In 1998 as a “Young Leader”, I joined one of the first private telecom operator in India offering Telephone connections, unheard of in the country till then. We had set a clear goal of identifying, selling and servicing a customer whose Average Revenue Per Line (ARPL) was above INR 3000 per month per line. Since then, Segmentation has driven telecom sector and how. From Micro segment to micro recharge of voice now to data. Fast forward to 2020, and we have Telcos creating Segmentation based on Data offerings.
Today Segmentation is shifting away from being something uniform towards dynamic. The critical question is not if or which Segmentation is right for your organisation?’, but ‘what will drive your customer segmentation, to serve your customer better and help solve the complex business problems.’
Having done this exercise with multiple Telcos over many years, one thing I can share is Segmentation has been a building block of the telecom business. I have seen instances of this across e-commerce and retail & FMCG.
FMCG was the pioneer in India for Segmentation followed by consumer durables and well adopted by new-age verticals like Telecom and E-Commerce as well as financial services. Traditional verticals like manufacturing are not far behind either.
Most Startups today are either trying to fill in the gaps not addressed by existing players or innovating to create new products and services. In such a scenario, Segmentation strategy can and should become the basis of their business plans.
So what is Segmentation:
Market segmentation is a process used by organisations to split up customers or cohort into tinier classes who share common characteristics.
Segmentation is what people bought (related or unrelated categories), but it goes beyond that, identifying who that person is, why they buy, and what it is that they need from you.
So, Segmentation is your guide to or basis of your offerings. I can even go ahead and say that Segmentation is the basis of your business case/ business model and your future outlook. Most of the startups naturally know what their product is and whom their product is going to serve. What their basic needs are and how can your product or service serve them better.
Today market evolution ensures that companies and service providers should focus their attention on the customer. Organisations need to involve customers more in the product/service development process so that new products designed must be market-driven. This requires:
- Understanding customer needs and economics
- Determining the marketing and sales costs
- Identifying appropriate options based on customer values and company objectives
- Developing clear marketing goals, action programs by segment
Key components of your Segmentation Strategy
- How to Measure?
- How to access the target group?
- How to measure segments and micro/ niche segments?
Approach to Segmentation
Organisations use Segmentation as a tool to identify their target audience based on unique attributes, create effective marketing strategies, find opportunities, optimise offerings. One way to Segment market is:
- Geographic – Classification based on geographical territories
- Demographic – Classification based on individual attributes
- Firmographic – Classification based on brand or organisation characteristics
- Behavioural – Classification based on behaviours like product usage, technology laggards.
- Psychographic – Classification based on attitudes, aspirations, values, and other criteria
How it’s done?
- Preliminary KYC activities
- Select bifurcation or segmentation criterion
- Prepare research design
- Measure & Analyse responses
- Test & follow
While the generic approach to Segmentation is good to read in books, the actual Segmentation is pretty scientific and time-consuming. Hence most of the companies tend to carry out these exercises once every few years. I for example have worked with companies in Agriculture Vertical who have carried out these exercises once every decade. However new-age verticals undertake these more frequently. Startups too tend to focus on their close relationships with their customers to segment, while not taking external help. However, this approach changes as they scale.
Let’s take a Startup ecosystem as a case and define how to segment/bifurcate.
Startups Segmentation is carried out in many ways, it depends upon the choice of attributes & parameters. One way to split up the startup ecosystem into four groups:
Stars with limelight or Growing Startups (Showstoppers) – These are the entities which pursue disruptive business models and target large addressable markets, scale. They are the buzz creators who always seek growth, size & leadership via new or innovative offerings or business models.
Objective driven or Niche Startups – These startups also create innovative offerings but only for specific markets or customer segments, confining them to their addressable market.
Dynamic Startups – These entities operate in traditional business environments & industries like trading, manufacturing, retail, and services by employing proven business models & strategies. Such entities often operate at moderate scale and growth rates but steady returns.
Opportunistic Startups – These entities are small units which employ resources in small proportion to tap the available opportunity. They often operate on a small scale, with low growth potential primarily serving the local markets or value chains.
Above illustration highlights, different segments will need different strategies as you cannot treat all patients with a conventional drug. When you use Segmentation as a tool, you identify where your organisation sits in this Segmentation. What are you doing right, and what needs working?
Some organisations may choose the strategy to grow organically or finding compatible organisations to merge /acquire. While others may identify joint go to market opportunities, while some may choose to find other locative segments to serve, and that is how you can deploy Segmentation to your advantage.
Above matrix depicts the positioning of different segments or cohorts when exposed to the parameters like Innovation & Market Scale. It also underlines that identification of parts is essential, but unless exposed to actionable metrics, one would not be able to arrive at best conclusions.
In the above illustration Innovation & Scale became the necessary parameters in the derivation of cohorts or segments, loyalty could be another way to segment brands, as shown below:
To use loyalty as a Segmentation parameter, we first need to identify stages of loyalty
Analyze attributes & parameter
Segmentation of brands based on identified stages & parameters
In this case, loyalty & customer maturity became the basic parameters of Segmentation, while other factors such as brand dominance & position added another layer of distinction to arrive at relative positioning of device brands.
To interpret loyalty is not like climbing a staircase. A customer is going from a discount hunter to a loyalist to a promoter of the brand. Loyalty is a roller coaster, and any artificial factor or attempt to build loyalty may become a boomerang any day. Awareness about a brand’s relative position could help management device strategies, align objectives & identify growth opportunities. Thus, highlighting the importance of Segmentation in corporate decision making. Unfortunately, most sectors & brands fail to give importance to these attributes and rely on gut and intuition, but leaders are wise enough to deploy Segmentation to make most out of their portfolios.
I don’t say that a vast topic like Segmentation can be covered under 5 mins. I believe, startups already struggling with limited resources, need to prioritise where to focus their energies. Especially where do they find paying customers and how to reach them. Segmentation is the definitely a first step in that direction.
Unfortunately, most Startups make the mistake of ignoring these important attributes and rather rely only on gut and intuition. If you want to move beyond “Gut and Intuition”, reach out to us at Monk Consulting to help you with the following:
- Due Diligence of your Marketing Segmentation Strategy
- Build customised Segmentation tools
- Creating an action-based proactive segmentation approach
- Set measurable outcomes for your segmentation strategy
- Masterclass / Session on Segmentation.
“A satisfied customer is the best business strategy of all.” -Dr Michael LeBoeuf Author, Speaker and Thinker.