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Segmenting for


Designing an implementation
Presented by: Susan Abbott 1-888-244-0285
Valid and reliable doesn’t always mean useful …

200 CEOs 200 CEOs surveyed in 2004

59% had conducted a major
segmentation exercise within the
past two years
Paid for 14% said they derived value from
n project it

Yankelovich and Meer, Harvard Business Review,

2006, reporting on study by Marakon Associates and
“Valuable” Economist Intelligence Unit

Abbott Research & Consulting 2006,2007

The most critical point of this presentation …

For segmentation to be
useful, you must be able to
act on it…
Then you need to coordinate
action in the organization.
Marketing can’t do it alone.

Abbott Research & Consulting 2006,2007

Consider all operational levers…

Abbott Research & Consulting 2006,2007

What’s a useful segmentation strategy?

 Aligns with strategy

 Points you to opportunities
 Connects values, attitudes, beliefs – specifically
related to your product or service
 Focuses on actual customer behavior
 You can explain it to your boss. And it makes
sense. To both of you
 Accommodate/anticipate changes in markets and

Adapted from : Yankelovich and Meer

Abbott Research & Consulting 2006,2007

1 Differentiated Product/Service: Mobil Oil
 Early 1990’s gasoline price wars
 2 price / volume segments
 Price sensitive customers, USD $700 annual, 20% of market
 Not price sensitive, USD $1200 annual, 80% of market
 Response
 Shifted focus away from pricing onto other differentiators
 Added 2¢ per gallon, annual value USD $118 million

Abbott Research & Consulting 2006,2007

Mobil Oil Example Benefit Matrix

Basis for Segment Price Sensitive Price Insensitive

Principal Benefit Lowest price of Something besides
sought gasoline at the price (Service?
pump Convenience

Demographics ? ?
Behaviour Spend average of Spend USD $1200
USD $700 per year per year

Size of segment 20% of market 80% of market

Ask yourself: can you still buy gas here if you are not in the target
segment? Yes, of course. But they are not tailoring their offering
to you.

Abbott Research & Consulting 2006,2007

3 Price and Benefits Differentiation: Loblaw

 using a multi-format approach to

maximize market share over the
longer term
 focusing on food but serving the
consumer’s everyday household
 creating customer loyalty and
enhancing price competitiveness
through a superior control label
program Source: 2005 annual report

Abbott Research & Consulting 2006,2007

4 Segment Focus Strategy: Whole Foods

“We Sell the Highest Quality Natural and Organic

Products Available”

Abbott Research & Consulting 2006,2007

5 Dell: Differentiated Products & Services

 New Vostro line of small business

 No freeware or demonstration software
loaded in
 Different software offers for Windows and
Office suites
 More reliable than consumer models
 Support services
Abbott Research & Consulting 2006,2007
6 Competing with Starbucks

Abbott Research & Consulting 2006,2007

7 E-roleplay: Two Sided Market Segmentation
 Actors who need
interesting jobs
between roles
 Service companies
that need better
training experiences

Abbott Research & Consulting 2006,2007

8 Life stage Segmentation: Umpqua Bank

Abbott Research & Consulting 2006,2007

Umpqua’s Day-to-Day Banking Segments
Label Go Reach Savor Cruise 14

Description Specially blended A crisp and lively A rich blend with Bright and full
to give a quick lift blend for those those who have bodied to bring
to those just working toward achieved their out all the flavor
starting out their dreams goals with room to of your better
grow years

Principle Low service Unlimited $10 monthly, but Low or no charges

Benefit charges transactions accounts earn on most services,
Sought Low minimum $7.50 monthly. interest unlimited
required balance Includes safety Free notary transactions
deposit box. services Membership in
Free investment Club Carefree

Demographic Students and Young Families in Well-established, 50+

Correlate young adults asset acquisition mid-life. Building
stage investments

Behavioral Low balances High spending, low Have savings and Moving into
Correlate balances, no investments retirement, or
investments yet semi-retirement

Abbott Research & Consulting 2006,2007

Differentiated Communication

Same product

Abbott Research & Consulting 2006,2007

The Marketing Concept

1. Understand your customers' needs and

2. Group your customers into segments based on
their needs and preferences
3. Target segment(s) you can best meet their needs
and preferences
This includes targeting and competitive analysis
1. Branding
Not merely awareness but brand positioning
1. Provide superior service or products to meet your
targeted customers' needs and preferences.
Happy customers, profitable
sustainable growth
Abbott Research & Consulting 2006,2007
It sounds just like a change management project!

Get organized Build Deepen Use

to build model Model Learning

How segmentation Choice of model Spread the Integrate all

strategy fits with needs to fit business learning marketing
overall business strategy and options throughout the activities with
strategy organization the segment
Must fit
How might you act organization’s ability
on the learning. to identify and Integrate data
Eliminate non- respond to segments collection and
starters right away. management
OR – start building
Who needs to be the needed data Integrate
involved channel
Integrate all
It’s not just a
other research
marketing & research
department project!
Abbott Research & Consulting 2006,2007
Why do you need executive sponsorship?
 To make operational changes, you need to touch all parts of
the business
 Sales efforts, even the structure of the sales force may
 Infrastructure may change
 All marketing efforts will have to change to match the
segment structure
Existing culture, knowledge,
business processes and
powerful constituencies will
derail your efforts without C-
level support
Net result: “segmentation didn’t
work for us”
Abbott Research & Consulting 2006,2007
Choosing a Model 1-888-244-0285

“The basic difficulty is that value-based

segments generally don't fit neatly into
demographic ones”

McKinsey Quarterly, A segmentation you can act on, 1999

Abbott Research & Consulting 2006,2007

Profit Based Segments … may not be actionable
 Became famous through the work of First Manhattan
Consulting Group
 Showed banks that 20% of their customers were profitable,
80% unprofitable
 Dominated thinking for a decade

Typical decile chart – each is 1/10th

of the total customer base
Abbott Research & Consulting 2006,2007
More actionable …
 Some examples of new segments for men
 Male spas offering manicures, pedicures, etc.
 Phillips Bodygroom shaver, designed to remove hair below the

Abbott Research & Consulting 2006,2007

“No matter what claims are made for a method’s
theoretical validity and statistical sophistication, if
it can’t be shown that there is a consistent
empirical relationship between product usage and
psychographic segments, the method is essentially
useless to the marketer….

To get the most out of segmentation research, it is

important to be concerned more with consistent
empirical relationships than with elegant
theoretical models”

Chakrapani & Deal

Abbott Research & Consulting 2006,2007
The critical questions you need to ask

Can we see different product, promotion,

communication, distribution or profit
opportunities with this segmentation

Abbott Research & Consulting 2006,2007


Can we measure the segments?

Can we obtain realistic data to
consider segment potential?

Abbott Research & Consulting 2006,2007


What are the desires of each segment? What do they want

from us?
Do they make different tradeoffs?
Which attitudes matter for the purchase decision?

Abbott Research & Consulting 2006,2007


Does senior management understand the

segmentation model? Does it fit with
their deep knowledge of the business?

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Is this segmentation model responsive

to changes in the market and our

Abbott Research & Consulting 2006,2007


Can we differentiate competitor

offerings with this segmentation

Abbott Research & Consulting 2006,2007


Can we reach segment(s)?

Abbott Research & Consulting 2006,2007

3 Major Segment Strategies
 One product to all segments
 Example, discount airlines – one
one level of service
 One product for one segment
 Niche markets
 Luxury goods typically handled this
way e.g. adventure travel
 Multiple products designed for
and targeted at multiple
 Typical strategy in financial
services and broad based
consumer products
 Example: how many kinds of
toothpaste can you buy?

Abbott Research & Consulting 2006,2007

The most critical point of this presentation …

For segmentation to be
useful, you must be able to
act on it…
Then you need to coordinate
action in the organization.
Marketing can’t do it alone.

Abbott Research & Consulting 2006,2007

Thank you!

Susan Abbott
Phone: 416-481-7409 or 888-244-0285 1-888-244-0285