When it comes to a brand or company’s customer base, it’s rarely completely uniform. While some characteristics may be similar across all customers (for example, they all purchase the same brand), their demographics, preferences, and purchasing habits often vary significantly. 

Market Segmentation is the activity of dividing consumers, normally consisting of existing and potential customers into subgroups based on shared characteristics. The segments created are composed of consumers who share traits such as similar demographics, interests, needs, locations, etc.

Although segmentation studies are some of the most complicated and expensive research projects companies can invest in, with some costing upwards of $200,000 and taking several weeks to complete, the results are worth it as segmentation research has multiple, far-reaching benefits:

1. Better, more targeted marketing: 

• By identifying, sizing and profiling worthwhile segments to pursue, a segmentation provides the information needed to target these segments more effectively with customized messages and content on channels that are most relevant to them. This can result in higher engagement and conversion rates, and ultimately higher sales. 

2. Product development: 

• Segmentation studies can identify unmet needs or groups that are not currently served, providing opportunities to optimize or create new products and services.  

3. Efficient allocation of resources and budgets: 

• By identifying what customer subgroups may be the most profitable, their needs, and how to reach them, you can invest your time and money more efficiently and effectively. 

Through several discussions with our mid to small sized clients, the team at Lab42 realized there is a gap between the type of information our clients need and the investment in research they can afford to access that information. 

They need to identify, understand and reach their target customers, yet they cannot afford a $200,000 price tag to help them do that.

That’s where Lab42 identified a huge unmet need, and as a result, offers different types of segmentation studies in order to meet the needs of SMB’s within a budget they can afford.

1) Most affordable: Variable Based Segmentation: 

• Current and potential customers are divided into groups based on a predetermined variable. 

• This could be a demographic (for example age), a behavior (for example purchased the category in the past), attitude (for example believe that plant-based meats are as good a protein source as animal meats) or a combination of the above.

• The key is that the identifiers are predetermined. 

This method is appropriate when you know that your current and potential market customers are homogenous in who they are, how they consume media, what messages resonate with them, etc.

Pros:

·  Affordable

·  Quick

·  Easy to understand

Cons:

·  Does not take into consideration all the ways the customer base behaves

·  Typically provides fewer (2-3) segments

2) Most expensive: Full segmentation using factor analysis K means clustering: 

• Current and potential customers are divided into groups based on all or most variables in the study.

• Using statistical software we create clusters of consumers that are very similar among them but different from the others.

• This method needs an experienced analyst that can look at the results and determine whether the clusters make sense or adjustments are needed to create more realistic results.

• This method may take a few iterations before nailing the segments that make the most sense.

Full segmentation is the most recommended way of doing this type of research as it tends to be the most comprehensive.

Pros:

·  Most comprehensive

·  Can provide multiple segments of different sizes (4-7 segments)

·  Has some flexibility as analyst could pre-determine the amount of segments they want

Cons:

·  More expensive

·  Longer to complete

3) Hybrid solution: Brand Experience Segmentation: 

• A Lab42 created solution that is a hybrid of a variable based segmentation and a full segmentation.

• Lab42 uses certain behaviors (brand awareness, brand usage and brand consideration) to run cluster analysis and create the segments.

• Then it uses all the other metrics in the study as descriptors, to profile the segment groups.

• This method is unique because we can leverage an existing brand equity framework and build it up to provide more information that can be used for profiling.

• In addition, this method is more appropriate when the category is rationally and functionally driven, for example, tools, equipment, office supplies etc. 

• Consumers tend to buy these to get the job done based on what they already know or used before, brand reputation, reviews perhaps price, however, emotions, beliefs, attitudes may not be drivers.

Pros:

·  Affordable

·  Quick

·  Can provide multiple segments of different sizes (3-5 segments)

Cons:

·  Does not take into consideration all the ways the customer base may behave

·  Psychographic attributes and attitudes not considered when forming the segments.

Understanding your target, core customers and how to reach them is essential for all companies, regardless of size. Lab42 can help you find a solution that does not break the bank.