Segmenting for Success

Sawtooth Technologies, Inc.

Segmenting for success in both consumer and B2B markets means going beyond traditional segmenting variables, such as demographics or company type, and focusing on needs, attitudes and lifestyle. In this article Sawtooth Technologies, Inc. highlights the benefits, approach, and uses of segmenting a market in such a way.

Why Segment Differently?
Often marketers segment markets based on demographics or geographic variables. Why segment differently? The reason is simple: These types of variables are descriptive, but not predictive. Motivations drive behavior, and by understanding the motivations of different segments of the market, one can reasonably predict how those segments will behave. Products which save time will likely appeal to a high convenience segment, products using the latest technology will likely appeal to early adopters, and so on. There may be demographic similarities among people within the same segment, but demographics don’t define a segment. Those valuing convenience may skew higher income, but not all higher income people value convenience.

Product development efforts in particular will be more successful when executed with a specific attitudinal segment in mind. How do you design a new hair care product for a woman who is in the 35 to 50 year age range? Where would you even begin? But now imagine there’s a segment called the Whole Beauty segment. This (hypothetical) segment sees personal beauty as a larger part of the beauty and longevity of the Planet Earth. Now can you imagine a hair care product which would appeal to this segment? The product’s ingredients, packaging, and positioning would all be driven by the segment’s motivations and values and would likely reflect a holistic, natural approach to hair care. This segment may show a regional skew (such as the West Coast) but may span several age ranges. It is the underlying motivations and values, not the demographics, that define the segment, and it is these values that allow us to more fully understand and embrace this consumer’s point of view – and ultimately predict the type of product most relevant to her.

The same principles apply to a B2B market. Developing a product for the “average” customer may result in a product that appeals to no one in particular. An innovation-driven segment will value the latest technical improvements, whereas an uninvolved segment may value an easy-to-use, widely available product that does not require advanced knowledge.

How Do You Identify Attitudinal or Needs Driven Segments?
Identifying the segments that exist within a market starts with a quantitative market research study. Respondents are asked about their attitudes toward products in the category, unmet needs, or both. A statistical analysis forms groups of respondents with similar attitudes or needs.

The attitudes and needs which are measured will be broad and deep, so that nuances across segments can be identified. For example, if there is a price-driven segment (and there usually is), why is the segment price sensitive? Is it out of economic necessity? Frugality? Low interest in the category? Or do they view all products as essentially the same? We will only know if we ask about attitudes toward price in a number of ways; this is key to arriving at a rich understanding of the segments and their motivations.

How Do You Choose Which Segment to Target?
Choosing one or more target segments is an essential step to segmenting for success. A brand or product cannot be all things to all people, or it becomes nothing much to no one in particular. A good rule of thumb is to choose one or two target segments, with perhaps one or two additional close-in segments. The target segments will be those for whom you are designing your products or services. The close-in segments will be those you also hope to attract, and therefore do not wish to alienate in your product positioning and messaging.

Typical criteria in choosing target segments include segment size, market share (volume and dollars), alignment with your current products, and alignment with your distribution channels. However, there is not a “one size fits all” approach to choosing targets. Segment size should always be considered, but targeting a niche segment that the broader market doesn’t serve can be a winning strategy, especially for a new entrant in a market.

There is typically an alignment between attitudinal segments and the brands in the market, meaning that certain segments skew strongly toward particular brand usage. This is a good place to start when choosing target segments. Where does your brand “live” today? These segments are a natural target. Where do competitive brands live? These segments may be more difficult to penetrate.

Which segments’ values are a good fit with your brand and company? What investment would be required to target a segment of interest? (For example, do you have the capital resources to target an Innovation segment which expects a constant stream of new and updated products?) Is there a segment that is underserved by the current brands? These questions will help direct you to the most appropriate target segments.

How Do You Use Your Targets to Segment for Success?
In an ideal world, all of your products and all of your communications will be focused on your target segments. The products you develop will be aligned with your segments’ values, and in fact, future market research can and should be done with consumers who fit your target segments. Brand messaging and positioning should be based on your segments’ values, as well.

It may require a radical shift in thinking from seeing every customer as a target to focusing on those in target segments. But aligning your brand and products with a small number of segments, and “owning” those segments, is the ultimate payoff.

This content was provided by Sawtooth Technologies, Inc. Visit their website at www.sawtooth.com.

[Feb 19, 2010]