market segmentation 101, market segmentation definition, basics and best practices

we are all customers and consumers in
watching this video you are consuming it and you have some things in common with
other people who complete online training and education programs one of
the jobs marketers do is gather data on customers and target markets so they can
better refine their positioning and messaging there’s a common concept in
marketing called the 80/20 rule most businesses find that about 80% of their
revenues come from approximately 20% of the people who buy from them knowing
this information the company could then focus on how to dive deeper into those
29% of their customers who obviously trust them and then also look for other
ways to get the other 71% of their low volume buyers to consume more in this
course I’ll make numerous references to data and resources available on people
and markets within the United States however the principles for doing
customer segmentation are the same around the globe most governments
provide very solid demographic information and there are market
research firms that serve just about every industry in each developed market
to get the most out of this course it’s important to understand the basics of
marketing since they’re the cornerstones for building and executing a solid plan
to segment your customers understanding the four PS of marketing product price
place promotion are also important to get the most out of the course you knowing where your customer lives can
save your business time and money this knowledge can also give you a
significant competitive advantage geographic segmentation is a method of
dividing your customers or people who are not yet your customers into groups
based upon where they live there’s one thing that every person in America has
in common we all have a zip code that corresponds to the location where we
brush our teeth each morning if you’re like me you get mail at an address in
that zip code and much of that mail was not something you requested you call it
junk mail but the people that sent it to you call it marketing material or direct
mail the reason marketers use Geographic segmentation is because people tend to
live near other people that are like them we congregate in locations where we
have a high likelihood of being around other people that have similar cultural
values as we do similar levels of education similar tastes in housing and
similar income levels one of the keys to success in marketing is being able to
efficiently spend your marketing dollars by hitting those customers who are most
likely to respond to your message geographic segmentation can help you
target the right customers in the right locations and it isn’t just for consumer
marketing you can use Geographic segmentation for business-to-business
marketing as well a common mistake some businesses make is
to assume that geographic segmentation is only useful for retail businesses it
does make sense if you have a retail shop you would want to target those
people that live near your location for your promotional messages but there are
many business leaders with a web presence that want to target a specific
socio-economic or even racial group you can use Geographic segmentation to help
you do this if you think of Geographic segmentation as a funnel the method of
segmenting your customers or future customers by geography flows from a
broad geography down to a very narrow or specific locale for example you could
look at your targets as everyone the United States or narrow it to a region
such as the west coast or down to a state such as California or further to
Southern California or specifically to the Greater Los
Angeles area on down to Beverly Hills and onto a zip code such as nine oh two
one oh and further to a specific neighborhood or Street being able to do
this would certainly be helpful to you if you owned a restaurant near
Mulholland Drive and wanted to use direct mail to create awareness for your
location this would also be helpful if you sold luxury automobiles in the LA
area and wanted to place billboards in that area or if you use telemarketing
services to make people aware of your upcoming yacht sale being able to focus
your dollars on certain neighborhoods may make sense do you occasionally get
an envelope from Valpak in your mailbox or do you subscribe to a magazine the
advertisers using these media are employing geographic segmentation as
part of their marketing program Valpak has the ability to target specific zip
codes and their mailings many newspapers and magazines have the ability to print
regional editions for those advertisers who want to target a specific area even
Facebook has the ability to target users at the zip code level so now that we’ve
covered why you might use Geographic segmentation let’s talk about how you
can see a map of every ZIP code in every state in the u.s. at zip map net or
United States zip codes org the US Postal Service has programs allow you to
deliver Direct Mail material to the zip code level if you do an online search
for advertising by zip code you’ll find a number of companies that specialize in
this area the next time you collect your mail pay attention to who is sending you
coupons and advertising material they’re using the geographic segmentation tools
we just covered and give them your business they’ll appreciate it segmenting by demographics is the
practice of dividing a market by factors such as age sex households eyes income
education level race nationality you get the picture by looking at these
variables you can get a more detailed image of the market because people that
belong to groups tend to behave in manners similar to others in the same
group it makes sense to look at the things that group members have in common
and attempt to draw some insights from those commonalities let’s dive into some
of these groupings a little more deeply age is very commonly used as a
segmentation variable because it is typically easy to gather information on
the average age of consumers in a market and it’s a meaningful indicator of how
consumers are going to behave makes sense right teenage girls are shopping
for different things than 65 year old women in terms of products and services
income is an important segmentation variable because it can be an indicator
of not only what kinds of products and services a person or family will want
but also where and how they may purchase consumers and higher income brackets
tend to shop for different products and they have historically done more online
shopping than those with lower incomes a closely related segmentation approach is
to place people into life-stage categories as people grow older they
tend to move through phases of their lives that lead to changes in the amount
of disposable income available the types of purchase decisions they’re making as
well as the products and services they need this commonly used model shows how
consumers move from the bachelorhood stage to newly married couples as
children arrive they move through a series of nest stages and then into
empty nest stages and finally back to a solitary stage you can appreciate how
the amount of money a couple with young children differs from the financial
means of a couple celebrating their entrance into the empty nest stage for
each demographic segmentation variable there are differences in the needs wants
habits shopping styles and purchasing processes for the people within the
group the
tune to these differences may help you gain more and deeper insights imagine
for a moment that you’ve invented a new watercraft you’ve specifically designed
to go as fast as today’s jet skis but it’ll run more quietly and you’ve
figured out how to keep the riders from getting wet while jet skis are popular
not every person or even every household in the US owns one some research on the
personal watercraft market indicates that the average owner is 41 years old
and has an income of ninety four thousand dollars 85 percent of them are
male 40 percent are college graduates and 71 percent of them are married so
let’s compare these to some national averages the median age for males in the
u.s. during the 2010 census was about 36 the median income was about 53,000
dollars 49 percent of the u.s. population is male thirty percent are
college graduates and approximately 52 percent of American adults are married
knowing these details will be helpful as you design your product develop your
pricing plans and promotional strategies the key is to figure out which
demographic variables are important to your business this contains a list of
demographic variables where you can begin to track the data that will matter
most to you I’ve used data from the US market in this example but the
principles apply around the world you can find demographic data on most
countries at CIA gov or World Bank org the national averages for some of the
key components are already loaded for you by doing some web searching you’ll
usually find some data points to load into the next column labeled for the
next market as you dig deeper or do more research on your own you may find
different sub segments for example if your company makes more than just
personal watercraft but also other types of recreational vehicles you could
create a column for your personal watercraft segment and another for the
all-terrain vehicle segment of the market
most states have the data for each zip code available on a website take a look
and then think about how your neighborhood is similar and different
from the US population as a whole cultural segmentation involves a
subdivision of groups by aspects such as languages spoken religion sexual
orientation dietary preferences and lifestyle preferences just to name a few
it may sound as though some of these are similar to demographic segmentation
variables and in reality they are very closely linked cultural segmentation
came about as marketers look for better descriptors to some of the broad
demographic components this may be useful to you if you need to understand
the reasons why your customer or target group behaves or acts in a certain way
it may also be useful if you have a product or service that appeals directly
to specific cultural groups for example if you’re involved in the development
activities of a charity linked to the Catholic Church and want to promote a
large upcoming community event is it enough to know that 40% of the people
that live in a certain zip code consider themselves to be Catholic or would you
also like to know that only 15% of the people in a zip code went to church in
the last year and 8% of the residents responding to a recent survey said they
attended regularly you might want to know this especially if your research
also uncovered that a zip code just across town about the same size also has
40% of its population calling themselves Catholic but 25% went to church in the
last year and 18 said they attended regularly your direct mail dollars may
be better put to use in the second zip code this is an example of how cultural
segmentation allows you to dive a bit deeper into a population in reality
there are two important components of segmenting a market by culture the first
involves digging into the customer groups to understand if there are
cultural sub segments that are of meaningful size or interest to your
business the second component involves the adjustment or revision of your
marketing plan to increase the appeal of your offering to a specific cultural
segment describing or defining the cultural segments that are important to
you begins with analysis you’ve likely heard of the 80/20 rule of thumb and
business this concept says that 80% of your revenue comes from 20
your customers or something similar often the numbers don’t line up
perfectly with this ratio but it isn’t uncommon for businesses to begin their
segmentation work and learn that a large portion of their sales come from a
concentrated group of core customers that provide a lot of repeat orders when
you look at your business through this lens its then helpful to look at the two
groups of customers the first bucket is of your best customers those that come
back time and time again to give you more business or if you’re in a
volunteer organization who are the people that show up every time the ones
you can count on to participate are there any cultural similarities in
this group do they have societal factors in common the second bucket consists of
perhaps the 80% of your customer base that are occasional or light purchasers
you should consider them through the same lens are there similarities related
to culture that you can uncover why do this you might ask well there may be
something about your business or organization that’s more appealing to a
certain cultural group and therefore you may have an opportunity to grow by
focusing on one or more of these sub segments you can’t do this solely by
looking at the numbers though going through your customer records and sales
numbers may help you develop some theories but ultimately you’re going to
need to talk to your customers and listen intently to look for patterns and
opinions that may help you figure out which groups are most important cultural
analysis from a marketing perspective is done by looking at the behaviors symbols
values and languages used by a cultural segment if you do the work to determine
that a cultural group is more important to your business than other groups you
can then look at the common behaviors within the group the symbols that are
important or easily recognizable by the group the things they value the language
they use etc I encourage you to look into your business and see if you can
identify any cultural subgroups that make a difference for you you let’s say you’ve just invented a new
selfie stick you’ve watched all these people taking selfies and you’ve noticed
some you sticks and others don’t your new product is even better than
what’s on the market today now you’re trying to figure out how to promote your
new idea but before you get to how you first need to look at who marketing is
expensive and you need to be careful not to waste your money your time so you’ll
want to target the right market with your promotional dollars but who is the
right target doesn’t everyone who own a smartphone need a selfie stick to do
this right you’ll need to segment smartphone owners by behavior behavioral
segmentation involves breaking customers into targets and groups based upon how
they use a product when or where they use it how they purchase just to name a
few while geographic demographic or cultural
segmentation may be useful to you in this situation you may get more value by
segmenting the market based upon how they behave with their smartphones in
essence it might matter more to you to understand how the consumer is going to
behave with your product rather than where they live or how many children
they have here’s why the Pew Research Center and other similar research
organizations have compiled useful information on cell phone owners if you
look at the demographics of cell phone owners you might not pick up anything
particularly valuable for your selfie stick project but when you dig a little
deeper into how people use or behave with their cell phones you might pick up
some deeper insights beyond how consumers use your product there may be
value in understanding behaviors around how people buy for example Nicole ponder
researched the way people buy furniture her work showed that 22 percent of
people have purchased furniture online as of 2013 up from only 11 percent in
2008 more interestingly about 35 percent of people said they would likely shop
online in the years ahead if you’re in the furniture business being able to
identify the segment of people that are likely to purchase online
will be important as you’re building your marketing plan so that you can show
them some methods to reach and make the purchase process easy this is just one
example of how behavioral segmentation can be used even if you’re not in the
marketing part of your organization behavioral segmentation can still be
used some accounts receivable teams within companies segment their customers
as fast paying or slow paying you may offer different incentives and deals to
your fast paying customers while offering different deal terms to those
who take a long time to cut you a check the reason it’s important to pay
attention these types of behavioral activities is because you may find there
are different products or services that will help you expand your business by
tapping into and solving some of the behaviors that your target market
exhibits let’s look at the flaw stick as an example researchers spoke to and
observe people who regularly flossed at home as well as some who are not
considered regular flossers one of the things they learned is that some people
don’t like to stick their fingers in their mouths to floss another key
insight was that as people eat more meals in their cars or at their desks
the need to be able to get that pesky seed out from between the teeth was
growing now it appears that more people are flossing in the overall market has
grown a behavioral segment of car flossers that didn’t exist before has
now become quite large I think you can have a lot of fun segmenting your
customers and targets by behaviors as you start to develop your marketing plan
for the selfie stick a little further think about other ways people use their
smartphones that may make your stick more useful for
more than just taking pictures when was the last time you were on an
airplane did you notice there’s a group of people who were able to board the
plane before you and they had all the good window and aisle seats too or maybe
you’re a traveler who gets the benefits of being recognized as a frequent flyer
frequent flyer programs are one of the best examples of segmenting customers by
usage there’s a segment of extremely heavily travelers who fly the equivalent
of going around the world five times or more each year there are others who fly
often but not quite as much as those super road warriors and then there are
those who do not fly much at all maybe just a couple times per year what else
can you infer about heavy users of airline travel it’s very unlikely that
they’re doing all this travel on their own time rather you’d be correct and
assuming these people are traveling for business purposes if you’ve ever had to
buy an airline ticket on short notice you’ve noticed that they’re not
inexpensive business travelers don’t routinely have a month or even two weeks
to plan out their calendars in advance if a customer needs immediate attention
and they’re on the other side of the country someone likely will need to get
on a plane and pay the price to get there quickly the airlines have learned
the business traveler who hits the road a couple times per month that’s their
most profitable customer when you think about it in this context it makes a lot
of sense why the travel industry has developed reward programs for frequent
travelers this is similar to segmenting by behavior but there are some subtle
differences while behavioral segmentation often takes a little bit
more research and insight segmentation by usage can often be done by performing
data analysis this method has become so valuable that you’ll encounter it in
just about every aspect of your life your cell phone provider knows how many
texts you send Twitter tracks your tweets the department store knows how
often you return things after you’ve purchased them when you look around
you’ll see more examples than I could possibly name since just about every
transaction you make today has an electronic component there are data
being tracked to inform companies about your you
as a business being able to identify your heavy moderate and light users will
enable you to create products services and programs to help you grow being able
to identify the users in each of these groups can help you identify and then
develop strategies unique to your business you can create a grid to
discuss with your team and talk about the different options you have to
provide better programs and services to your highest usage customers so they
stay with you the idea is to look for ways to keep these customers loyal to
your business or brand for the moderate users you can look for ideas to build
stronger brand loyalty with them or get them to use more of your products or
services for light users you can investigate promotions and idea is to
encourage them to try using your product in more situations or in combinations
with other products you can also better target potential customers by working
backward from your usage analysis segmenting your customers and targets by
usage can be one of the easiest approaches to take it can also yield
some big results for you what will you learn when you look at your customers
through this lens let’s put the concepts of segmenting by
behavior and usage to work segmenting your customers by usage requires you to
do some data analysis when you analyze your internal data on purchase patterns
profitability by customer and order volumes you can then divide your
customers in either by deciles or Pareto method with either approach
you start by figuring out the factor that matters most to your company if you
have the ability to assess profitability at the customer level that’s likely the
best measurement tool however in some service businesses it’s hard to
determine which customers generate what levels a profit the one who spends a lot
of money may also consume a lot of staff time so you can’t always judge simply by
revenue even in a traditional product business you have different gross
margins by product line so revenue isn’t always the best way to start your usage
segmentation work some businesses segment by unit volume this is how most
airlines segmented their customers until a couple of years ago now it isn’t just
the number of miles flown that matter they also use the total dollar spent by
the traveler as part of their usage segmentation methods another approach is
to develop usage segments based on share of wallet quite literally this means you
look at the total dollars a customer spends or has the opportunity to spend
during a given period and project what share of that total spend or wallet you
are getting for example imagine you sell a product to hospitals that’s used to
help newborn babies and you know from researching birth records that the three
hospitals in town delivered a total of 1,000 babies last year because General
Hospital was your biggest customer by volume and revenue you might assume they
should be considered your most important customer
but at Community Hospital you have 90 percent of their share of wallet you may
want to consider them as a more important customer because they appear
to be very loyal to your product to help determine which method will work for
your company I suggest creating a list of possible usage segments
in buckets and discussing with others on the team to reach a consensus once
you’ve landed on the key metric that’s going to matter most to you
the decile approach says you simply take your customer list and divide it by ten
your top decile will be the 10% of your customers that score highest using the
metric that matters most to you then you can determine if you want to focus on
getting more business from the top deciles or generating more growth from
the lower deciles the Pareto method says that you focus on
the customer that brings you 80% of your most important metric in many businesses
this often comes down to about 20% of your customers generating 80% of your
revenues or volume or profits uncovering information to help segment your
customers buying behavior can be done in several different ways
some insights can be found at looking at your own data how many of your customers
pay with credit cards versus cash what type of delivery options that they
request or are there certain hours that are busier than others for your business
companies that are really good at segmenting by behavior will gather the
data they have on their customers bring together a group of people who
understand the business well and brainstorm different insights into these
behaviors one level up from analyzing your own data is to use market research
where you interview your customers to gather insights into their behaviors
this can be done via phone interviews surveys on the web through email or by
face-to-face discussions if you choose to interview your customers the key is
to use a good moderator who knows how to guide the discussion without leading the
witness so to speak companies who are best-in-class
using market research techniques to better understand their customers place
them into behavioral segments performed what is called anthropologic research
essentially what they do is recruit customers and non customers to
participate in studies where the researchers can observe how the target
market uses the product in their natural environment some of the big consumer
product companies will actually go into a person’s home and watch them shave to
better learn behavioral characteristics around
usage not everyone has the resources or time to compile the necessary research
and develop these insights on their own luckily there are some companies that
have already done the work for you for example check out the website
consumer-based comm and look at the tab called consumer lists this organization
has surveyed and monitored a wide range of consumers for a number of years by
analyzing patterns they’ve developed lists of people who have behaved in
certain ways in other product categories as you start to think about segmenting
your customers and targets by behavior do some self analysis when you fill your
car up with gas do you walk into the convenience store and buy some items as
well if so you’re in a behaviorally segmented group in fact the store owner
likely knows some things about you that you may not realize about yourself you do you know someone who consistently
buys the latest electronic gadgets I have a friend who gets the newest
smartphone as soon as it’s released the same goes with his headphones I have no
idea how much he spends on his habit each year but it’s important to him that
he has the most recent model available and the more visible as purchases the
better he likes for others to know that he has the new thing psychographic
segmentation is the concept of segmenting consumers based upon their
values opinions attitudes and lifestyles marketers have found that psychographic
segmentation can be very powerful there’s a bit of psychology at work here
which makes sense we are using the same root word after all all human beings are
susceptible to some core concepts that help protect our egos one of these is
related to something called selective exposure what this means is our brains
tend to pay more attention to messages or stimuli that are aligned with the way
we see the world if you’re a big fan a major league baseball and don’t follow a
professional football at all you’ll be more inclined to notice news stories
about baseball and ignore those about the NFL Draft a similar concept is
called selective comprehension what this means is that we interpret information
in such a way that we make the message is consistent with our beliefs or
attitudes going back to our baseball analogy if you’re of the opinion that
pitchers should bat for themselves you may think the story of an American
League Pitcher getting injured while batting in a national league ballpark
supports your beliefs that more practice may have saved him from being hurt
meanwhile someone who believes the designated hitter rule is important
would see the injury as a prime example of why both leagues should implement the
rule on top of all this we add the concept of selective retention which
means we have a higher likelihood to recall or remember messages that are
consistent with our existing beliefs and we often forget hearing things that
don’t align with our view of the world so if you think that the designated
is a travesty you’ll pay more attention to and have better recall of stories
that support your beliefs and tend to ignore those that are inconsistent with
your attitudes here’s how all of this impacts the marketing world because we
want to avoid something called cognitive dissonance otherwise known as regret
we’ll look for and pay closer attention to messages that support our decisions
or beliefs so you’re more likely to see and remember advertising messages link
to the new shows or magazines with editorial content aligned with our
viewpoints knowing this marketers and advertisers
will pay close attention to the beliefs of their customer base or targets if
they have insight into how you view certain topics they can do a better job
of targeting messages to the media outlets you choose learning more about
what your customers like and dislike and their opinions can help you determine
where to advertise and how to tie in with other brands or events that are
more likely to be of interest to your customers
another important thing marketers need to do is reinforce the good decision you
made to purchase their product since as consumers we want to avoid regret
receiving messages that tell us you made a good decision shortly after we made a
purchase helps build brand loyalty and brand satisfaction if you aren’t sending
your customers an email text or piece of direct mail thanking them for their
business and reminding them of the great features of your product you’re missing
a great opportunity to put psychology to work for your brand my friend who likes
to buy the latest gadgets he particularly likes it when his friends
noticed that he has something new and hears such comments as that was a good
purchase or that’s cool it’s only natural we all like to get positive
reinforcement one of the things a really effective
sales person learns is if the prospect is going to say no get her to do so
quickly it’s all about efficiency being able to determine whether or not someone
is in the right target helps you allocate your time more wisely we can
apply the same concept to the world of marketing if we can determine whether or
not a potential customer is the right target for our message what type of
message would be most appealing or interesting to them and what media are
most likely to grab their attention we can be more efficient in our marketing
efforts here’s how I recommend you going about it if you’re working in a business
where innovation new products or new services are key strategic drivers for
the industry you can start by mapping customer segments onto an adoption curve
for example using Rogers technology adoption curve you can begin by
gathering data on the pace at which other innovations have penetrated the
market in your space or similar markets you can often find these type of data
from industry reports or business journals that cover your industry for
example here are some data from Pew Research Center on the adoption of
social media usage by Internet users over time by placing this onto the
adoption curve you can appreciate that after broadband usage had penetrated
through the innovators and early adopters in August of 2006 it took
almost 3 more years to move through the early majority and get close to the 50
percent rate then things slowed down and has of January 2014
broadband still hasn’t made it all the way through the late majority now the
fun begins once you’ve got the beginnings of an
adoption curve mapped out you can do some investigative work about the people
who sit in these different segments who are these people that are the customer
innovators in your category what demographic information can you uncover
about them do you know their average age income education level what about the
early adopters how are their demographic data different from the others along the
adoption curve take a look at these details about the
adoption of different financial payment methods from research by the consumer
payments Research Center 52% of US adults have used a bank website to pay a
bill online which means this type of service is about halfway through the
adoption curve if you’re in the banking business you may be tasked with
developing plans to get those 52 percent of adults to use online bill paying more
frequently or getting the other 48 percent to do so more frequently will
focus on how to get your current consumers to use your service more often
digging into the data a little deeper you’ll find 69 percent of people aged 25
to 34 have used a bank website to pay a bill
while only 40 percent of people aged 65 or older have done so just 33 percent of
people with incomes below $25,000 per year report doing so while 69 percent of
those with incomes greater than $100,000 half so you could reasonably assume that
a good target for the market are responsible for going the use of online
bill paying would be targeting young account holders with high incomes by
combining demographic information with data on the adoption rates within your
category of interest you can then create written profiles of the average consumer
within a segment this may help you develop an even cleaner picture of your
target as an example of how you combine these two concepts we’ll take another
look at the smartphone market Nielsen’s research on early adopters of technology
found 63% of them are male they have a mean age of 31 in an average annual
household income well above the national median of 67 thousand dollars plus about
half are married and 57% have children younger than 18 at home with this type
of customer profile you can now begin to think about what message may be
appealing to these early adopters and you can look at media outlets that are
more likely to catch the higher earning young man with small children at home
the efficient salesperson has learned how to make the most of her time so to a
good marketer uses data about adoption trends and demographics to develop
marketing programs what customer profiles can you create to improve your
targeting you the toothpaste market you
one of the clearest examples of where marketers segment their customers based
upon the benefits they seek we all buy toothpaste right at least I hope you do
so let me ask you this do you buy the toothpaste you use because other people
in your zip code buy the same one or because you see other people with the
same level of education or income using the same brand probably not
the toothpaste market is commonly segmented by the reason why or benefits
sought method there is a segment of the market that seeks a toothpaste that
doesn’t hurt their sensitive teeth another group is looking for teeth
brightening one is searching for breath freshening and then another is looking
for cavity prevention some marketers will use benefits sought segmentation as
a way to augment their other segmentation methods let’s look at the
time peace market as an example clearly you can segment the watch buying market
on demographics women have different tastes than men higher income people in
general are more likely to buy luxury brands such as Rolex and IWC you can
also divide the watch market using behavioral segmentation methods there
are those who simply want to watch to be able to tell time then there are those
who are looking for style in the style category there are some watches that
make it really difficult to tell what time it is
but they deliver on the benefit of looking unique or stylish another way to
look at your customers or targets in these occasion or timing of the purchase
or consumption when was the last time you had orange juice with your lunch or
evening meal people tend to think of orange juice as a breakfast drink but
lemonade is another fruit drink that people enjoy later in the day why is
that have you ever seen an advertisement showing someone drinking orange juice at
any time other than with breakfast to the best of my knowledge there aren’t
any laws against drinking orange juice afternoon but you wouldn’t know that
from the marketing campaigns or the big juice companies there are other
categories of products and services that you can think of as occasion based if
you own a flower shop your business certainly sees large fluctuation
around Valentine’s Day Mother’s Day and weddings developing customer segments
based upon benefits sought or occasions can be very useful for your business
doing this starts with data analysis and tracking if you haven’t already done so
here’s how you do it understanding what benefits consumers
are seeking is accomplished by interviewing customers and targets the
key is to focus on what features are most important to them when shopping in
the category going back to our toothpaste example you can imagine the
emphasis of market researchers around understanding why fresh breath is
important to some consumers and when talking with the customers who have
sensitive teeth you need to learn what other options they consider beyond your
brand this emphasis on the features and benefits the customers are seeking is
key as you hear customers verbalize why they benefit from using the product you
should look for commonalities and patterns creating buckets into which you
can place these insights will help you be sure to pay attention to different
motivations that you hear at a minimum you can look for benefits that line up
with Maslow’s hierarchy of needs you could say the person who buys a
toothpaste it doesn’t hurt a sensitive teeth is looking for benefits in the
area of safety and security the person looking for fresher breath may be
pursuing benefits and love and belonging while the brighter teeth seekers are
interested in self esteem benefits this will ultimately help you with other
components of the marketing mix defining your product price distribution and
promotional plans based upon the benefits your customers want most can
help differentiate your brand to develop hypotheses around the occasion shoppers
you begin by tracking your sales trends by date and making note of spikes and
dips again looking for patterns is important
I’d suggest you look at changes between days of the week special events sporting
seasons holidays even the weather does your business move appreciably when it
rains there maybe some opportunities for you to
consider in your business plan after you perform this analysis in the end we all
buy products and services because we expect to receive some benefit from
consuming them if you can understand how your customers and targets prioritize
the different benefits you offer you’ll be well on your way to segmenting them
in a meaningful way what will you learn when you begin this work some of the best examples of reaching
out to new segments and expanding business within your current customer
segments can be found in the food industry who knew that we needed frozen
yogurt to take with us on the road identifying customer segments and
targets can help you customize your promotional programs and you can adjust
other parts of your marketing mix such as the product and pricing to expand in
a new segments for growth as well there are a few key buckets we can consider
getting greater share of wallet from your current customers expanding
penetration into smaller segments and getting non consumers to consume let’s
start with growing your share of what your current customers spend this can be
done by adding new products services and features that will be appealing to your
biggest customer segments let’s imagine you run an airline and the segment
you’ve traditionally targeted is the business traveler you’ve liked them as
customers because they tend to buy tickets later or make changes to their
itineraries which has led to higher prices and revenues for you you might
begin a plan to expand your share of wallet with these customers by exploring
other services or amenities that you could add to keep your business
travelers using your airline more frequently for example perhaps you could
add on plane Wi-Fi services for your frequent fliers or included in the price
of certain fare classes you could consider concierge services for a fee to
help get them into through and out of the airport faster in essence you’re
looking for ways to increase your share of the money this customer spends on
travel services expanding your penetration into other customer segments
that aren’t your big targets can help convert them to become more consistent
customers some companies make the mistake of focusing on their biggest
customer segments and virtually ignoring all the others I certainly don’t want to
advocate taking your eye off of your best customer segments because there’s
something to be said for focus but it may be worthwhile to look at some other
segments to see if you can identify sources of growth going back to our
airline example even though the business traveler
your primary target you likely can get some valuable growth from other segments
such as the vacationing family convention or group travelers or the
retiree segment in other words going after new or different segments by using
new promotional programs can help you expand without necessarily requiring new
products or service offerings yet another bucket of untapped growth could
be to find new markets that aren’t buying from you at all
why aren’t they buying from you it could be that they aren’t aware of your
offerings or maybe your message signals that you don’t think of them as your
customers I encourage you to take a look at these non consumers and see if you
could do something to bring them into your client list uncovering
opportunities in these three buckets may require some innovative thinking
researchers at the Christensen Institute work for the popular fast-food chain to
segment their consumers buying milkshakes
they started by observing when people were buying milkshakes what they learned
may surprise you they saw a large volume of milkshake sales occuring in the
morning in fact 40% of all milkshake sales at one location were to early
morning commuters taking the product to go getting to this insight started by
looking at the customer segments differently interviewing them and then
thinking creatively about what these customers were trying to achieve with
the product purchase now the fast-food company can see some new options one may
be to get these early morning commuters to buy more products while going through
the drive-thru to grow their share of wallet another may be to target other
segments of their customers that weren’t buying milkshakes to see if they can
convert them to becoming milkshake customers – and finally now that they
have this insight that people are looking for snacks to occupy the drive
they could do some product development efforts to find offerings that may
appeal to other customer segments that aren’t interested in milkshakes and
don’t usually go to fast-food places segmenting your customers and targets by
geography demographics behaviors usage rates psychographics and the benefits
sought should be done to identify who your best customers are but also to
learn where you have opportunities for growth when it comes to developing
innovations for your business there are several methodologies and
techniques to apply you when someone looks at your profile on
LinkedIn you do have one don’t you how well would they be able to describe you
to someone else if you’ve done an excellent and thoughtful job of
detailing your experiences capabilities skills demographics and goals you’ve
created an effective profile a good customer persona can be used the same
way if you create a document that profiles a customer segments complete
with a semi-fictional character description of the roles this character
has the goals of the character the challenges he faces some demographics
and a story that brings him to life you’ve succeeded in developing a
customer persona that can move your business forward so let’s talk about how
to use this customer persona to communicate with other people in your
organization so they can help you build the best possible marketing plans and
tools when reading through a customer persona document you want to ask a
series of questions first do I have a semi fictional character description
that captures the essence of my target this is really important the necessary
component should include a name the characters title and it doesn’t just
have to be the title in their company if they even work for one for example in
the household goods market there may have a segment of customers with the
title chief cleaner-upper an image of the character and it should represent a
typical customer in this segment this is important because the design team may
want to get a sense for how this person looks and dresses what size they are etc
next you should ask the question do I have an understanding of what a day in
the life of this character is like with a solid customer persona you should be
able to construct a one or two paragraph summary of the key insights you have
about this customer what success looks like for him what motivates him moving
on to the third evaluation method you should be able to gain a quick sense of
the demographics and behaviors of this persona these data points are helpful
because they’ll be used to assist in targeting the character via advertising
media and outreach you should next read through the document to ensure you’ve
got a solid grasp of the care schools this should be reflected not
only in a section called goals but also in the story can you get a feel for what
the character is trying to achieve what motivates him what are his aspirations
ideally you want to understand what benefits he’s seeking when making a
purchase decision in this category for example if he’s the one responsible for
buying clothing detergent for his home or his goals to just get the laundry
clean or is he looking for ways to make his clothes last longer before they look
old the fifth set of descriptors you should be able to learn from the
customer persona or the pain points this customer faces today this is critical to
understand because most consumers make decisions as an effort to avoid pain the
type of pain to which I’m referring isn’t necessarily need to be physical
does this persona highlight areas where he gets frustrated feels remorse over
past decisions agonizes over making choices feels confusion about
information these are great sources for the identification of product ideas
communication opportunities and service offerings next you want to see if the
personas uncovered the information search process for this customer does
the document help you understand what triggers his search how he evaluates
information what communication sources he trusts and how he compares his
options understanding this will be useful in a design of your communication
plan to reach the target persona our next indicator of the quality of the
persona you’ve created is whether or not someone who reads it can determine what
the ideal purchase experience would be for this target customer how does he buy
how does he use the product and services in this area what happens after the
purchase by researching this area you may uncover unmet needs or gaps in your
current offerings that could help differentiate your business the eighth
area of inspection is to look for common objections used by the character what
you want to be able to understand from reading the persona is the reasons why
this target may not want to or even may not be able to make a purchase decision
it’s simple that this persona doesn’t have
the purchase authority or access to payment terms or it could be that he’s
really brand loyal to a product he grew up using being able to discern these
blockers to a sale would be valuable inputs for your marketing plan finally
we want to see if the persona document has a story that tells us about the
target a story can be a few paragraphs long and it should be memorable people
in your organization want to be able to read the story and connect it to the
name you’ve chosen for the persona this helps build interest and retention to
the important details I want you to think of a consumer
product brand that has a mascot or character you know somebody dressed up
in a costume or a cartoon figure who’d you think of a fast-food character a
personified animal or an anthropomorphic item like a talking car I’m certain if
you were to go to the headquarters of the company that owns the brand you just
thought of there’d be a cutout poster of your favorite mascot once great customer
personas are built they should be used to refine your marketing mix you’ll want
to use these personas to evaluate all four piece product price place and
promotion do you have the right products and services what pricing strategy
should you employ to reach this segment are you reaching your target at the
right places or should you consider other distribution opportunities and
what adjustments need to be made to your promotional plans do you have the right
methods to reach these targets at the times when they’re seeking information
or making a purchase decision you would certainly want to share these personas
with any advertising and marketing partners with whom you work as well
companies that do an excellent job of targeting customer personas to drive
their business expand the education beyond the marketing team outside of a
retail or service establishment not many of us get the opportunity to rub elbows
with real customers on a regular basis and even those retail and service
businesses need a way to differentiate between the different customer types and
help all those people working behind the curtain so to speak gain an appreciation
for who the customer is and how they think let’s talk about how you go about
doing this step 1 call a costume maker and hire
someone to be your mascot seriously though you should put some serious
thought into the image or picture you use with each of your persona documents
the image should match up with the demographic information for the customer
group and ideally the picture would also bring the story of this persona to life
using the images of centerpiece you can now begin to build some communication
tools to help you introduce your customers to people in your
at a minimum you should have a slide that takes the information from your
persona document and converts it into a quick summary so you can incorporate it
into your presentations the full persona document can also be useful when printed
and uses handouts for people within your organization so they can refer back to
the story on a frequent basis creating posters it can be hung around the
offices can be very useful as well they help to serve as a constant reminder of
who the team is there to serve you can get creative with the layout and format
some marketers will use more than just one image of the persona adding action
shots so to speak that helped bring the purchase process to life images of your
target persona at the point of making a selection completing a purchase or using
the product can be helpful as well I wasn’t joking about the cutout idea
either you can get these produced relatively inexpensively now just search
for custom cutout posters and you’ll find vendors who can make them for you
at reasonable prices if you have a bigger budget think about hiring an
actress to portray your target persona and video her reading her story with a
customer persona you can completely change the tone and type of
conversations you have about your target customers but exactly who should you be
having these conversations with and sharing this information with let’s go
through the different people in parts of an organization it may find value from
your customer persona in general anyone that works for your company should learn
about these customer personas being better connected with the insights
you’ve developed while making these personas will give you a competitive
advantage the people in your warehouse and shipping departments should get an
appreciation for how busy your customers are how frustrated they get when damaged
product arrives your customer service and call center teams will benefit from
hearing the pain points this customer faces and what she’s trying to achieve
the same goes for everyone in product development and operations if these
partners have a better understanding of the insights you’ve gathered they may be
able to refine and improve and perhaps create new products and services
appealing to this persona finally you should train your sales team
using these personas they’ll find them extremely valuable in identifying and
characterizing the customers with whom they interact every day I suggest you
engage a few salespeople in the development of the personas as they’ll
likely have very good insights that may assist in the process I have one word of
caution to consider as you’re sharing these personas within your company
please guard them closely and don’t let your competitors get a
hold of them by the time you’re ready to train others in the organization and
share these insights you will have invested a lot of time and energy to
develop these deep insights that other players in the space have not yet
figured out enjoy the advantage they’ll give you you you now have the tools and training to
dive deep and understand which of your customers are the most profitable for
your organization and how to select new targets being able to sift through all
your customer targets to determine which are the most profitable and attractive
to your business we’ll help you with more efficient deployment of your people
and budgets companies that do customer segmentation well have learned that they
can create customized marketing and sales programs ad or enhance features to
existing products prioritize new product and service development projects adjust
pricing to maximize revenues and profits refine their distribution strategies
modify service levels and gain greater share of wallet from their existing
customers if you’d like to explore this topic more deeply one of the best ways
to see what other companies are doing so you can gain ideas and insights is to
read The Wall Street Journal on a daily basis Advertising Age is another great
source for information as well in most cases you’ll have the customer
information you’ll need to complete the segmentation work within your company
records so you can already get started I’ve covered the tools you need to do
the assessments in the analysis but there’s also a lot of fun to be had as
you work with others in your organization to develop the insights to
craft your customer personas you now have the tools to help you get it done
congratulations on completing this course I hope you enjoy putting these
new skills to work you

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