Customer segmentation has been around for a long time. Industries such as banking, insurance, telecommunications, financial services, and retail have adopted segmentation within their organizations to realize operational and marketing efficiencies by putting their best customers at the center of every decision they make. Recently, in order to maximize profits, retailers (some of whom are the imaging and electronics industries’ biggest dealers) have shifted from a product-focused marketing strategy to a customer-focused one, where the customer is king. Few manufacturers in the CE space, however, have realized these efficiencies and maximized profits through segmentation.
What is customer segmentation? What is it that the retailers have caught on to that the manufacturers have missed? Customer segmentation is simply the practice of dividing up a customer base into separate groups that are similar in ways relevant to marketing. That’s it, grouping current customers. Here’s the catch: to do this effectively, you must have sufficient “pieces” of information on each customer in order to group them by meaningful criteria; and a way to “link” this to the outside world’s data (both geography and market research).
Delivering the Right Message to the Right Customer Segments
The information necessary to begin the shift to a customer-centric marketing strategy is an understanding of customer purchase behavior and the ability to locate where customers live, to estimate demand for the product category and brand. This knowledge all comes from customer segmentation.
Delivering the right message to the right customer with the right offer at the right time is especially important with fast-moving consumer electronics products. Products that have short life cycles give marketers very little room for error. Products that are introduced and stocked onto retailers’ shelves but don’t have any pull cost manufacturers large sums of money in rebates, price reductions and close-outs, and ultimately jeopardize the brand’s relationship with consumers and retailers.
Now let’s examine the applications of segmentation. What separates segmentation information from every other type of information in the CE space is its ability to locate each target group down to the household level and project them up to the national level. This yields the ability to deliver a customized message to each target group directly into a household. This data can be rolled up to the zip code level, allowing for FSIs to be delivered in the zip codes that have the highest propensity to purchase a digital camera. The end result is an increased ROI.
Segmentation not only identifies an organization’s best customers—it also identifies and locates its best prospects. This analysis provides the organization the opportunity to expand a customer base of high-value customers. Marketing a $399 compact digital camera, a marketer can identify the best customers and the best prospects in relation to its dealers (those dealers surrounded by the highest density of the best customer types and the best prospects who have the best opportunity to sell through the majority of those high-end digital cameras). Now marketing funds can be targeted to where the $399 digital camera customer lives.
From a manufacturer’s perspective, this strategy can help develop a stronger relationship with its dealers. By stocking the right camera in the right stores that have the right customer base, retailers can increase turn, and manufacturers can sell more cameras at opening price points, reducing money spent on rebates, price reductions, and closeouts. Manufacturers, dealers and consumers all win!
By linking their databases to outside research, a marketer can uncover what their customers read, listen to, and watch on TV, as well as what hobbies they participate in. This information helps to craft the best message to each target group and where to place it in the media world, increasing response rates compared to a mass-marketing approach.
The area shaded red on the map (above) identifies households that spent the most on a camera compared to the lightest shaded, where customers spent the least. Colorado, Minnesota, and Southern California consumers spent the most on a digital camera. A marketer using segmentation can identify targets from the state level to a city level to a block group, a zip code, or household level. This will enable the marketer to plan their product distribution based on the product’s sales potential and allocate their high-end marketing funds to their high-end customers and prospects.
The list of segmentation applications is a very long one. A company that successfully identifies their best customer segments and incorporates this intelligence at a strategic and corporate level, and puts the customer at the center of every decision they make, will realize measurable efficiencies in training, consumer marketing, enhanced retail relationships, product development, advertising/communications, as well as customer acquisition and retention.
As the digital camera market matures and margins shrink, those manufacturers who keep a keen eye on their customers will gain market share; those who don’t won’t survive.