Winning New Customers with Market Segmentation

Part 3- What separates winners from the rest: market segmentation and customer analytics is a key driver

In part one and part two of this three part series we outlined three primary tactics to grow you small business Response Modeling, Customer Lifetime Value modeling and Segmentation as follows:

1. Response Modeling- this addresses a product offer – 37% more of the leaders use it.

The advantages of a correctly developed response model are enormous. By zeroing in on just those consumers most likely to respond to a product offer, the marketer is able to specifically craft the mailing to each consumer.

2. Customer Lifetime Value modeling, which is customer retention 35% more than non-leaders

Customer lifetime value is a critical metric for any business. Those that are able to measure and maximize the lifetime value of their customers have a distinct competitive advantage over those who do not.

3. Segmentation – understanding the strata of your customer and needs– 33% advantage

The process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment.

Part one highlighted Response modeling: tracking tactic results and identify cost data to whatever returns the most for the least amount of resources.

Part two examined in depth view of  Lifetime Value Analysis

 Now let’s spotlight Segmentation

Primer on need to know :

    • Data and insights is 100% about your consumer.
    • Primary  drivers are about the consumer’s decision-making behaviors
    • Predictive behavior
    • Actionable

Segmentation is 100% consumer-based

    • Don’t key in on whom you “think” or believe is buying your product, but whom you can track is purchasing your product
    • Most sophisticated businesses have already moved away from the “women 19-49” model. If your basic segmentation model is still demographically based, do yourself a favor and do a Brand Development Index (BDI/CDI) table to help guide your strategy.

What is a Brand Development Index?

    • A BDI (Brand Development Index) measures how well a particular brand is performing against an identified grou
    • Category Development Index (CDI) measures the sales performance of a category of goods or services within a specific group, compared with its average performance among all consumers. By definition, CDI measures the sales strength of a particular product category within a specific market (e.g. soft drinks in 10-50 year old’s)
    • The BDI/CDI index measures your brand against that category.

As a small or medium business owner today, it’s likely you’ll need to go beyond the usual demographics.

Additional customers segments may include:

    • Behavior: Shop at gourmet stores, entertain more often, have kids
    • Purchasing preferences: Are they heavy users, occasional? Brand switchers
    • Attitudinal: Liberals, conservatives, “socially-aware”, early adopters
    • Geography: regional nuances which may impact behavior, preferences and buying decisions

Decision-making and segmentation

The key is to really understand what drives someone to make a decision.

Let’s look at Oreos as an example:

Oreos in Argentina – A few years ago, when we relaunched Oreos in Argentina, we spoke to consumers and found three interesting factors:

    1. Clear division between personal use (daily) and family buying (weekly
    2. Both, men and women were daily buyer
    3. People bought the small (125 gram) packs during a break because “they were bored and wanted something to eat”.

This prompted us redefine our targets (no more -women 19-49), our media mix (radio, in-store posters) and our creative (no dunking in a glass of milk).

Market Segmentation is Predictive

This is especially key as you expand. If it appears a lot of your business comes from, let’s say, young women (19-24) who are also married and live in middle class neighborhoods, that segmentation should hold true in other cities. If it doesn’t, it might be that it is not a true driver.