Releasing the power of segmentation
"Proper segmentation can revolutionise markets and create explosive growth by showing marketers how to compete more effectively in more segments of the market. As a marketing tool at the heart of brand development, segmentation can be the best analytical tool in the box, yet segmentation has been the poor cousin to brand positioning for far too long."
So says Charles Broome, CEO of brand gurus Added Value, whose blue chip client list reads like the Fortune 500. Broome believes that marketers are missing out on priceless opportunities to leverage the potential of market segmentation to achieve top-line growth. "Segmentation should be used more as a dynamic strategic element to achieve brand growth rather than its usual passive role as a tactical mechanism for improving direct marketing initiatives."
Companies can only make so many cost cuts or acquisitions to grow profits and while traditional marketing techniques fuel growth through brand alignment, cost reductions or waste prevention, sound market segmentation actually stimulates increased demand.
Clever segmentation also allows you to cut the market in different ways and provides the means for tapping into new markets and creating brand opportunities. Witness the 4x4 revolution and how this has spilled into every facet of modern life from footwear to fashion and accessories; even the latest "rugged" cell phones are now made in bullet-proof casing and can be dropped from the top of Kilimanjaro. Gillette razors for women and Microsoft are some other examples, while financial services at supermarkets and home shopping direct from brand owners promise to be the segments of the future. With segmentation the potential for profit and growth is unlimited.
Virtually all markets can be segmented in various ways. While many marketers tend to think that consumer segmentation is the best (or only) way to segment a market, this thinking is flawed. "Segmentation is about understanding how a market works and how choices are made," says Broome. "Tapping into the market from different angles reveals what products are bought by whom, for what reasons, on what occasions and from what places. These findings can expose a segment in the market that explains consumer choice and decision making"
"Marketers need to apply more multi-dimensional thinking when doing market segmentation, looking at every aspect of the market for a complete picture on choice," says Broome. "Different market segments can often be dominated by one particular aspect of choice such as "occasion", which is very important when related to food; or "male or female" which is crucial in toiletries - although this has been challenged by the unisex CK-One.
Broome further warns of the danger of over-complication and using too many factors to explain choice in their attempts to understand the market, rather than focusing on the important elements such as price versus value segmentation. "A good segmentation model will focus on the factors that can be explained (about 90% of consumer behaviour) without harping on the remaining 10% of unexplained factors as a result of an infinite number of esoteric reasons," he says.
With the cost of creating and supporting brands it is wise to consider that the fewer brands there are the better, and that one lead brand should seek to dominate the market through its relevance to as many people, needs, situations and channels as possible. However, where the brand will not stretch without setting up a real trade-off in terms of price, image or product, the solution could be to launch another new or sub-brand.
"The value of segmentation is not only in understanding how the market currently stands, but in understanding how it can be changed," says Broome. In his opinion, many innovations arise through aggressive use of segmentation. One of the simplest ways of doing this, he says, is to apply the segmentation from one market to another to see what opportunities arise.
The value consumers attach to soft drinks for example, like conformist or non-conformist, can explain the difference in choice between Fanta and Coca-Cola but explains very little in snacks and confectionery – although they perhaps could. Consumers prefer different brands and formats for evening or indulgent eating in salty snacks and confectionery but as this choice is not offered in soft drinks to the same extent, they turn to other drinks - mainly alcoholic ones. This could indicate an opportunity for a more indulgent, evening or adult soft drink brand.
"Segmentation offers marketers the most creative arena of all for forging new connections to create growth," says Broome. "Brands create segments, but discovering new ways to segment creates new brand opportunities. Through the practise of proper market segmentation, which gives rise to a clear brand positioning, this ultimately enable marketers to unlock real brand growth - now that's exciting stuff!" Broome concludes.
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