Implementing a Segmentation Strategy

www.abbottresearch.com 1-888-244-0285

Segmenting for Success

Designing an implementation planPresented by: Susan Abbott

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Abbott Research & Consulting 2006,2007

Valid and reliable doesn’t always mean useful …

200 CEOs surveyed in 2004

59% had conducted a major segmentation exercise within the

past two years

14% said they derived value from it

Yankelovich and Meer, Harvard Business Review, 2006, reporting on study by Marakon Associates and

Economist Intelligence Unit

200 CEOs surveyed in 2004

59% had conducted a major segmentation exercise within the

past two years

14% said they derived value from it

Yankelovich and Meer, Harvard Business Review, 2006, reporting on study by Marakon Associates and

Economist Intelligence Unit

59%

Paid for segmentatio

n project

200 CEOs

14%

“Valuable”

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The most critical point of this presentation …

For segmentation to be useful, you must be able

to act on it…

Then you need to coordinate action in the

organization.

Marketing can’t do it alone.


to act on it…


organization.


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Consider all operational levers…

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What’s a useful segmentation strategy?

Aligns with strategy Points you to opportunities Connects values, attitudes, beliefs – specifically related to your product

or service category/offerings Focuses on actual customer behavior You can explain it to your boss. And it makes sense. To both of you Accommodate/anticipate changes in markets and behavior

Adapted from : Yankelovich and Meer

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Differentiated Product/Service: Mobil Oil

Early 1990’s gasoline price wars 2 price / volume segments

Price sensitive customers, USD $700 annual, 20% of market Not price sensitive, USD $1200 annual, 80% of market

Response Shifted focus away from pricing onto other differentiators Added 2¢ per gallon, annual value USD $118 million

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Mobil Oil Example Benefit Matrix

Basis for Segment Price Sensitive Price Insensitive

Principal Benefit sought Lowest price of gasoline at the pump

Something besides price (Service? Convenience stores?)

Demographics ? ?

Behaviour Spend average of USD $700 per year

Spend USD $1200 per year

Size of segment 20% of market 80% of market

Ask yourself: can you still buy gas here if you are not in the target segment? Yes, of course. But they are not tailoring their offering to you.

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Price and Benefits Differentiation: Loblaw

using a multi-format approach to maximize market share over the longer term

focusing on food but serving the consumer’s everyday household needs

creating customer loyalty and enhancing price competitiveness through a superior control label program

Source: 2005 annual report

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Segment Focus Strategy: Whole Foods44

“We Sell the Highest Quality Natural and Organic Products Available”

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Dell: Differentiated Products & Services

New Vostro line of small business computers No freeware or demonstration software loaded in Different software offers for Windows and Office suites More reliable than consumer models Support services

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Competing with Starbucks66

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E-roleplay: Two Sided Market Segmentation

Actors who need interesting jobs between roles

Service companies that need better training experiences

77

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Life stage Segmentation: Umpqua Bank88

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Umpqua’s Day-to-Day Banking SegmentsLabel Go Reach Savor Cruise

Description Specially blended to give a quick lift to those just starting out

A crisp and lively blend for those working toward their dreams

A rich blend with those who have achieved their goals with room to grow

Bright and full bodied to bring out all the flavor of your better years

Principle Benefit Sought

Low service charges

Low minimum required balance

Unlimited transactions

$7.50 monthly.

Includes safety deposit box.

$10 monthly, but accounts earn interest

Free notary services

Free investment consultation

Low or no charges on most services, unlimited transactions

Membership in Club Carefree

Demographic Correlate

Students and young adults

Young Families in asset acquisition stage

Well-established, mid-life. Building investments

50+

Behavioral Correlate

Low balances High spending, low balances, no investments yet

Have savings and investments

Moving into retirement, or semi-retirement

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Differentiated Communication99

Same product

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The Marketing Concept

1. Understand your customers' needs and preferences

2. Group your customers into segments based on their needs and preferences

3. Target segment(s) you can best meet their needs and preferences This includes targeting and competitive analysis

4. BrandingNot merely awareness but brand positioning

5. Provide superior service or products to meet your targeted customers' needs and preferences.

Happy customers, profitable sustainable growth

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It sounds just like a change management project!

Get organized to build model

Deepen Learning

Build Model

Use

How segmentation strategy fits with overall business strategy

How might you act on the learning. Eliminate non-starters right away.

Who needs to be involved

Stakeholder identification

It’s not just a marketing & research department project!

How segmentation strategy fits with overall business strategy

How might you act on the learning. Eliminate non-starters right away.

Who needs to be involved

Stakeholder identification

It’s not just a marketing & research department project!

Choice of model needs to fit business strategy and options

Must fit organization’s ability to identify and respond to segments

OR – start building the needed data

Choice of model needs to fit business strategy and options

Must fit organization’s ability to identify and respond to segments

OR – start building the needed data

Spread the learning throughout the organization

Spread the learning throughout the organization

Integrate all marketing activities with the segment strategy

Integrate data collection and management

Integrate channel strategy, metrics

Integrate all other research

Integrate all marketing activities with the segment strategy

Integrate data collection and management

Integrate channel strategy, metrics

Integrate all other research

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Why do you need executive sponsorship?

To make operational changes, you need to touch all parts of the business Sales efforts, even the structure of the sales force may change Infrastructure may change All marketing efforts will have to change to match the segment structure

Existing culture, knowledge, business processes and powerful constituencies will derail your efforts without C-level support

Net result: “segmentation didn’t work for us”

Existing culture, knowledge, business processes and powerful constituencies will derail your efforts without C-level support

Net result: “segmentation didn’t work for us”


Choosing a Model

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“The basic difficulty is that value-based segments generally don't fit neatly into demographic ones”

McKinsey Quarterly, A segmentation you can act on, 1999

“The basic difficulty is that value-based segments generally don't fit neatly into demographic ones”

McKinsey Quarterly, A segmentation you can act on, 1999

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Profit Based Segments … may not be actionable

Became famous through the work of First Manhattan Consulting Group Showed banks that 20% of their customers were profitable, 80% unprofitable Dominated thinking for a decade

Pro

fita

bilit

y

Typical decile chart – each is 1/10th of the total customer base

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More actionable …

Some examples of new segments for men Male spas offering manicures, pedicures, etc. Phillips Bodygroom shaver, designed to remove hair below the neck

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“No matter what claims are made for a method’s theoretical validity and statistical sophistication, if it can’t be shown that there is a consistent

empirical relationship between product usage and psychographic segments, the method is essentially useless to the marketer….

To get the most out of segmentation research, it is important to be concerned more with consistent empirical relationships than with

elegant theoretical models”

Chakrapani & Deal

“No matter what claims are made for a method’s theoretical validity and statistical sophistication, if it can’t be shown that there is a consistent

empirical relationship between product usage and psychographic segments, the method is essentially useless to the marketer….

To get the most out of segmentation research, it is important to be concerned more with consistent empirical relationships than with

elegant theoretical models”

Chakrapani & Deal

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The critical questions you need to ask

Can we see different product, promotion, communication, distribution or profit opportunities

with this segmentation model?

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Can we measure the segments? Can we obtain realistic data to consider segment potential?

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What are the desires of each segment? What do they want from us?

Do they make different tradeoffs?

Which attitudes matter for the purchase decision?

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Does senior management understand the segmentation model? Does it fit with their deep knowledge of the

business?

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Is this segmentation model responsive to changes in the market and our customers?

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Can we differentiate competitor offerings with this segmentation model?

66

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Can we reach segment(s)?

77

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3 Major Segment Strategies

One product to all segments Example, discount airlines – one price,

one level of service

One product for one segment Niche markets Luxury goods typically handled this way

e.g. adventure travel

Multiple products designed for and targeted at multiple segments Typical strategy in financial services and

broad based consumer products Example: how many kinds of toothpaste

can you buy?

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The most critical point of this presentation …


to act on it…


organization.



to act on it…


organization.



Thank you!

Susan AbbottWeb: www.abbottresearch.comE-mail: [email protected]: www.arc.typepad.com/customercrossroadsPhone: 416-481-7409 or 888-244-0285