Segmentation allows brands to divide their customers and prospective customers into smaller homogenous groups or segments. Segments are then valued, and the highest value segments are identified. Brands can then focus entirely on the highest value segments. Segmentation helps brands understand how to market and communicate with each segment in a manner that will result in greatest return on investment. Acquisition and retention efforts are optimized allowing those using segmentation to sell more products or services than brands that do not understand their segments.
In its most sophisticated form, segmentation employs quantitative methodologies, customer databases, and multivariate statistical analysis.
This article explores how segmentation can be utilized to improve return on investment.
MARKETING PLAN DEVELOPMENT
Every brand has some idea of who their customers are and could be. A brand knows this through their interactions with existing customers. But why would a brand develop an entire marketing plan on these ideas and assumptions rather than on marketing evidence and research? A company could lose a lot of time and money basing a marketing plan on just hunches. It is important to do the research needed to be assured the assumptions you have are correct, or in some cases, not correct. Segmentation is an invaluable part of any marketing plan and ensures marketing time and money is spent in the most efficient manner.
DEVELOPMENT OF PERSONAS
Segmentation uncovers specific attributes of the customer segments. These segments can then be used to develop a Persona for each segment. Using Personas can be a powerful tool for Sales and Marketing internally. Personas typically include needs, psychographics, industry specific measures, business, and consumption evaluations. If everyone in a company from the c-suite to rank and file employees can understand each segment from an emotional and functional perspective using personas, and immediately recognize high value segments, the entire organization can be enlisted in a brands marketing efforts.
OPTIMIZE SPENDING
Once high value customer segments are identified, spending of marketing dollars can be optimized and focused on the highest value segments. Marketing spend can be by the categories and/or channels most effective per segment to attract new high value segments or to retain high value customer segments.
DIGITAL STRATEGY
When the online customer experience is tailored to the segment and when done right, transactions will increase. Focusing on high value segments improves retention of existing segments as well as the acquisition of high value segment lookalikes. Websites and digital communication strategies can be finetuned to target key segments and to prioritize the marketing channels. Analysis of the behaviors of the high value segments gives a brand the ability to spend their marketing dollars per category and be able to retain customers by enhancing their online customer experience. Communications with the various segments can be tailored to the channel most responded to and enhances the ability to incentivize the most loyal segments most likely to evangelize for the brand.
ADAPT THE BUSINESS MODEL TO FIT THE CUSTOMER VALUE AND COMMUNICATIONS MODELS
When a marketer can discriminate between high and low value customer segments, business strategy and tactics can be optimized. The form of communication can be personalized and tailored to each segment, which increases engagement and ultimately sales. Segmentation can help redefine a brand, and the direction the brand should go in. If a high-value segment isn’t responding well to a new product or offering, changes in direction can be made quickly and efficiently.
PRODUCTS AND SERVICES OFFERED
Using segmentation, product or service categories can be prioritized. The product features and requirements of the most valuable segments can be used to drive design, innovation, and the development of new products and services. Knowing what a high-value segment is responding well to, can be powerful information in the development of new products or services.
PRICING
A brand can develop optimal pricing strategies when used in combination with other pricing and existing economic data examined by segment. A brand can find out if a high value segment is price averse or not price averse, and where that point is. This is invaluable information when pricing products and services.
KNOWLEDGE IS POWER
Using Segmentation Analysis to understand the audience is a powerful marketing research tools for a brand. Using market research to identify the high value segments allows a brand to focus time and investment strategically, ultimately increasing your ROI.
Janene Forman is a Research Analyst at Q2 Insights, Inc., a research, and innovation consulting firm with offices in San Diego. Kirsty Nunez is the President and Chief Research Strategist at Q2 Insights. If you would like to learn more, please reach out to Kirsty at (760) 230-2950 ext. 1 or kirsty.nunez@q2insights.com.
