The ability to segment markets effectively is essential to a company's success. Segmentation pays off big when used in strategy development, product and market planning, and sales targeting. However, few companies use segmentation in all sets of decisions that have an impact on profitability.
Does your segmentation strategy begin by identifying a business opportunity and go all the way to customer adoption behavior, or does it fall short?
To increase sales and profits, use the following three levels of segmentation:
- Structural segmentation answers the question, "Should we invest in this business?" The purpose of structural segmentation is to identify attractive business opportunities and markets worthy of investment.
At a market-focused level, structural segmentation provides a road map for allocating marketing resources, including product development and sales and support resources, based on revenue potential and industry group.
- Needs-based segmentation. Many businesses make the mistake of thinking that all they have to do is develop exciting new products or services and customers will flock to purchase their new offering. Actually, properly identifying the prospective customer's needs should be the first step in developing a new product or service.
The next step is to evaluate your core competencies and technology capability to see how they can be used to meet the customer's needs. The matching of the needs and benefits impacts, positively or negatively, the future success or failure of a new product or service.
- Sales-effectiveness segmentation focuses resources on prospects most likely to buy your product. Instead of investing time and money on consumers who are not ready to purchase, spend your valuable resources targeting customers who are motivated to buy in the near term.
Case in Point: Women's Health Foundation
The Women's Health Foundation (WHF) successfully used all three levels of segmentation to launch its new product.
Some 80% of women in the U.S. experience some type of bladder or pelvic dysfunction during their lifetime. Most suffer in silence, too embarrassed to mention their problems or convinced that it is something they just need to live with. After the birth of her first child, Missy Lavender, WHF founder, experienced prolonged postpartum incontinence. She was frustrated by the treatment options available and decided to help herself and other women by developing Total Control, a medically based fitness program designed to improve pelvic health and fitness.
Missy holds an MBA from Northwestern University and understands the importance of marketing. She began by using structural segmentation to take a look at the marketplace.
Research confirmed her own frustration in dealing with the disease: a lack of programs directed at women suffering from urinary incontinence (UI). This phase of segmentation is critical. Structural segmentation focuses on resource decisions that either determine potential for business success or demonstrates a segment is not worth pursuing. Once Missy established that a void existed in the marketplace, the decision to invest was easy.
Missy used needs-based segmentation to establish the features that her new product should deliver to meet the needs of her target audience. She met with doctors, medical specialists, physical therapists and exercise professionals to establish a link between technical knowledge and her own marketing knowledge. The team worked together to develop a product that would meet the needs of UI sufferers as well as or better than any other alternative product. Research and anecdotal findings confirmed that three groups of women should be targeted:
- New moms 35+ suffering from post-partum incontinence
- Women 35-50 focused on prevention
- Post-menopausal women 50 plus experiencing symptoms of UI
Through primary market research, Missy learned that women were turned off by the words associated with urinary incontinence. She crafted a strategy using customized messages to convey the benefits of her product using language and images that would appeal to each of the target groups. By taking the time to understand the behaviors, attitudes, and perceptions that impact future customers, marketers learn the forces that trigger the purchase of their product or service.
Too many marketers make the mistake of studying the marketplace, developing winning offerings, and then stopping short. Once the marketer has established the needs and benefits, he must take the time to target the prospects most likely to buy the product.
Sales-effectiveness segmentation is all about identifying the best-fit customers and finding the channels to reach them. Instead of using valuable marketing resources to target women in general, WHF used sales effectiveness segmentation to target prospective customers with a high level of interest. Letters announcing the program were sent to gynecologists and primary care physicians asking them to share news of the new offering with patients suffering from UI. In addition, organizations focusing on family memberships (YMCA) were targeted to reach new moms with an interest in wellness.
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It makes sense to spend valuable resources on customers who are motivated to buy in the near term. This builds momentum. The net effect is to generate more sales out of the same sales and marketing investment. On the other hand, chasing pretenders can stall sales momentum, frustrate your sales force, and ultimately require the investment of additional funds to re-energize the sales initiative.
Take a look at your segmentation strategy—does it go all the way to customer adoption behavior, or does it fall short? By utilizing all three levels of segmentation, you make more efficient use of your sales and marketing resources and increase the odds for your product's success.
If you can offer products precisely matched to your customers' requirements and craft messages using the right triggers, you've got a huge advantage. Add to that the ability to identify hot prospects, and you're on your way to achieving success in the marketplace.
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