Summary: This article on post research gives some examples of segmentation.
Before we go on to how exactly to segment a market let’s look at some examples of segmentation in action.
Remember, the aim of segmentation is to allow you to know a market in different ways from your competitors and then closer match the jobs and outcomes people want with different or tailored products and services. It may also allow the marketing of products to specific types of consumers as a specialist, and for you to concentrate resources in markets where competitive advantage and returns are highest. It is to that we come in Step 2. It also, very importantly, allows the measurement of customer retention and profit within each segment.
Let’s take a look at how response variables and identifier variables are used in jobs and outcomes based segmentation in practice.
Electrolux’s story of its food service equipment industry is a good example of how powerful the correct use of response variables and identifier variables can be.
Its brands were fragmented, with 15 weak national based brands making up its portfolio. This greatly increased its marketing costs and lead to inefficiency because economies of scale were hindered. In addition, brand equity was also being diluted through lack of focus and reducing the possibility of charging a greater premium for the brand. The company was making a loss in these areas of 1.3%. After the plans that follow were executed, it turned this around to a profit of 8.1% after just five years.
Electrolux had up until now followed segmentation strategy based upon low, medium and high price and on product specifications (good, better, or best) – all of which were response variables. Then it had segmented further from these tree tiers across specific customer profiles – hospital, canteen, bar, school, convenience store, restaurant and hotel – so called identifier variables.
Yet, despite following the correct response and then identifier variable approach it still found two problems –
1) Further segmenting on customer type was not productive. Prioritisation and importance of differing jobs and outcomes actually transcended these boundaries across the types of institution. Therefore identifier variables had been grossly misused and had separated consumers who actually wanted to do the same jobs and achieve the same outcomes regardless of who they actually where. More jobs and outcomes (response variables) should have been used to better identify what these customers were really trying to achieve.
2) Each customer sought the best solution for those customers’ jobs and outcomes – the good, better, and best variables were a false paradigm. Why would a customer want a “good”, or “better brand”, rather than the best for their purposes? The use of good, better, and best response variables approach was therefore faulty. What mattered was the jobs and outcomes to be performed.
Electrolux realised that the best solution for each customer required starting from customer jobs and outcomes to identify the most important response variables, and that these transcended through customer types which were largely irrelevant until the final analysis – finding where people were. Its Europe-wide new approach to segmentation research revealed four segments which each had different customer types, product specs, pricing indexes, distribution needs and contexts in which the equipment was used.
These segments and a few of the famous 4 –
1) Performance specialisation segment – The Ultimate Goal was to produce large volumes of meals under circumstances that involved complicated logistics. Other high priority jobs included high performance and well integrated systems. There was a price index of 100 compared to other segments. Airlines, five star hotels, hospitals and so on made up this group.
2) Basic solution fast return on investment segment – Those with the Ultimate Goal of using catering as an auxiliary service to generate fast ROI through basic menus – conformity with legal and sanitary regulation was an important job as well as very low prices being an important need giving a price index of 25. This segment mainly contained pubs and convenience stores.
3) Gastronomy partnership segment – Those whose Ultimate Goal was producing under 200 meals a day and doing it with a low technical competence. Jobs and outcomes they valued most were the ability to move solutions about, solutions being easy and simple use, good customer support, plus proven technology at reasonable prices. They had a price index of 50 – 75. Staff canteens, family restaurants and elderly homes made up the most of this segment.
4) The prestige gourmet segment was made up of the very best gourmet and celebrity chef owned restaurants. They required a prestigious kitchen, feature packed, with a very reliable stove as a status symbol. Price index of 200 – 300.
Note how the response variables were used first – a focus on Ultimate Goals, jobs and outcomes. Once these had been identified, identifier variables were then used to see who most of these customers were.
For now Electrolux decided it would forgo the basic solution segment due to low prices, and then chose three brands from its current 15 to position. It settled upon Electrolux, Zanussi and Molteni to target the others 3 segments. Brand images appropriate to each segment where then built, with personality, values, rewards, functional benefits and features being built for each. 10 of its other brands were eliminated; the remaining two were kept on as they had pockets of strength.
(This worked, I took a look at Molteni and they are known as the Ferrari of stoves! They have a cult following and many of the very best restaurants use them!)
A better understanding of each jobs and outcomes based segment led to fewer but more appropriate products for customers because in reality, customers across many different roles, professions and businesses shared a lot more in common that first thought – a small set of only 4 different jobs and outcomes. Now Electrolux insists that all divisions use the same segmentation approach to new product development.
Electrolux now visits consumers to learn how, when and why these use appliances. They from this develop distinct personas to represent segments based on personality and lifestyle, jobs done and outcomes expected, usage patterns, and similar elements. One interesting thing that have found is that consumers often want their personalities reflected by their appliances, with aesthetics and functionality key in meeting this requirement.
Another example is how supermarkets have begun to segment their markets – e.g. Sainsbury’s – Be Good to Yourself (health), Organics, Taste the Difference (premium) and Basics (low cost). It is also wise to realise that one customer could be all segments over a week depending on he job to done on that usage occasion.
For example they could use “Basics” for unimportant staples, “Good to Yourself” during the week and “Taste the Difference” for a weekend treat or just items of particular importance to the user e.g. desserts. These different jobs may be classified – for example – ‘indulge me’, ‘healthy me’, ‘budget me’, ‘sophisticated me’ and change to meet specific jobs at specific times. An EasyJet user for family holidays may always fly BA first class for business. So people can be part of many segments based on their specific job they want to do right there and then – their usage occasion. Therefore brand loyalty across a category can switch and change depending on the situation, and often consumers will be loyal to different brands in the same product category, based on the job they want to do– their loyalty may however firmly lie with one brand per usage occasion.
Another example is how Porsche sub-segments its core segment – over forty, male, college graduate, with income over £100,000 pa/a using psychographics.
- Top guns are driven ambitious types who expect to be noticed and care about power and control.
- Elitists are old money blue bloods who consider a car to be transportation not an extension of their personality.
- Fantasists want to escape through their cars and feel guilty about owning one.
- Proud Patrons consider ownership an end in itself a trophy for hard work.
- Bon Vivants are worldly jetsetters and thrill seeks whose cars heighten the excitement in their already passionate lives.
Notice how all 5 segments have a different Ultimate Goal to be achieved by their Porsche.
A final simple example of segments based on Ultimate Goals is for the users of tooth paste. Some buy to stop decay, some to attract attention, and some for nice taste. Matches for characteristics in demographics, psychographics, etc within those groups would then be looked at afterwards for trends and similarities.
A good way to think of segmentation is as the ultimate customisation of offerings to individual’s jobs and outcomes. In line with how we see all markets moving, the winners will be those that are able to give more power to buyers by giving them the package that best meets their required jobs and outcomes at the right price.
Many firms try and customise their offerings, such customisation can be collaborative – by involving customers, transparent customisation – customised to unique needs without letting them know how, adaptive customisation – using one standard product that users can customise themselves and cosmetic customisation – where the product stays the same but only the solution changes.