Market Segmentation Consulting for Share and Profit Growth
Sales Effectiveness Segmentation
Segmentation Strategies for Life-Cycle Stages
Segmentation is one of the most powerful tools in the marketer’s toolkit. QDI’s proven market segmentation strategies match customers, value propositions, and marketing – reducing costs, increasing average prices, and increasing profits. QDI has been helping clients develop segmentations strategies for years, all based on three simple premises
Different groups of customers have different needs.
If you clearly understand the needs of a customer group you can focus your efforts to “meet those needs” more effectively and at a lower cost than the alternatives.
This focus enables higher win rates, higher prices, and less marketing resources
Focus allows you to offer more “potent” value propositions and do so at lower cost than competitors who don’t focus. Many of QDI’s clients over the years have used segmentation to create new paths for growth in their business.
Segmentation is a well-accepted concept. Many companies create a segmentation strategy to define their markets and direct product development. However, a common mistake is to use one segmentation strategy for all decision sets, which leads to less than optimal product development and sales effectiveness.
QDI’s has identified three different types of segmentation, each with helps managers make different sets of decisions.
Needs Based / Behavioral
Take a critical look at your current market segmentation strategy.
Does it begin by identifying a business opportunity and go all the way to
customer adoption behavior or does it fall short?
Does it start too late or stop too early?
Are you trying to use the same segmentation approach for each decision
set you make?
Has your segmentation changed as your products moved through their market life cycle?
If you’re deciding to enter a market, Structural Segmentation can help identify the markets that offer a higher than average return. Once you’ve made that evaluation, Needs-Based Segmentation drives your product and service development. Sales- Effectiveness Segmentation builds sales momentum by targeting early adopters and those customers most likely to switch.
Boost your success rate by using focused, qualitative research in the early planning stages. Sharpen your focus on customer needs and use that information to develop your support services accordingly. The enhanced services you develop, in turn, will act as a magnet to attract new customers. Next, use Sales Effectiveness Segmentation to look at your future customers. Once you’ve identified the hot prospects, you’re on your way to build sales momentum.
The ability of market segmentation to improve the return on your investments for each type of decision is why segmentation research is so important. Identifying segments and measuring their potential produces insights and opportunities that would otherwise be overlooked and avoids costs that would otherwise be spent chasing low potential opportunities.
The framework to look at Structural, Behavioral and Sales Effectiveness Segmentation drivers in the market.
20/20 Segmentation looks at three levels of segmentation to answer three types of business problems:
Structural segmentation looks at the overall industry and assesses the landscape answering questions such as:
Who are the customer segments / key customers?
Who are the competitors?
What is the existing channel structure?
What are the industry economics?
All of these questions are designed to answer the questions, “Should we play in a new market?”
This answer actually can’t be made in a vacuum because it depends on “what you can bring to the market.” Thus, often Needs Based or Behavioral Segmentation is required to answer the questions:
How “valuable” is my offering or potentially, are their needs that I think my technologies / capabilities can uniquely address?
Will I be able to get market presence?
QDI uses behavioral segmentation to help companies who are stalled and trying to grow as well as help companies target new products and technologies to the best opportunity segments.
QDI uses its tool, Segment Explorer, as a framework for assessing the competitive dynamics in the market. Segment Explorer helps organize what our clients know about the market – including their customers, competitive customers and non-customers– fundamentally asking the question, “What is different between the three customer groups that explains why we sell only to our customers?”
Segment Explorer looks at demographics – grouping people into industries or customer sizes or consumer demographic groups, in an effort to ultimately create targetable customer groups.
We then move to behavior. What do people do? QDI uses its “Life Cycle Interaction Model” to explore customer behavior at every step of a customer’s interaction with a product or service, from the moment they even start to think about doing something differently (i.e, solving a problem, trying something new, etc.) until they have used up the value of the product or service and terminate using it or replace it. We even explore the process of recycling the product to the extent this gives us insight into customer behavior.
From this process we learn:
What drives people to make a purchase
How they get educated and shop for alternatives
The decision criteria they use and who is involved in the decision
How and where they purchased, what they paid, what costs they incurred to buy
How they used the product and learned to use it if it was new.
Problems they had or delights they experienced with the product
Why and how they terminated its use
What they replaced it with, if anything.
This is classic “in-depth” qualitative research. We learn from the market and build models of market behavior.
This whole process is based on “perception” – i.e., what the customer perceived throughout this process. Thus, we capture perception of different products, suppliers and people that paints a picture of your offerings and market organization and channels.
Added to this is an assessment of attitudes. It’s not only what people say, but how they say it and what else they say to us about their experience that provides great insight into customer needs. Often the most insightful conversation are about the frustration a customer felt because of an interaction with a product or a vendor, or how hard and dangerous it is to do some types of work. Knowing these things often leads to the identification of products or services that have immense value.
Understanding what is different between these three customer groups on these behavioral dimensions begins to answer questions for businesses with different types of marketing problems.
For the companies who are trying to grow a mature business, he can assess what he has learned that will help him:
Increase the demand for his products by his own customers
Transition non-customers – customers who are not using this product category – to his product category?
Win competitive customers?
For companies who are exploring new product and service strategies, they can identify customer needs that could enable them to offer new products and services.
Needs Based / Behavioral segmentation can lead to three potential growth strategies each focused on addressing specific and different customer segments:
Increasing Demand by increasing:
Consumption per existing user by offering new products and new applications for existing products
Share of existing consumption by focusing on customers who are buying from competitive customers that are “most likely to switch”
Expanding channel coverage to reach segments who are not present users
Accelerating Maturation by moving the market more rapidly to a commodity status:
By becoming the low-cost manufacturer and marketer, enabling you to capture a greater portion of the market
By gaining greater control over your go-to-market system, enabling you to get greater focus on your products, squeezing out competitive offerings
Reinventing Your Future by developing new offerings and new channels to meet underserved customer segments
These customer groups become highly visible when exploring why customers are not buying from you or competition.
Sales Effectiveness Segmentation
Sales effectiveness is just what it sounds like – how do we target the sales channels and communicate messages to increase the “close rate” of our channels.
Low levels of sales success are reflected in lower close rates. For a sales person, Close Rate is a measure of how often he wins a sale as a percentage of the time he attempts to make a sale. Thus, if he makes five sales presentations and wins one, his close rate is 20%. The fact that the customer only purchased a competitive offering one of those five times is not particularly heartening to the sales rep. While the product manufacturer may say he wins 50% of the time against competition, the sales rep still made five sales efforts and only closed one.
The lower the Close Rate, as viewed from the sales rep’s perspective, the less effort he/she will place on the product/service (assuming he/she has a viable alternative). Thus, manufacturers run great risks when they poorly target the markets they are asking sales people to chase. If a sales person’s initial success is poor, the odds are very high that he will move on to another product/service that will be easier to sell. The lesson for the marketer is to clearly define the Market Mass – the market object – who to call on- and the market matter – the message to communicate – to win a high percentage of the times that a sales effort is made.
High Close Rates positively reinforce sales efforts with successful sales and the resultant commissions. With high commissions the sales rep spends more time on the product line, generating more sales and commissions. Meanwhile, the marketer generates more profits, affording more sales support, advertising, training and product development – all investments that help him more effectively target the addressed market.
Low Close Rates do the opposite. They reinforce divestment – reducing sales effort, and ultimately dropping the product line. Therefore, it is vital that marketers become experts at developing offerings and organizations that generate high Close Rates.
The greater the customer’s preference for an offering, the higher the Close Rate. Preference requires more than awareness or even presence to the sale. Preference requires the decision maker to view one supplier’s offering as more valuable than any of the alternatives. Gaining preference requires building a position in the customer’s mind that is unique from his alternatives. This requires establishing some type of knowledge of the company’s offering or an association in the customer’s mind between this offering and some positive values.
Positioning is easy to understand when one builds a premium, differentiated position such as Mercedes Benz. Preference by association is more difficult to build. In the consumer electronics business, APC, a manufacturer of UPS equipment and surge suppressors, has created a preference association because it is on the shelf in all the stores where customers shop. Therefore, customers assume the product is the best. This position is not built on product features or experience, but visibility and “attachment” to the retail outlets.
Savvy marketers recognize the importance of creating the perception of a preferential position in the customer’s mind, either by delivering knowledge or unique benefits, or through association with a respected source. Doing so becomes much more possible when the marketer has clearly segmented his market. The old adage, “The market is so big I only need 1% to be rich,” is a fallacy. If you don’t know who the 1% is (what segment they are) and why they will buy from you, then you will never sell those customers often enough to gain any sales momentum and will eventually “run out of gas.”
Thus, effective segmentation, targeting and communicating a clear, compelling position are critical for consistently successful sales events.
Segmentation Strategies for Life-Cycle Stages
QDI’s market-driven growth strategies are the product of in-depth market research and strategy planning with your marketing and sales team. The right marketing growth strategy for your company is a function of your business objectives and resources and where you are in your market life cycle
QDI works with clients at three distinctly different market life cycle stages:
Breaking-in – New ventures looking to bring new technologies to market
Ramping-up – Companies in growth markets who are rapidly ramping up their go-to-market organization
Breaking out – Companies in mature markets looking to accelerate growth.
Breaking-in companies often need help to:
Identify the specific customers who will value their new offering enough to purchase it in the near term
Define their value propositions in terms that are meaningful and compelling to customers
Develop the go-to-market organization necessary to support the early adopters
Ramping-up companies often need help growing their sales and marketing organizations and channel positions fast enough to keep up with market growth. QDI helps these clients:
Identify the right channels of distribution
Develop programs to help the channel be successful with the client’s offering
Develop policies, price structures and procedures to minimize conflict while maximizing coverage
Breaking-out companies are trying to grow share in a stalled, mature market. They have the following options:
Increase demand for their products and services
Become the share leader as the market matures by “accelerating maturation” in their market
In today’s turbulent business environment the focus never moves from the bottom line. Marketers are under increased pressure to constantly drive growth. Whether that means entering new markets or jump starting a stalled, mature market, QDI’s consultants help position businesses to increase market share and grow revenue.
“Terrific work – based on QDI’s findings we are already putting marketing programs in place targeting buyers at the key decision points they identified.” Frank Dennis, Dennis Consulting
“QDI’s work quantified the opportunity in our “mega” segment and identified the criteria this group uses to evaluate us. We’re in the process of putting in place the information and communications necessary to win these customers.” Jack McQuellon, Caterpillar
A process equipment manufacturer turned to QDI to evaluate its existing channel structure’s ability to deliver long-term growth. We developed a channel strategy that put the manufacturer on track to grow its business.
Our client was looking to grow share in a highly competitive aftermarket parts market. It became critical to understand the needs of the market. Our needs-based segmentation exercise identified two distinct customer groups.