As I last wrote, it is either foolhardy or impossible to build a good marketing plan in a vacuum. One key area of focus is to understand and catalogue customers.
There are countless approaches to segmentation. But, if we were to segment segmentation approaches, we would come up with three generally accepted buckets:
The most common approach to segmenting customers is still demographics.
Age, gender, marital status, household income, educational attainment, country of origin, languages spoken, address, and so on, are the most collected and used demographic fields.
They are then used either directly to segment customers (for instance. target men versus women based on level of interest) or indirectly to create customer segments (for instance, find groupings of like individuals based on a combination of factors).
There are some distinct advantages and disadvantages to this segmentation approach.
The two biggest advantages as compared to other segmentation approaches are, first, that demographic data will be either readily available or easy to observe and collect; and, second, targeting can be quite straightforward – it's easy to identify gender or easy to mail to a household.
The biggest disadvantage is that you can be auctioning against a symptom and not a cause – demographics don't explain why a customer acts the way he or she does.
One other disadvantage: If working with an existing customer database, you can miss a whole demographic group, which may represent potential customers who are simply unaware.
Behavioural segmentation is also widely accepted as an approach, and goes deeper than demographics to explain how and why customers do what they do.
This approach typically leverages sales or transactional data to look for patterns of behaviour. For example, a thorough analysis of sales histories by customer may reveal information such as a group of them who respond to sales or promotions, or who purchase more on a given day of the week.
Advantages of this approach include an ability to at least infer reasons behind observed behaviour, as well as the ability to then map demographic data onto already identified behavioural groups (for instance, you may find that discount buyers are mainly younger, Caucasian, lower-income men).
A disadvantage of this method, as in the first, is that, because you are working with an existing customer data set, you can potentially miss one or more whole segments of customers.
Psychographic segmentation is gaining mainstream acceptance as an approach to bucketing customers.
It not only goes deeper than demographic or behavioural approaches on pinpointing how and why customers do what they do, its main goal is to do just that – to uncover shopper rationale.
For example, psychographic segmentation will separate insurance buyers into groupings of customer motivated by fear or those motivated by peace of mind. Not only would those inherent motivators not be obvious in either demographic or behavioural data, but this approach can lead to much more meaningful targeting messages and positioning, since it gets to the very heart of why customers buy.
The advantage of this approach compared to others is quite obvious – sharper customer targeting.
There can be a hidden advantage, too. Psychographic segmentation is more forward-looking than demographic or behaviour segmentation – it can help you anticipate where the market is going and then design products for emerging groups of customers.
For example, if prestige is identified as an emerging motivation of purchase in a small but growing group of customers, more offerings can be developed to meet this trend head-on.
The biggest disadvantage to this approach lies in data collection and analysis – custom customer research, data analysis and insight development must be carried out, and can be expensive compared to simply analyzing available customer data.
Overall, the best approach combines all three methods of segmentation to give a very descriptive account of customer groupings, and, more importantly, to ensure the groupings actually let you do something useful from a marketing perspective.
Next: The roles of value proposition and designed customer experience in the marketing planning process. Look for it at tgam.ca/smallbusiness
Special to The Globe and Mail
Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark's focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.
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