Segmentation – an Essential

Ingredient for Organic Growth

February, 2009
As categories evolve, segments emerge

The first mobile phone call ever - April 3rd , 1973

Today’s choices

As customers get familiar with a product category,

market segments emerge with distinct needs.
© 2009 EMM Group
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Why should we care?
Consumer electronics segmentation

Segment 1 Segment 1 customers

19%
tend to:
37% 41% •Buy the latest
equipment
Segment 2 33% •Buy higher-end
equipment
18% 15% •Are generally more
expert and have a
Segment 3 26% 20% 17% lower cost to serve
•Are less price-
sensitive
Segment 4 21% 25% 27%

# of customers $ Revenue $ Profit

The customers in some segments represent a

disproportionate amount of profit pool available
© 2009 EMM Group
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Segmentation has been an essential
ingredient for many companies
Drive Growth Enhance Profitability
Focus Example Focus Example
Focusing efforts to Creating efficient value
win with non-travel chain to meet known
related segment needs of the “young at
heart” segment

Improve Innovation Success Improve Marketing Performance

Focus Example Focus Example

Creating product & Setting clear
business model objectives for
innovations with marketing to
highest relevance to maximize
the “Do it all for me” effectiveness &
efficiency
segment.

© 2009 EMM Group

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Segmentation can help you find profit focus
Construction Industry Segmentation
Segments Vendor A Vendor A
Margin Win Rate •Segment 2 customers
# $ represent almost 28%
of the companies in
this market.
Segment 1 •However their spend is
40% 39% 2.8% 20% only 5% of the
market.
•When they do spend,
4% 2.5% 6% Vendor A makes the
Segment 2 28% least amount of
30% 2.8% 7% margin on the deal.
•And the win rate with
Segment 3 12% this segment is the
lowest at 6%.
Segment 4 20%
27% 3.2% 8%

Just reallocating sales and marketing resources towards the more

profitable segment, led to higher productivity and profitability.
© 2009 EMM Group
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What is Segmentation?

1. “Market segmentation is the subdividing of a market into

distinct subsets, where any subset may conceivably be
selected as a marketing target to be reached with a distinct
marketing mix.”
– Kotler

2. Targeting is the selection of segment(s) to serve.

We first find segments that exist in the market and then we

select our target segment(s).

© 2009 EMM Group

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 How is most segmentation done?

•Demographics
ØE.g. age, income, location, etc.
•Product Segments
ØE.g. Silver, Gold, Platinum
•Purchasing approaches
ØE.g. individual/joint decision, existing
relationship, etc.
•Situational Factors
ØE.g.immediacy of need, specific Each approach seems logical
applications but could be misleading

© 2009 EMM Group

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Why Do We Segment the Way We Do?

“Our sales team analyzed our

past deals”
“This is the way we are
organized”
“We have always looked at our
market this way”
“This is the way data is
reported in our industry”
“Seems logical”
“Our product has a real
advantage in segment x”

© 2009 EMM Group

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 What is Key to Successful Segmentation?

Bolt - On Effective
High Segmentation Segmentation
Customer
Driven

Low Sales - Based Structural

Segmentation Segmentation

Low High
Organizational Integration

Source: Jenkins M. and McDonald M., European Journal Of Marketing, 1997

© 2009 EMM Group

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Needs-based Segmentation
Focus on needs that are
Customer
Homogenous within Driven

Heterogeneous across Organizational

Integration
CRM Software Example
Needs Segment 1 Segment 2 Segment 3 Segment 4
Functionality 117 101 101 101
Reporting 121 103 97 98
Ease of Use 103 121 101 99
Management Ease 101 109 99 94
Time to Implement 97 104 105 100
Support 94 95 103 112
Price 88 93 113 99
Business Expertise 108 94 91 98
•Index = Segment mean divided by sample mean.
Score of 100 means that the segment’s needs match that of the average market
© 2009 EMM Group
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Barriers to Organizational Integration

Customer
Organization Structure Driven

Power Centers & Business Silos Organizational

Integration

Culture
Communication
Rewards & Incentives
Misaligned Business Priorities

© 2009 EMM Group

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Activating Segmentation

Value Proposition

Pricing

Segmentation Innovatio
n

Sales Strategy

Communications

© 2009 EMM Group

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 Value
Propositio
n
Starbucks – The Third Place
Element Starbucks Example
Target To young urban customers
Core need / s Who seek a third place (other than work and
home) for working, socializing and leisure
Offering Name Starbucks
activity
Frame of Reference Is a café
Benefits That offers the comforts and joys of a
“home away from home”
Point of Trendy and convenient environment,
Difference consistently high-quality beverages
Support Largest global chain of coffee shops,
amenities for patrons (ample electricity
outlets, comfortable chairs, wi-fi access,
highly-trained staff)

…at an affordable luxury

© 2009 EMM Group
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 Value
Propositio
n
Fulfilling needs of the Targeted Segment

© 2009 EMM Group

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 Pricing

Segmentation for Pricing

•“Small requirement” companies

Who seeking convenience in the purchase
and use of business applications

•Many companies could not afford the cost

and time commitment to purchase and
Situation implement business applications.
•Need for a short time to ROI
•The emergence of the Internet
•
• •Problem: Current solutions too expensive to
implement
Implications
•Solution: Software available for monthly rental with
minimal set-up costs. Sales force automation
software at $1000/month

© 2009 EMM Group

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 Innovation

Segmentation in Product Development

A purpose-
designed phone
with unique
value for
targeted users

© 2009 EMM Group

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 Innovation
Packaging Innovation

•Behavioral segment of heavy at-home

Who users of sodas

•Advanced analytics reveal importance

of convenient dispensing in-fridge
Situation systems
•Fast-paced lifestyle customers seek At-Home
product at ideal temperature for “grab Vending Machine
and go” refreshment
•
•
•Problem: Current dispensers not convenient
Implications
•Solution: 2X12 package is convenient to keep in
the fridge without taking up too much space, and
meets customers needs.

© 2009 EMM Group

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 Innovatio
n
Fulfilling the Desired Experience

•Customers primarily seeking

Who “quick and flexible” benefits.

•Bank offices were very private,

Situation discreet and unobtrusive and offers
were under-utilized

•Problem : Opportunity to redesign customer

experience
Implications
•Solution : Walk-in bank front offices,
convenient hours, easy credit checks,
flexible products and loans, total “quick
and flexible” make-over.
© 2009 EMM Group
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 Communication
s
Dove Communications

•Women who seek inner beauty – “If I

Who feel good, I look good”

•Many brands losing credibility with target

Situation segment
•Classic hierarchy of needs analysis reveals
aspiration of Self-Respect + Inner Harmony
•
•Problem: Competitors portray an outer beauty
that may be unattainable / not balanced against
Implications
inner harmony needs.
•Solution: Dove “real beauty” campaign.

© 2009 EMM Group

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Thank You

If you would like to find out more, please contact:

Satprit Duggal
Phone: 408-202-6244
E-mail: SatDuggal@emmgroup.net

© 2008 EMM Group

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