Marketing segmentation

Marketing Segmentation

Posted on Posted in Marketing Communications

Marketing Segmentation

A couple of recent articles in Harvard Business Review (HBR) on marketing segmentation made me reflect on one of the basics of effective marketing.
In ‘Choosing The Right Customer’ (Robert Simons, HBR March 2014), the Harvard Business School Professor suggests that although there are potentially a number of different groups that could be considered ‘the customer’ – customer, wholesaler, retailer, purchasing department, and so on – what is really important is focussing on the Primary customer.

In brief, the article suggests that many companies hedge their bets and treat all stakeholders as ‘customers’ because it isn’t obvious which is more important than another, and not only in revenue terms.

The article uses an example of the difference between Yahoo and Google to highlight that when a company avoids making a marketing segmentation decision on the Primary customer they survive, but don’t thrive. The threat inevitably comes from a competitor that does focus on that customer and creates their competitive edge around that audience to the avoidance of all others.

The article cites Amazon as a peerless example of focus. Their well-known mission is ‘to be the world’s most consumer-centric company’, and relegates other audiences (sellers, enterprises, content providers) to a lower level of importance, which has resulted in ‘unparalleled customer loyalty and stratospheric stock valuations’.

Simons’ idea proposes that companies should therefore adopt a strategy of identification, observing satisfaction of needs, and changes in satisfaction.

This neatly idea combines nicely with a second article on marketing segmentation.

Marketing segmentation is often about reconnecting with lapsed users, or turning light users to heavy users. In the second article (Make Your Customers Even Better, HBR March 2014) the authors, Yoon, Carlotti and Moore explore how many brands could persuade big spending customers to buy even more. Using a case study from Kraft, they argue there is a massive difference between ‘heavy users’ and ‘superconsumers’ and the latter is more important than the former. The team at Kraft now use the ‘Superconsumer strategy’ to plan its media, trade promotions and new product development in a tightly formed integrated brand plan.

The Pareto Principle would have us consider that anecdotally ‘20% of customers are responsible for 80% of sales’. The hard core superconsumers Kraft found in their research on the Velveeta brand that 10% of buyers were responsible for 30% – 40% of revenue, and an incredible 50% of profit.

The product passion and innovation found in deep investigation of this group enabled Kraft to grow the brand. Through better observing the actual usage and the ‘hacking’ superconsumers had communicated about the product and shared among the ‘faithful’, Kraft were able to synchronise product development.

A key learning put forward in the article is refuting the theory or assumption that ‘good’ customers are already maxed out and can’t be persuaded to buy more, and that this can be done in FMCG, as well as apparel, durables and services.

Yoon et al state that, ‘Superconsumers are defined by both economics and attitude: they are a subset of heavy users who are highly engaged with a category and a brand. This segment is especially interested in innovative uses and in new variations on it. They aren’t particularly price sensitive.

For new product development this superconsumer group is incredibly important in testing out new variations, extensions, flavour, premiums etc, because they can offer insights of incredible value.

For communications practitioners this is great news because it’s easy to reach this group. They’re already buying the product.

Advertising and promotions can be more efficient and therefore more effective.

Direct marketing through traditional and digital channels is going to be much more effective with this segment.

Yoon et al conclude that the additional benefit of executing this strategy is that it can revitalise the focus of the organisation and become a cause everyone can believe in.

I conclude with a thought about Social Media.

For all marketers looking at social as a way to promote your brand to new or light users, remember marketing segmentation and especially your superconsumers – they are your influencers, your ambassadors. They are the ones to segment and engage with. They are the ones who will return the effort. They are the ones to monitor both for satisfaction of the brand and on shifts in that satisfaction. Reward the superconsumers and they will reward you.