on the other hand, is moving from sickness to wellness, from treatments to prevention.

Or what about telecoms? They now make almost as much money selling geo-localisation data as they do from providing communication services.

Or how about Google moving into cars, solar panels and most recently travel with its Trips App? Through the analysis of their customers’ searches, Google can identify those of us who are looking to travel, those interested in buying a new car or in using taxi services. Google knows more about us today than we know ourselves. And that is both exciting and frightening.

Work with Emotional Benefits, not just Functional Ones

Companies which succeed at innovation know that it is the emotional benefits of their product or service that matters, often more so than the functional ones. (>>Tweet this<<)

Apple used to be a great innovator. In the past few years, I feel they have been relying too much on their technical expertise. The recent launch of the iPhone 7 and the new Mac Book Pro were both less successful than their previous launches. While neither are true flops, they failed to ignite excitement in their potential customers.

There have been numerous posts on why Apple is failing at innovating today. One article in the HBR by Steve Blank stated that both Steve Jobs and Bill Gates “… suggested execution executives as their successors. They confused world-class execution with the passion for product and customers, and market insight. Yet history has shown us that these two talents are not the same. For long-term survival in markets that change rapidly, one is far more important than the other.”

Another article in Business Insider by Julie Bort concludes by saying “Microsoft is now officially more innovative than Apple” based upon Tweets of the events. But Microsoft too failed when Bill Gates handed the company leadership over to Steve Ballmer. For 14 years Ballmer successfully ran the business from a financial perspective. He tripled sales and doubled profits. But he didn’t set the company up for long-term survival. In early 2014, Satya Nadella took over and made some radical changes which focused the company on mobile and the cloud (Azure). This freed Microsoft to become more innovative again and the result is already showing.

You can never go wrong if you start from your customers’ perspective and connect emotionally with them. (>>Tweet this<<)

Develop Insight as a Company; Don’t Leave it to Market Research Alone

Some managers think that insight is just another word for market research. They’re wrong, but perhaps you too see it in this way?

Market research is a great source of information, but for insight, you have to integrate multiple sources of information. It is rare for a single project to provide a deep insight. This comes from truly understanding the customer and that takes time. It takes data and information, turned into knowledge and then understanding.

Insight ProcessKnowing is also insufficient unless you understand what it all means to the customer.

The full development process, such as the example given on the right, takes time and people, ideally with differing perspectives. It takes a detailed understanding of the target audience, their needs and desires so that you can resonate emotionally with them.

Many organisations work with human truths to help in identifying a concept that will resonate emotionally. These are usually based on basic human needs, which cut across cultures. This makes them particularly useful for regional and global brands.

During my different talks, I gave many examples, but one which my audiences found particularly fascinating was the insight both Unilever’s Omo and Nestle’s Nido are using. The insight is based on the human truth that “All parents want their children to grow up happy and healthy”. The insight they then developed, which is relevant for both washing powder and infant formula is “I want my child to experience everything life has to offer, even if it means getting dirty”. What is particularly interesting in this example is that both companies have been able to use the same human truth and insight but make it relevant for each of their categories.

My recommendation, therefore, if you are struggling to develop insight, is to analyse your competitors or the brands targeting a similar audience. If you can identify on what human truth and insight their message is based, you may be able to use it too.

Conclusions

These are just a few of the many ideas which I shared with enthusiastic audiences wherever I went in China. It is clear that both entrepreneurs and corporate executives in the country are keen to improve their innovation. They are also thirsty for support in further improving their ideation. For this reason, I believe they will continue to top the nations in patent applications for many years to come. Therefore, it is vital that we supposed ” developed” nations support our entrepreneurs and creative executives to stay in the race. Unless we do so, we could see China dominate new products and services as they have dominated manufacturing in the past.

What do you think? I would love to hear your thoughts on the race for innovation. 

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