Business Insights

Business Insights

Segmentation for Success

We’ve all done it.  The New Year hits and we’re filled with resolve to exercise more; eat better; spend more time with family, and – of course – sleep more. We do it all. All for one week.

And then we fail.

Why?

Because we’re trying to do too much and spreading ourselves too thinly. Better instead to focus in on just the one change that would make biggest difference to our health and happiness and stick to it. Just the same is true of marketing. Too often, businesses spend their time trying to hit multiple customer targets, with their effectiveness limited by the fact that they’re spreading their resources too thinly. A small number of campaigns hit home. The majority miss their target, because the target isn’t fixed – and because the business doesn’t have the time to find the messages their customers want to hear.


How can businesses avoid shallow, all-bases-covered marketing and make better use of their budgets? The answer: market segmentation.

A market segment is made up of customers who buy the same things, for the same reason, in the same way (and possibly at the same time). As soon as things start to change (i.e. buying at a physical location rather than online, or buying a product for a job rather than a hobby), you've got a different segment. In this way, a business may well have different segments for the same product, or the same segment for multiple products.

Let’s take a look at how segmentation works and how to ensure that businesses target their marketing spend in the right way.

Who will buy?

Segmentation allows a business to find the customers most likely to buy, not those who might buy – this is a subtle, but important distinction which is the key to boosting marketing ROI and increasing efficiency. By targeting a marketing campaign solely at the customers ‘most likely to buy’, businesses ensure that their chips are not spread too thinly and that their returns will exceed their stake. Ultimately, this means that the  cost per acquisition is driven down.

In the marketing world, there is a story – possibly apocryphal – about a business seeking to sell an oil rig moored in Aberdeen. When their sales director found out that the decision-makers in their three target companies were avid baseball fans, they paid to run a TV advert on their targets’ local channels during the World Series. One low-cost TV advert earned three prospects and one sale.

That’s segmentation. Namely, a business understanding who their potential customers are and why they are buying. This allows marketing effort to be applied in the most effective way as different segments are likely to require different marketing activities.

Consider a business manufacturing high-end coffee grinders. Their primary segment may be small, independent coffee shops, requiring advertising in trade publications and  pay-per-click keyword combinations including ‘professional’ and ‘high capacity’. However, a growing market for professional coffee equipment in the home may open up further segments, including electrical retailers and coffee enthusiasts, better targeted by  content marketing through coffee blogs and ebook downloads.

At a basic level, creating a market segment involves finding the common characteristics in current customers, then finding more of those customers. However, B2B can present some challenges and complexities in this regard. Let’s use a company selling printing services as an example.

Segmenting growth

The primary segment for our printer is SMEs with a turnover of between R40 and R80 million. As such, their customer database currently covers 85% of such businesses across the regions where the organisation operates – but there will come a time when this segment is close to exhaustion. It’s beyond the supplier’s power to manufacture new businesses that fit the criteria of their segment. This leaves them with three options:
  1. Begin operating in a new region
  2. Target their services to larger businesses, with a turnover of  R100 million plus
  3. Create a new product to sell to existing customers

Option 1 involves creating a new segment for the new region: the firm would have to invest in expanding their operational infrastructure, and may find it necessary to adopt a different marketing approach for their new customers.

Option 2 is to attract larger businesses, this may require tweaks to the current service offering, and will certainly necessitate new marketing tactics to bring them on board.

Option 3 – a new product aimed at the supplier’s existing client base – may ultimately involve subdividing their existing segment, presenting their new product in different ways to different sub-segments.

Data-first

All three of these options are united by their need for data. By analysing data about an existing customer base (and indeed those businesses that have yet to become customers), we can identify what they have in common:

  • what they are buying
  • why they are buying
  • how they are buying
  • when they are buying

Moreover, segmentation makes it possible to adjust messaging and positioning so that a single product or service can be targeted at more than one segment. Consider how a brand like Lucozade has segmented and rebranded itself over time to shift its focus from health to sport.

Commonalities define our segments and these segments define our marketing approach. Without this understanding of segmentation, businesses are in danger of attempting to market far too widely, wasting effort on groups who are unlikely to become customers. Segmentation also allows businesses to target groups who are most likely to buy with marketing interventions that are specifically tailored for maximum impact and effectiveness.

Ultimately, segmentation allows the greatest value to be squeezed from a marketing budget. Without it, businesses may as well give up on their New Year’s resolution before clock strikes 12 on December 31st. 

Now, where’s that gym card?

 

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