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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Abbott Research & Consulting 2006,2007
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.
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.
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Consider all operational levers…
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Abbott Research & Consulting 2006,2007
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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Abbott Research & Consulting 2006,2007
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
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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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Abbott Research & Consulting 2006,2007
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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Abbott Research & Consulting 2006,2007
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”
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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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Abbott Research & Consulting 2006,2007
“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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Abbott Research & Consulting 2006,2007
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?
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Can we reach segment(s)?
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Abbott Research & Consulting 2006,2007
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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Abbott Research & Consulting 2006,2007
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.
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.
www.abbottresearch.com 1-888-244-0285
Thank you!
Susan AbbottWeb: www.abbottresearch.comE-mail: [email protected]: www.arc.typepad.com/customercrossroadsPhone: 416-481-7409 or 888-244-0285
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