Step 1: Segment the Market and Identify Target Customers
By Mark Dresdner
Welcome back guest blogger and Friend of Bauman (FOB), Mark Dresdner of Stratapult Advisors. This article is part one of a five-part series on developing a successful branding strategy.
Developing a product or services’ value position for a targeted market segment is vital for successful marketing initiatives. Promoting a message that is designed for everyone will fail to resonate with anyone. Therefore, the target customers and their associated needs, attributes, lifestyle, and other things that matter to them form the foundation for a successful brand strategy.
Segmentation of customers involves dividing the market into subsets, and each subset is likely to have different attributes and needs. The foundation for successful segmentation requires the subsets to be identifiable and assessable. If this is not the case, it becomes impossible to market to them effectively; for example, it is hard to find marketing channels that will reach them cost effectively.
Creating identifiable and assessable segments is often a struggle. The airline industry, for example, tries to price differently for business and leisure travelers, however, identification of each segment is challenging. A tactic used to attempt to separate business travelers is to offer different leisure rates if a Saturday night stay over is part of the itinerary. An application of this is the sale of ‘distressed inventory,’ that is unsold airline seats close to the travel period—such as a $99 flight to Florida this weekend. Business travelers are becoming easier to fence off in the buying process through the increasing usage of corporate booking tools, software that companies use for making bookings with airlines, hotels, and rental cars firms.
Segmentation should have customer needs at its core so that a company can tailor their value proposition to attract the desired target segment. The methodology of customer segmentation needs to be tailored to the characteristics of the market and the company’s product or service.
Attributes that can be used to segment, depending on the situation, include:
- Geography: region, city, climate, population density
- Demographic: stage in lifecycle (e.g. retired), gender, age, occupation, industry
- Psychographic: values, personality, lifestyle
- Behavioral: loyalty, buying habits, usage by time (e.g. time of day, day of week, or length of usage), self-paying or company expense
- Needs: financing terms, product attributes, delivery time, service levels (direct online insurance sales provides a different service level than your local agent, for example)
While a variety of attributes are useful for segmentation, the epicenter has to be needs if it is to facilitate a profitable, targeted brand. A customer segment of 45- to 70-year-olds in Boston, for example, will most likely not provide enough commonality about the true needs of this customer segment. These needs are the foundation of what the company’s product or service aims to satisfy.
Once the market has been segmented, one or more groups are to be targeted. The target customer segment should be chosen because it is profitable, large enough to support meaningful sales, and expected to grow overtime. Moreover, the company needs to be sure that it can differentiate itself effectively relative to the competition by providing an attractive value proposition to woo and keep the target customers.
Next week we’ll discuss Step 2: Positioning The Brand.
Craig: Thank you for the comment. As you mention, the process can be challenging. One of the biggest struggles is agreeing to narrow ones’ target customer segment, because it means that some potential customers will not be targeted. This gives the perception that it could reduce business growth. However, with the right value proposition for a targeted customer segment, growth can be dramatic.
Good start on market segmentation. One of the aspects of market segmentation not mentioned much is its use variability. The collection of segments in a market is a partitioning, not mathematically speaking, sense there are overlaps; even in your examples, members of the geographical partition may overlap into the needs partition. We partition the market to learn characteristics about the market. The partition doesn’t need to be permanent as most discussions imply. Depending on its use, some partitions are used to illuminate a specific attribute of the customer, when the analysis is completed, the partitioning goes away.
With the insight gained from the multiple partitioning, we develop a mental model of the targeted customer segment. You mentioned a customer segment of 45- to 70-year-olds, focusing on their needs is important, but understanding that these people live to satisfy the needs of a different segment, 0-30-year-olds adds some of the complexity that our friend Mark Dresdner suggested. This insight can be gained by multiple partitioning. Once the insight of your targets value chain is understood, you can better identify the targets’ real needs.
The partitions don’t necessarily drive new segmentation, though they may, however, they can and should also be used to provide deeper understandings of the targeted customer. In the end, segments aren’t an either/or proposition, but more of a when.