Market Segmentation can really pay off and I will focus on the benefits and examples of doing so in this article. Ultimately segmentation or any marketing strategy needs to have a return. If I’m going to invest time and resources into the effort to segment my market, I need to see a justifiable return. When done well, segmentation offers some of the better returns available. Unfortunately, we also see some common watchouts that I’ll share at the end of this article.
Focus on your audience, not the competitors
A few years ago, Goss RV came to us with the challenge that several web-based companies had entered the RV rental market and driven up the costs of search engine marketing. They were seeing some declining sales as well, though not extensively. This initial picture pointed to a classic case of mass marketing vs. segmenting to find the true target market. Goss RV will clearly show up organically in some RV searches, but their niche was in the premium-luxury travel market. These competitors were looking at the larger value leisure market.
As the case study on our website spells out, we began with a focus on who their true customer was. This included demographic and psychographic segmentation. From here, Rand developed a focus on both their current clients and niches that fit their audience. The results were a reduction in leads of 25%. That sounds awful until you realize their number of deals increased 24% and revenue grew by 38%. This was accomplished with lower marketing spend than they experienced with the competitive attack.
It’s a classic case of getting a guide to take you where the fish you want to catch live and then determining the right bait, or tactics to employ to catch them.
Utilize experiments to test segmentation assumptions
One of the challenges with some market segmentation is the desire to get loads of data to prove that you are 90% correct. If you are a Fortune 1000 company that may be feasible, but for most, it’s not. We are currently working with Atlanta Steaks and Seafood and have started some short experiments to help define the right segments for them to focus on. We can use geographic segmentation as a clear need to help the operational side of their business, the next phase is to determine what other factors are most critical.
A couple of ways we determine this is to test a few tactics and record all the results. A recent month was divided into two weeks with sales and two weeks without sales to determine the psychology behind why people may buy. Then we began to look at the balance of new and returning customers and certain experiments to understand which categories of new customers had the most potential. By doing these short one-month experiments, we can gain a 60-75% confidence level and then implement, eliminating larger research costs.
Watchouts with Market Segmentation
As noted above, one common watchout is the desire to have too much information and spend both time and money on getting to a 90% confidence level. Colin Powell famously said that “once the information acquired is in the 40-70% range, go with your gut.” We often see paralysis by analysis in larger companies that want to be completely sure before they make a decision. Unfortunately, the window to strike may be gone by the time they get there.
“Once the information acquired is in the 40-70% range, go with your gut.” — Colin Powell
Another common watchout is only looking at one type of segmentation. We often see this when businesses buy media and go solely on demographic data. Rarely is a single form of segmentation going to give you enough data to merit the costs. To use the above quote, this will at best put you in the 30% range of acquired information. Having at least a second slice of your market will give you a much better view of who to target.
Segmentation is a powerful tool, especially when done well. If you’d like to discuss how Rand Inc can bring you these types of results, please reach out to me at firstname.lastname@example.org.