INSIGHT on INSIGHT: Utilizing Segmentation

WHAT AND WHEN:  Proper usage

Segmentation should be the cornerstone of any category.  It is best done before investing in most any other insight because it will be used to make sense of most other insight.  However, it is often done in conjunction with a category assessment due to the significant amount of shared information between the two studies.

It is beneficial for understanding new categories that are quickly evolving, growing and attracting new buyers.  It is equally beneficial for mature categories that appear to be static, with little innovation, sales growth or new buyers.

WHY: The benefit and value

Segmentation identifies where opportunities exist and approximately how large those opportunities are.  This recognition will determine what strategies are appropriate and feasible for delivering the results a company desires.

Segmentation will reveal where opportunities align to targeting certain factors, some of which include:

• Demographics (i.e. middle-age, middle-income moms, etc.)
• Psychographics (i.e. people that are worried about consuming artificial ingredients or genetically-modified foods, etc.)
• Behaviors (i.e. people that shop frequently and spend extra for fresh foods, etc.)
• Product attributes (a premium-priced, prestigious item, etc.)
• Value (i.e. purchasing power, lifetime value, etc.)

In many situations, the most useful segmentation recognizes a combination of factors that all work together to define the unique groups and the opportunity each presents.

HOW:  Tips to guide a basic approach

There are dozens, if not hundreds of ways to do segmentation.  Approaches are wrong only to the extent that they do not produce a useful model that helps companies make more successful products, supported with more appealing marketing and content that leads to greater sales.

Any approach will have to be very specific to the category and shopper dynamics being studied.  Segmentation can be over-simplified or excessively complex.  Some basic principles to improve the odds of finding the model that can be acted on and deliver the desired results include:

• It must be relatively easy to observe, measure, and re-measure the attributes and resulting segments.
• The speed at which segments change or people change between segments must be slow enough to reach and close sales before the transfers take place.
• Segments should be mutually exclusive, with membership in only one group at any given time.
• Segments must be large enough to be worth targeting.
• The total number of segments should be few enough to be understandable and actionable.
• Independent dynamics within each group (such as needs, desires or habits) should be as consistent as possible.  This is referred to as being internally homogeneous.
• Dependent dynamics do not need to be consistent (i.e. it is fine for a group to include people across all age groups if that is not a key driver of the model).
• The differences between or across groups should be as significant and meaningful as possible.  This is called being externally heterogeneous.
• The segmentation can be applied to the entire category, making sense of where competitors are strong or weak, where the market is saturated and where opportunities still exist to address unmet needs.
• Segments can be efficiently reached and have a somewhat predictable and consistent response to stimulus intended to alter their behavior.
• It is possible to reach potential customers via the organization's existing promotion and distribution channel.

APPLICATION:  What to do with the results

The application of segmentation comes in many forms.  It is best done early, broadly and consistently to ensure all dimensions of a business are focused on the same understanding and same opportunities.  This can be best accomplished by doing the following:

• Share and sell the segmentation internally to ensure key decision-makers are viewing their business decisions through the segmentation lens.
• Brand and label the segments before sharing externally to help develop a unique view of the category and language that competitors cannot duplicate.
• Overlay competitive products with the segmentation to understand where the market is crowded, where voids exist because no opportunity exists and where true opportunity remains.
• Overlay all internal brands, products, programs and strategies to determine how well they are being optimized for specific segments versus blurring across multiple segments.
• Use the segmentation to clarify how products can be better differentiated from each other and more closely aligned or configured for the needs of unique segments.
• Explore how the segmentation may be distributed differentially across certain channels or retailers, suggesting areas of strength to build on our under-developed areas to address.

There are many ways to approach and apply segmentation.  Up-front planning is critical to making sure the resulting model is as useful and valuable as expected.