Rethinking Market Segmentation Achieving Effective Segmentation to Drive Results

May 14th, 2014

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� Where market segmentation starts – and often ends

� Why we slice up markets

� The New Guardrails • Objectives • Descriptive Tools • Activation

� Effective segmentation in action

� Conclusion

Today’s Agenda

Scott Laing Sr. Vice President

Today’s Presenter

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Let’s say you’re interested in growing your sales of…

…or…

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Your team decides to conduct a Market Segmentation study…

…a time-tested friend and bedrock of

marketing!

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The Start of the Project…

What typically comes to mind as effective segmentation?

� A universal, cross-company model – everyone is a stakeholder and everyone is on the same page

� Detail, detail, detail – interesting, novel descriptors that excite

� Description drives action

So, what’s wrong?

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Let’s Take a Step Back

Through Market Segmentation, companies divide large heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.*

*From Kotler, Philip and Gary Armstrong, Principles of Marketing, Prentice-Hall.

Segmentation:

Key Market Segmentation Attributes

It’s about driving growth!

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Guardrails for Effective Segmentation

Define a growth-centered objective

Don’t get lost in the description

Don’t fear data integration

Dividing Markets for a Reason

Principle:

Specificity in objective will pay handsomely

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Flavors of Segmentation

There are two possible problems to address via Market Segmentation. Each requires a very different approach.

A Market for Your Product

A Product for Your Market

VS.

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What Does it Look Like? A Typical Model…

Engaged Customers

Strong Prospects

On-the-fence

Low-Interest

Totally Uninvolved

“Disengaged David”

“Homebody Holly”

“Questioning Quentin”

“Nearly Retired Richard”

“Polly the Pensioner”

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Principle:

Define a growth-centered objective

� Always remember the promise of market segmentation: Finding a market focus and realizing efficient growth.

� Projects typically go “off the rails” when objectives multiply.

� A segmentation model designed to optimize channel selection will

likely look different than one designed to optimize revenue based on price discrimination.

Identify Relevant Attributes

Principle:

Specificity in objective will pay handsomely

Principle:

Don’t get lost in the mechanics

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State of Segmentation Tools

TIME

“A diversity of wants”

identified (1912)

Demographics/ census (1950s)

Psychographics (1960s & 70s)

Emotional response (2010s)

Public/social discourse

(NOW!)

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“Nearly-Retired Richard”

• Male head-of-household

• Senior manager, F500 firm

• 55 – 64

• 1 – 2 spendthrift children at top colleges

• Average earnings $150,000+

• Wife is aspiring socialite/traveler

• Lives in elite suburbs

• Active saver/investor

• Own home

• Graduate+ education

• Shop at high-end department stores, local specialty shops

• Enjoy gardening

• Read The Economist

• Drive mid-range sedan

Where does this fit into growth?

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Don’t Lose Sight of The “Why”

…[M]arket segmentation has become narrowly focused on the needs of advertising [and increasingly skeptical management teams], which it mainly serves by populating commercials [and corporate meeting rooms] with characters that viewers can identify with – the marketing equivalent of central casting.*

*From Yankelovich, David with David Meer, Rediscovering Market Segmentation, Harvard Business Review, February 2006

� Rich descriptions are critical, but not the end game

� Growth is the end game

• Requires description of an appeal/target

• But also clear reach proposition

When the next turn is unclear, people tend to focus on selling the idea internally, forgetting the whole point of doing segmentation in the first place.

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Principle:

Don’t get lost in the description

� Let the “Why” of segmentation (growth) drive the “What” of segmentation (descriptors)

� Often, segmentation studies morph into customer profiling studies

with little focus on a “target” to optimize.

� It is useful to identify a single piece of the business that will

“activate” the segmentation

“Wonder Twin Powers Activate!”

Principle:

Specificity in objective will pay handsomely

Principle:

Don’t get lost in the mechanics

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So Many Sources of Data! Data overload

Above logos are the property of their respective owners

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Alternatives Have Different Strengths

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Which Source is Best?

� Why stick with one?

� Historical temptation to choose one source, but we’re finding the power in integrating two – one for description, one or more for reach

• Custom survey + syndicated database

• CRM + custom survey

• Syndicated database + CRM

Description Reach

� Make sure you are integrating sources to meet your objectives

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� Use the best sources for descriptive power and reach

� Choose descriptive elements based on path to growth

� Identify a single piece of the business that will “activate” the

segmentation

Principle:

Don’t fear data integration

Segmentation in Action

Principle:

Don’t fear data integration

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Pharma

Principle #1: Focus on a single objective

� Objective: Arm the direct salesforce with a tool to identify strong prospects

� Potential Pitfall: A rich descriptive segmentation based on attitudes was

highly predictive of product interest & feature appeal, but attitudes not visible to salesforce

� Solution: A simple 3-question predictive segmentation model based on “visible” attributes constructed, yielding big targeting efficiency gain

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Major Insurer

Principle #2: Simple, but powerful model

� Objective: Narrow SME prospect pool to reduce marketing costs, increase sales efficiency

� Potential Pitfall: Deep attitudinal descriptors provided insight into insurance appeal, but limited value in predicting uptake due to organizational policy

� Solution: “First cut” segmentation model based on purchase likelihood with message appeal added for color resulted in tight prospecting list

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High-Profile Publisher

Principle #3: Application of extensive database

� Objective: Identify younger target group to grow subscriber base

� Potential Pitfall: Primary research study provided richness for

identifying lifestyle profile and high-value editorial, but no robust reach mechanism

� Solution: Scoring potential subscriber database allowed for highly-targeted direct campaigns. Similar programs underway with additional titles

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Summary: Shifting Mindset for Effectiveness

Cross-company segmentation model where everyone’s a stakeholder. High cost, long life

More description is always better Assumptions about response are good enough

Segmentation must have a single-minded objective to focus action. Focus on growth, nimble action Combine data sources for powerful description and reach

Focus on the description that matters – what distinguishes good prospects

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About ORC International

For 75 years, ORC International has provided companies around the globe the insight they need to solve their most pressing challenges. Today, our focus remains clear. We’re dedicated to driving your success through innovative research solutions in Customer Strategies, Employee Research, Strategic Research and Markets and Products- all supported by our unique Integrate Intelligence (i2) framework.

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Thank you!

Questions?

Scott R. Laing Sr. Vice President ORC International

Scott.Laing@orcinternational.com

To learn more contact us at : answers@orcinternational.com

Visit our website at www.orcinternational.com

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