Segmentation by RI

Increasing profitability through

segmentation strategies

©Research International 2003

Segmentation

…The recent consumer segmentation study provides us

with consumer insights unavailable to our competitors,

and is a source of significant competitive advantage…

…I am overwhelmed at the level of inclusion and exciting

different thinking being generated by the segmentation

study information from Research International…

Allied Domecq Spirits & Wine

What is segmentation?

Segmentation is the process of identifying discrete entities

(e.g. groups of consumer, brands, organisations) within any

given category/market

Its typical purpose is to understand groups motivated by

different criteria which respond differently to targeting

This means finding groups whose members are as similar as

possible (e.g. having similar needs or motives), and are as

different as possible from other groups

The advantages of segmentation

Creating a competitive advantage and maximising profitability

through a detailed understanding of a category/market

From an understanding of the structure of demand, a business

plan is created that typically involves:

Focussed product development

Effective brand and portfolio management

Bespoke marketing plan

Informed price setting

Tailored channel strategy

Customer retention and acquisition strategy

Getting it right…

The foundation of a good segmentation is a

complete understanding of the company’s

situation:

how is the market structured?

what do we believe or know about the market?

who are the stakeholders?

what business issues will the segmentation

address?

how will the segmentation be used in the

business?

what would a good segmentation look like?

What criteria best

differentiate

the market?

Depth of

understanding

about segments

Qualitative input

How many segments?

Actionable

Responsive

Accessible

Stable

Substantial

What makes a good segmentation?

Identifiable

Research International’s experience

Research International use a wide range of segmentation

techniques from which the optimum solution can be identified

Our extensive experience means we can find the right solution

and work with you to make it work in your business:

a wide range of business objectives

over 500 projects

in excess of 50 categories

more than 40 countries across every continent

We can provide an integrated program that links the

segmentation to your key business issues from branding to

innovation to customer relationships…

Segmentation solutions - considerations

How will it be used?

media targeting or direct marketing?

brand positioning?

(new) product or service development?

Does it need to link back to a database?

Does it need to be replicated in future work?

To what extent does it need to be predictive of behaviour?

What is the geographic scope?

A range of solutions

Loyalty Attitudinal

Key buying

factors

Category

specific

needs

Behavioural/

demographic

Derived

Needs

Direct

Latent needs

Attitudinal segmentation

Attitudinal segmentation - the issues

Explore how individuals differ in terms of attitudes and life

values

General

Category specific

Develop a deeper understanding of how patterns of consumer

behaviour occur

Pinpoint which specific attitudes are precursors of relevant

behaviour

Provide a framework for marketing activities – particularly

communication and positioning

Attitudes are diverse

“People should always put their family

before careers.”

“I like my kitchen to be

hygienically clean”

“Exercise is more important than

eating correctly in maintaining

your health.”

“There’s a lot of hassle

involved in changing

ISP’s.”

“A gold card makes a positive

impression when paying for

things.”

“I like the idea that I have access to a lot of

entertainment while sitting in my chair at

home.”

I like to try new products as soon as they're launched.

Browsing is an important part of the shopping experience.

Good staff can really help you buy the right health and

beauty products.

I keep up to date with fashions and style.

Shopping for myself is simply a chore.

I find shopping for health and beauty/grooming products

stressful.

1 2 3 4 5 6 7

Example attitudinal battery

Strongly

disagree

Strongly

agree

Defining the segments

Looking after my health

is important to me

The benefit of exercise

is overrated

Care about taste, not

nutrition of food

I’d rather look good than

feel good

Feel guilty if I don’t

look after myself

“Health

Fanatics”

Do not tend to lead a

healthy lifestyle, try to

compensate now and then

“Health

Seekers”

“Non Health

Conscious”

Size Value

Sizing the potential

40%

47%

13%

“Health Fanatics”

“Health Seekers”

“Non-Health Conscious”

30%

45%

25% 30%

45%

25%

43%

44%

13%

Attitudinal segmentation - the benefits

Gives a deep understanding of attitudinal differences in a

market

Produces compelling segments which make sense and come

to life

Combined with our optimisation approach, gives a good insight

into behavioural differences between segments

Provides a framework for marketing activities – particularly

communication and positioning

Provides insight into social trends which relate to your

categories

How attitudinal segmentation has helped our

clients

The problem

A high street health and beauty specialist wanted to develop their proposition to

drive sales across all their categories

The solution

A “general lifestyle” and “category specific” attitudinal segmentation to group

consumers in terms of the role health and beauty plays in their lives

The action

Significant resources were invested in developing the proposition to meet the

needs of three key segments

The result

A more focused and inspired product ranges in conjunction with a new

emphasis on brand positioning

Loyalty segmentation

Using Loyalty Driversm

Loyalty segmentation - the issues

How loyal are my customers? Who are the most loyal?

What drives loyalty in my market?

How can loyalty be maintained/ improved?

How can I manage customer churn?

Where are my potential new customers and how can I attract

them?

How can I evaluate the impact of strategies and monitor

emerging influences?

How can I develop a segmented customer retention strategy to

ensure I am maintaining loyalty amongst most loyal customers

and increasing loyalty amongst the most vulnerable groups?

Relative Brand Value

B

a

r

r

i

e

r

s

Unhappy Prisoners

MEDIUM

Loyalty

Secure Brand Fans

HIGH

Loyalty

Early Leavers

LOW

Loyalty

Committed Volunteers

MEDIUM

Loyalty



Total Cingular Verizon

Wireless

AT&T

Wireless

Sprint PCS

Early

Leavers

Unhappy

Prisoners

Committed

Volunteers

Secure

Brand

Fans

Source: RI case study: US mobile phone market

114 105 101 98 100

Loyalty and acquisition segmentation

Non

customers

Customers

Early

Leavers

Unhappy

Prisoners

Committed

Volunteers

Secure

Brand

Fans

Hot prospects

Rejectors

Loyalty segmentation - the benefits

Segments current and potential customers into actionable

groups based on:

the extent to which your brand is valued and

the influence of barriers

Facilitates a segmented customer retention strategy

Provides a thorough understanding of how to increase loyalty

Highlights the size of new customer potential and their relative

availability

Identifies where incremental volume may come from

Highlights how best to target vulnerable current customers,

and potential new customers – what message / key drivers to

emphasise

How loyalty segmentation has helped our clients

The problem:

An automotive manufacturer needed to grow sales through increasing

repurchase rates and appealing to new customers. Key questions were: how

loyal are current customers and what drives customer loyalty?

The research solution:

A Loyalty Driversm segmentation of current customers and prospects in 4 car

segments

The action:

Identification of and understanding of key target groups for acquisition, and

customers that are more likely to re-purchase

The result

Effective use of promotions, print, commercials and events to target the right

groups and a more tailored brand strategy for each car model

Category specific needs

Category specific needs segmentation -

the issues

Understanding what motivates people in a market

and how individuals differ in terms of their motivations

To explore how well brands are positioned against different

needs segments

Understanding how well brands are meeting existing needs

and identifying unmet needs

Tailoring existing products and services to appeal to a wider

range of consumer needs

Optimising NPD efforts to meet consumer needs

Providing a framework for marketing activities

“I need more time in the day

to get everything done”

Needs are varied

“After a hard days work I need a

drink to loosen me up.”

“Unbiased advice is important to me

in making financial decisions”

“It is important to me that my

home conveys a good

impression to guests.”

Example needs battery

1 2 3 4 5 6 7 Strongly

disagree

Strongly

agree

A drink that gets rid of the day's tensions

A drink that helps me forget

A drink for special occasions

A drink that won't make me feel bad the next day

A drink to recharge my battery

A drink to share with others

“Energise”

A drink that gets rid of the

day’s tensions

A drink that helps

me forget

A drink to help me unwind

A drink that won’t make

me feel bad the next day

A drink to share with others

A drink to recharge

my batteries


“Relax and

Unwind”

“Good

times”


Size Value

40%

47%

13%

“Relax and unwind”

“Good times”

“Energise”

30%

45%

25%

40%

47%

13%

30%

45%

25%

Category specific needs segmentation

- the benefits

Produces compelling segments which really come alive

Actionable - segments are linked to behaviour as choice is

based on underlying needs

Solutions are sensible and discriminating

Identifies current and unmet needs

Provides a framework for understanding the extent to which

brands are meeting (could be) meeting these needs

Evaluates how well brands are meeting those needs

and what opportunities exist with unmet needs

Allows for ‘multiple me’

How category specific needs segmentation has

helped our clients

The problem

The client wished to understand the strategies consumers use to maintain or

lose weight

The research solution

A needs based segmentation designed to establish groups of people who need

different things in order to maintain or lose weight

The action

The client was able to establish which segments offered greatest potential for

the launch of a new product. They also developed new product concepts for

further exploration based on unmet needs

The result

A clear road map was developed for the launch of an existing concept and for

future development of new brands

Key Buying Factor Segmentation

Using conjoint

Key buying factor segmentation using conjoint

- the issues

Understanding what consumers specifically want/need from a

product or service, and the trade-offs they make.

Identify how the market segments on wants/needs

Tailoring existing products and services to appeal to specific

groups of consumers

Optimising NPD efforts to fulfil needs


How it works

The product or service is broken down into its component

parts – attributes for example:

Brand

Price

Colour

Each attribute is described in terms of options available –

levels for example:

Brand A, Brand B, Brand C

£200, £250, £300

Red, Green, Blue

Strongly

prefer left

Which do you prefer ?

How it works

Respondents are shown packages of attributes and levels -

concepts

No preference

1 2 3 4 5 6 7 8 9 Strongly

prefer right

£300 £200


“Brand loyal” “Convenience driven”

“Price sensitive” “Service seekers”

Brand

Price

Service

Promotions

Convenience

Brand

Price

Service

Promotions

Convenience

Brand

Price

Service

Promotions

Convenience

Brand

Price

Service

Promotions

Convenience

Size Value

40%

20%

10%

30%

50%

5%10%

35%


Service seekers

Convenience driven

Brand loyal

Price sensitive

Key buying factor segmentation - the benefits

Provides an actionable segmentation as people are grouped in

terms of their actual needs

Segments are clearly differentiated on product or service

preferences, linked to behaviour and the choices people make

Effective in product development - provides a means of testing

the appeal of any simulated concept

Provides a clear direction for marketing messages

How key buying factor segmentation has

helped our clients

The problem

An electricity supplier needed to maximise customer retention in the light of

market de-regulation


A linked conjoint to understand customer needs and identify the most appealing

services and packages

The action

The research identified distinct customer groups including early switchers,

laggards and loyalists. Different strategies were required for each. Early leavers

needed high service levels and new products. A basic offering was sufficient for

the other groups

The result

The company is successfully competing in the tough new environment and has

connected a record number of customers

Latent needs segmentation

Latent needs segmentation -

the issues

Understanding what motivates people in a market

and how individuals differ in terms of their motivations

To explore how well brands are positioned against different

needs segments

Understanding how well brands are meeting existing needs

and identifying unmet needs

Tailoring existing products and services to appeal to a wider

range of consumer needs

Optimising NPD efforts to meet consumer needs


“I need more time in the day

to get everything done”

Needs are varied

“After a hard days work I need a

drink to loosen me up.”

“Unbiased advice is important to me

in making financial decisions”

“It is important to me that my

home conveys a good

impression to guests.”

What are “latent” needs?

Importance via direct questioning can be difficult to measure

accurately in some situations:

there may be no discrimination

social constraints may affect responses

a tendency towards ‘rational’ responses

people cannot easily quantify what is important

In some situations indirect questioning can provide more

accurate and actionable information

Image score

(Innovative)

Pre

fere

nce

Image score

(Trustworthy)

Pre

fere

nce

The relationship between attributes and preference/satisfaction indicates

the relative importance of the attributes to consumers

Image score

(Boring)

Pre

fere

nce

Identifying consumer needs An indirect measure

Sensibly priced

A cool brand

Uses state of the art

materials

Associated with the

best sportstars

Provides maximum

comfort

For young people

Extrememly

fashionable

More of a fashion than

a sports brand

Identifying consumer needs


Sensibly priced

“Fashion

Orientated”

“Performance

seekers”

“Value

Focussed”

Uses state of the art

materials

Associated with the best

superstars

Provides maximum

comfort

For young people

Expensive, but worth it

A brand that is cool to be

seen wearing

More of a fashion than a

sports brand

Value

Focussed

Performance

Seekers

Fashion

Orientated


Value

15%

Value

47%

Value

38%

Latent needs segmentation

- the benefits

Provides the same benefits as direct motivational needs segmentation:

produces compelling segments which really come alive

actionable because segments are directly linked to behaviour, preference or satisfaction

solutions are sensible and discriminating

identifies current needs and brand delivery against these, and therefore what opportunities exist with unmet needs

allows for ‘multiple me’

In addition the derived method

avoids problems associated with direct importance scales (e.g., lack of discrimination, up weighting of obvious or socially desirable responses)

can be easily incorporated into standard research questionnaires

How latent needs segmentation has helped

our clients

The problem

A major international sporting association wanted to expand into clothing with

particular emphasis on sportswear


Locatorsm was used to identify the client’s current image compared to existing

sportswear brands and evaluate it’s potential to compete in this highly

competitive market. A needs based segmentation was used to identify which

groups it should target. The segments were profiled in terms of key

demographics such as age.

The action

Launched a wide range of sport wear aimed at the younger segments and

endorsed by key sportsmen and celebrities (as identified as a key need).

The result

The Co. retained its core strengths while broadening its customer base,

particular amongst younger consumers.

Improving Actionability

Improving actionability

Do the segments link to behaviour?

Are segments sufficiently differentiated to improve marketing

strategies?

optimisation

Does behaviour change by occasion?

occasion based segmentation

How complex is the market? Do you need to segment on more than

one criterion?

multi-modal segmentation

How well does your brand(s) meet the needs of each segment?

brand fit

Does the segmentation work globally (regionally) and locally?

Is there a need to re-create the segments in future projects?

Classification modelling

Optimisation

Fine tunes an existing segmentation solution to make it more

actionable - differentiated on key variables (demographics,

behaviour, region, attitude, need…)

Occasion based segmentation :

Individuals are different in different situations

Understanding multiple me

20 - 40 year old

woman with

children

Home with

family in evening

Work during day

Morning tea

Snack with lunch

Some categories are influenced by occasion

No influence Strong influence

Toilet cleaner Shampoo Confectionery

Alcohol Washing up Liquid

Multi-modal segmentation

Need

Opportunity

Person

Occasion

Defining the opportunity

Thirst

quenching=

WELL BEING

18-25 year old

single women

At work

Multiple dimensions give a better understanding of

behaviour

Healthy Rehydration

need segment

18-25 25-45

In home Out of home In home Out of home

Needs

Some

difference

Age

More

difference

Occasion

Even More

difference

Brand

Imagery Needs

Good Fit

The concept of “Brand Fit”

Brand

Imagery Needs

Bad Fit Partial

Fit

Brand

Imagery Needs

Portfolio/category management

Segment 6

19%

Segment 2

20%

Segment 4

12%

Segment 3

29% Segment 5

14%

Segment 1

6%

Everyday

Special Occasion

For Me/

Functional Social /

Emotional

Client brand 1

Client brand 2

Competitor

brand 1

Competitor

brand 2

Competitor

brand 3

Global vs local - the best solution

Segment 2

Segment 3

Segment 4

Segment 5

Segment 6

Segment 1

UK Netherlands Germany France Global

Classification modelling

An effective segmentation will be used to inform decisions and

drive strategy throughout a company

Classification models can be used to determine the optimum

reduced design to predict segmentation membership

Regression analysis

CHAID

Discriminant analysis

Full

List of

inputs

Concise

List of

Key

inputs

Making the segments come

alive...

Making the segments come alive...

In-depth profiling

Qualitative follow up

Interactive Innovation

Pen portraits/caricatures

Photos/collages/mood boards

Video clips

Postcards/diaries/scrap books

Brochures/mouse mats/booklets

VoxBox

Making the segments come alive...

Hannah the homemaker

Health fanatics

Health seekers

Non health conscious

Illustrating segments

Mood boards

Creative diary An example:

This makes me happy today...

This has ruined my day...

Hypermarket

3.95 DM

5.20 DM

9.70 DM

.....

THANK YOU

FOR

SHOPPING!

NEW

And then I went to

the movies and

had a huge ice

cream there....

Specific focus...

Specific focus...

With this persons I spent my day ...

My creative personal side

Represent 25% of the

market by value.

Convenience is key.

Impulse buyers,

attracted by one-stop-

shop

Medium penetration of

users of client brand


market by value (but

20% of individuals)

Prepared to pay for

premium solutions

Low penetration of users

of client brand


market by value (but

40% of individuals).

Purchases are

predominantly driven by

price

High penetration of

users of client brand

Calculating the value/appeal of segments

Primary targets Secondary target Don’t alienate

Brand Price

Low service

requirement

High service

requirement

Mapping target segments Young professionals

20% value

5% penetration Family focused

25% value

30% penetration

Wise and mature

10% value

5% penetration

Inert Jo’s

20% value

40% penetration

Upmarket professionals

25% value

10% penetration

SM

“Needs based segmentation (from Research

International) has been the corner stone in sharpening

our business model... and developing our current brand

strategy. All functions of our company are now clearly

focused on our prioritised consumer needs segments. A

direct consequence of this is that all our R&D and

marketing activities are driven by consumer insight.”

Electrolux

Business

Segmentation by RI