The economy is in a recession, the financial markets are all over the place, and customers are hunkering down and pulling back on their spending. With the notable exception of Wal-Mart, Taco Bell and McDonald's, companies nationwide are struggling with sales. Decision making across the board is frozen because of the unpredictability of the market.
In this fluid and unsettling environment, managers should take a deep breath and do at least one thing: conduct a needs-based segmentation of their customers and market to ensure they are addressing a clear and meaningful customer need.
Clearly, the response to this is "I already have segmented my customers. I need sales." The first step to driving sales is to make certain that you understand the needs of your customer. If you have done a needs-based segmentation, then you probably completed it 18 to 36 months ago.. Back then, the environment was one of easy credit, increasing home prices and a Dow at 12,000. The needs of your customer have definitely changed in the past 24 months. Now, you need to make sure your product and message have kept pace with the changing times.
The second typical “segmentation” of a target market is most likely a "classification" of potential customers based on demographics, such as age, income, gender, etc. (34-54-year-old, $75k+, female) or behavior, including whether the person shaves, drinks coffee, travels for business, etc. While this is a relatively easy way to assess your customers and the market, it is not particularly helpful.
Nowadays, the needs are dramatically different among females, 34-54 earning $75k+ and who travel for business.
By definition, a needs-based market segmentation aligns customers who share the same or similar values and needs, such as financial security, smooth skin, reliable delivery, adventure, etc. The customers really don’t care how you classify them or segment the market. When buying a product or service, they will choose the option that is most capable of meeting their needs and has a price that is they believe is the best value—not necessarily the cheapest.
By clearly understanding and articulating the customer need you are serving and how you are addressing that need better than the competition, you are starting from the best possible point to not only survive in this crazy market, but also to grow your business in the process.
We recently worked with an international credit card company to help grow a declining premium credit card. By applying a proprietary segmentation technique to the market, four segments, we identified within the classification of 25-40 year old male, making $75k+:
- Family man, focused, who wants to lead a secure life
- Confident Entrepreneur who lives life to the maximum, very socially active
- Status-conscious, contemporary urban male
- Maintaining the standard of living, providing for the family
The Confident Entrepreneur target segment was selected based on the size and financial attractiveness of the segment and the ability of the premium card to compete successfully. The value proposition was then realigned around the emotional and functional needs of the Confident Entrepreneur (specifically freedom and instant gratification) and the card was reintroduced to the target with new messaging and features that addressed their needs.
Within six months, every major business objective had been surpassed:
- Grew share of premium cards from 8% to 51%
- Grew incremental spending per active account by 36%
- Grew rate of active account holders by 7%
In these uncertain times, one thing remains certain: the company that meets the needs of its customers best, wins. The first step in doing this is to ensure you understand and articulate those needs clearly within an actionable customer segment. This information will not only help your company navigate through these crazy times, but it will also help you breathe a little easier.