Market Segmentation: The first step of your successful marketing strategy
Arnaud de Lajarte | Business consultant, university lecturer and winegrower
When meeting a prospective client, my first question is usually “Who is your core (consumer, shopper, retailer) target?” Followed by a second question “What problem do you help them solve, uniquely or better than the competition?” Typically, the less sophisticated companies will answer: “Anyone who is interested and has money to pay the price!”. Conversely, organisations with large marketing departments will produce complicated market modelling and brand positioning statements – that are seldom understood by the rest of the company. Not a good start!
STP, the ABC of marketing strategy
To develop a successful marketing strategy, start with an effective market segmentation that helps the whole organisation understand what part (segment) of the market you want to focus on. If you have limited resources, don’t despair. Good communication with your sales colleagues and mental agility will take you there. And if you belong to a large company, remember it’s not about big budgets, more research agency work and fancy new marketing techniques. The KISS principle applies. Just make sure you can be understood and followed by every little guy below your ivory tower.
This short paper covers the S and the T of STP, “Segmentation Targeting Positioning”. We will see later how to build a great Brand Positioning Statement that makes sense to everyone.
There’s more than one way to segment a market
Depending on what role you play in the market, your criteria for categorising brands and products will vary. As a producer, you are likely to think about product characteristics, ingredients, taste, production methods, place of origin, etc. This is a bias found for example with wine producers. Do retailers, shoppers and consumers care about these things that are so central to wine producers? Not so much! Retailers may be also interested in categorising wines according to their price and profitability. Shoppers and consumers (often not the same people for wine) will chose according to occasions and need states.
- Segmentation by product characteristics: Most likely, you already have it. You can question the value of some criteria for your brand. Taking again the example of wine, is it necessary for you to split sparkling wine into “Méthode Charmat” and “Méthode Traditionelle”?
- Price Pyramid: A classic tool that is also already in your bag. It’s worth revisiting, though. Is the data strong and up-to-date? Does it cover all important channels? Have price segments changed?
- Consumer Groups: Identify key consumer groups and describe each of them with a mood board and relevant information. This includes demographic, geographic, psychographic and behavioural data. The usual “gender”, “age bracket”, “occupation”, “income level” are not enough! After you have done your homework, it pays to have a meeting and retail visits with your sales colleagues and the smart guy from the Little Buddha agency. It should be fun and insightful!
- Occasions: There are occasions to purchase and occasions to consume. They are not necessarily the same. You could buy a pack of beer at the petrol station on the way home (purchasing occasion) and drink it with friends at the weekend picnic (consumption occasion). Look at the diary and think of occasions during the year (Mother’s Day for Baileys Strawberries & Cream), during the week (Big Friday Night Out for Jägermeister), or during the day (morning train commute to work for on-the-go coffee).
- Need states: A fancy marketing term. In plain language, a need state is the reason for a group of consumers to buy or use a product or service on a particular occasion. As an example, staying awake while driving is an essential need state for lorry drivers that leads to the purchase of energy drinks. Note that consumers choose less according to who they are (consumer groups), and more according to the circumstances in which they are (occasion + need state).
- Segmentation matrix: List Consumer Groups horizontally (top) and Occasions vertically (left). At their intersection, write the corresponding Need State. Try to estimate the value of each square (Consumer Group + Occasion + Need State) in volume or / and value. Choose which one (s) are most attractive for your brand. A great tool also for brand range strategy and for brand activation!
Putting the theory into practice
The example below, courtesy of the Zolotaya Balka Winery, shows their segmentation of the Russian market for sparkling wine – the third largest globally. A project team including marketing and sales managers identified the most important Occasions, Consumer Groups and Need States for their market.
Genuine (imported) Champagne is a luxury product that accounts for less than 1% of market volumes. Its main shopper / consumer group is “Sugar Daddies & Their Young Babes”. A key occasion is “Romantic Evening”, e.g. on Women’s Day or Valentine’s Day. The corresponding Need State (for the shopper) is “Reward, Please Female Companion”. Consequently, price-off promotions are irrelevant and counter-productive. It would be preferable to develop a value-added offer such as an expensive looking gift box.
The bulk of market volumes, however, is made up of cheap semi-sweet “Sovetskoye Shampanskoye” – what Joseph Stalin wished every hard-working USSR worker could buy for New Year celebrations. It is now the stuff favoured by Young Female Students and Young Female Professionals on a budget. For the “New Year” occasion (possibly 2/3 of yearly volumes!), the Need State is “Celebrate Success / Special Event”. Every second bottle will be discounted in December, therefore a multi-buy promotion (3F2 ideally) and an inspiring celebratory bottle neck label are sure ways to gain share.
In both cases, you need an outstanding brand design agency. I recommend you speak to Little Buddha!