The Lab42 Approach to Customer Segmentation
Segmentation market research studies offer valuable insights for businesses and organizations looking to understand their market better and tailor their products, services, and marketing strategies more effectively. However, many small to medium sized companies (the ones who would benefit most from having these insights) see these types of projects as prohibitively confusing, expensive, and difficult - which, when working with large research companies, is often true.
As a small company ourselves, we recognize how powerful these types of studies can be, and we take a much more consultative and educational approach. We work closely with our clients so they fully understand the various aspects of these studies, the deliverables and insights that can be gained, and ensure we answer any questions they have. Oh, and our segmentation projects cost a fraction of what other research companies charge.
What are segmentation studies?
Segmentation studies are powerful tools that can help divide a broad market or consumer base into smaller, more manageable groups based on shared characteristics. These characteristics can be demographics (age, gender, income), psychographics (lifestyle, values, attitudes), geographics (location, climate), and behavioral (purchasing habits, brand loyalty). The goal is to understand these segments in depth, which helps in tailoring marketing strategies, products, or services to meet the needs of each group.
Why Conduct Segmentation Studies?
Segmentation studies are invaluable tools for businesses, offering countless benefits across strategic planning and execution. These studies enable businesses to deeply understand and effectively respond to the diverse needs and behaviors of their customer base. By dividing the broad customer base based on shared characteristics, companies can can tailor their products, marketing strategies, and overall business approach to cater specifically to the unique demands of each segment. Below are just a few reasons we’ve worked with clients to conduct segmentation studies:
Targeted Marketing: By identifying specific groups within a broader customer base, businesses can create highly tailored marketing strategies that speak specifically to those subgroups.
For example, a cosmetic company might discover through segmentation that one group of customers values organic ingredients, while another segment is more price-sensitive. This understanding allows for the development of distinct marketing campaigns — perhaps a social media-driven, influencer-endorsed campaign for the organic-loving group, and a value-for-money, promotional campaign for the price-conscious group.
Enhanced Product Development: Segmentation studies provide valuable insights into the specific needs and preferences of different market segments, guiding the development of tailored products or services.
For instance, a tech company might learn through segmentation that one customer group highly values user-friendly interfaces, while another prioritizes advanced technical features. This knowledge can lead to the development of different product lines or versions, each designed to meet the unique demands of these segments.
Competitive Edge: Understanding the nuances of different market segments allows a business to differentiate itself from competitors.
For example, a car dealership could use a segmentation to discover that exceptional after-sales service and loyalty rewards are key drivers for retention among their high-end clients. They then enhance their customer service and introduce a loyalty program to increase customer satisfaction and repeat purchases.
Resource Optimization: Efficient allocation of resources is another significant benefit of segmentation studies. By focusing on the most profitable or promising segments, companies can optimize their investments in marketing, product development, and distribution channels.
For example, a retail chain might use segmentation data to determine that certain products are more popular in urban areas, while others have higher demand in rural regions. This insight enables the business to strategically stock its stores and allocate its marketing budget, ensuring that resources are focused where they have the greatest impact.
Process of Conducting Segmentation Studies
Defining the Market:
Broad Scope: Initially, it's important to have a broad understanding of the overall market. This means looking at the general audience for the product or service.
Refinement: From this broad scope, the focus narrows down using segmentation to pinpoint smaller, more defined audience groups. This process might involve looking at the entire market for a product category (like smartphones) and then narrowing it down to specific types of users (like tech enthusiasts or business professionals).
Data Collection:
Surveys: Surveys are a primary tool for collecting data. They should be designed to capture essential information about the audience, including demographics (age, gender, income), psychographics (lifestyles, values), and behaviors (buying habits, brand loyalty). Our team works closely with our clients to ensure we are asking questions that delve into attitudes and behaviors to gather nuanced insights, going beyond surface-level demographics.
Data Analysis: Using statistical methods to analyze the data and identify patterns that indicate different market segments. The two most common types of advanced analytics we use in segmentation studies are Cluster Analyses and Factor Analyses.
Cluster Analysis: This is perhaps the most commonly used method in segmentation studies. It groups consumers into segments based on shared characteristics, ensuring that members of each group are as similar as possible to each other and as different as possible from members of other groups. Techniques like K-means clustering, hierarchical clustering, and TwoStep clustering are frequently used.
Factor Analysis: This method is used to identify underlying variables, or factors, that explain the pattern of correlations within a set of observed variables. It's useful in reducing data complexity and identifying latent dimensions (like attitudes or beliefs) that might not be immediately apparent.
Segment Identification:
Market Segments: Based on the analysis, distinct market segments are identified, each representing a group of consumers that share similar characteristics, while being different from other segments.
Profile Segments:
Detailed Descriptions: Each segment is profiled in detail, including their specific needs, preferences, behaviors, and other relevant characteristics.
Understanding Segment Nuances: This profiling helps in understanding the unique aspects of each segment.
Evaluate and Select Target Segments:
Viability and Profitability: Segments are evaluated to determine which are the most viable and profitable to target.
Strategic Selection: This step involves strategic decision-making about which segments align best with the business’s goals and resources.
Market Strategies Development:
Tailored Strategies: Marketing strategies are then developed for each target segment, tailored to their specific characteristics and needs.
Implementation: These strategies are implemented to effectively reach and engage each segment, utilizing insights from the segmentation study.
Who Should CONDUCT A Segmentation Study?
Segmentation studies are beneficial for a wide range of companies or agencies:
Businesses of All Sizes: From large corporations to small businesses, understanding market segments is crucial for tailored marketing and product development.
Marketing Professionals: They rely on these studies to craft targeted advertising campaigns and promotional strategies.
Product Developers and Designers: Insights from these studies help in creating products that meet the specific needs of different consumer groups.
Startups: New businesses can use segmentation to identify their niche market and focus their limited resources effectively.
Examples of Insights GAINED from Segmentation STUDIES
In each of these areas, segmentation studies provide critical insights that can guide businesses in refining their products, services, marketing strategies, and overall approach to effectively meet the needs and preferences of different market segments.
Customer Preferences and Needs: This insight helps in understanding the specific likes, dislikes, and needs of different customer segments.
Example: A streaming service conducts a study and finds that one segment of its audience prefers action-packed movies, while another leans towards romantic comedies. Using this information, they can tailor their content recommendations and promotions to cater to these preferences.
Price Sensitivity: This insight involves understanding how much different segments are willing to pay for a product or service.
Example: A smartphone company finds that younger users are more price-sensitive compared to older users. They introduce a budget-friendly smartphone line targeting younger consumers, while their premium models are marketed to older demographics.
Market Trends: Identifying trends within specific segments can help in recognizing new market opportunities or potential threats.
Example: A health food brand discovers a rising trend for plant-based diets among one segment. They quickly expand their product line to include plant-based options, tapping into this growing market.
Customer Loyalty Drivers: This aspect focuses on understanding what factors influence customer loyalty and retention in different segments.
Example: An airline finds that frequent business travelers value flexible booking options and loyalty rewards. They enhance these features in their service offering, improving customer retention in this segment.
Effective Communication Channels:This insight is about discovering the most impactful media and communication channels for different segments.
Example: A cosmetic brand learns that its younger demographic is more engaged on social media platforms like Instagram and YouTube. They shift their advertising efforts to these platforms with a focus on influencer collaborations.
Barriers to Entry: Recognizing obstacles or challenges in reaching or satisfying certain market segments.
Example: A financial services company realizes that a significant segment of potential customers is intimidated by complex financial jargon. They simplify their communication and introduce educational content to overcome this barrier.
Segmentation studies are a vital tool for businesses of all sizes, uncovering deeper insights that are essential for more targeted marketing, product development, and gaining a competitive edge. Although these studies have traditionally been seen as complex, expensive, and out of reach for many small to medium sized companies, Lab42’s approach makes it easier and more affordable for companies of all sizes to conduct segmentations and gain the insights needed to drive their businesses forward.
