Segmentation has evolved: FACT. We’ve come a long way since the days epitomised by Mad Men – companies are no longer pigeon holing customers solely based on their age, gender or socio-demographic status. Leading companies now talk, and more importantly, seemingly understand behaviour and needs to be the primary drivers to determine appropriate customer segments. Let’s call this ‘segmentation 2.0’.
I don’t think it’s always that straight forward in reality, for you, and me, the customer.
To provide an example: I am a fan of handbags, nice handbags. However, I cannot afford to buy every season’s latest ‘It’ bag. I do however aspire to that. Where possible, I learn and research the brands I like, and have been fortunate to purchase a designer purse at a sample sale at a fraction of the cost. My wants as a customer are evolving and I am making decisions as to which handbag brands I aspire to own – yet I am unlikely to fit into one of their current segmentation models. However, in a few years, perhaps I will have that dream and be a good customer…but that will be too late to influence my behaviour, I already know which brands I’ll aim for (If you’re interested, Chloe , Mulberry and Chanel are up there). Also, I know the brands that don’t appeal to me, Louis Vuitton for example.
As our models evolve, so do our customers, leading the avid marketer to ask ‘what’s next’? This author believes that it’s time to embrace segmentation 3.0, or ‘3-dimensional segmentation’ if you will, which adds another axis to our model – that of customer evolution.
If a company looks at their current and future customers over time and understands how behaviour and needs will evolve, they can anticipate the future needs and market products appropriately.
A perfect example of an influential, yet largely unprofitable market is the teen segment. Teenagers will typically develop strong brand affiliations and influence purchasing, yet seldom hold the final purchasing decision (e.g. a Fender Stratocaster guitar is more likely to be a Christmas present from parents rather than purchased directly). They are however, forming strong opinions on the brands and products that they desire and are most likely to maintain this preference into their adult buying life. Therefore marketers should consider what they can offer this potential customer now, to secure loyalty in later, profitable, life. Forrester recently looked at teen perceptions of financial services which concluded that teens are not financially literate, yet they tend to stick with the firms they choose for their first financial products, typically a current account. Companies offering a ‘teen card’ can therefore secure a long-term customer before they are likely to make them much in the way of profits.
There are also instances where mainstream companies effectively anticipate the future needs of their existing customers and tailor offers to meet those anticipated needs. Take for example Boots the chemist – their loyalty scheme tracks customer purchases and tailors product offers to a customer’s potential life events, based on previous buying behaviour. A woman purchasing bibs and bottles may be provided with offers for toddlers toys in the year to follow, for example.
Although much is talked about trying to predict the value of that customer, less is known about how that customer’s needs will develop over time. Some practitioners discussing relationship marketing, or marketing with a memory have considered the approach to measuring long-term customer value, but without consideration of changing need and behaviours.
A company which is one step ahead of its customers needs is more likely to retain loyal customers. Therefore the challenge is how to identify those future needs and future customers, in order to influence buying decisions that are yet to be realised. Capgemini is helping organisations reach the less aware customers through developing appropriate segmentation models – this was recently conducted with a government organisation tasked with getting the jobless back into work – the focus was to identify those segments most challenging to reach and who needed the most help getting back into work.
There are a range of factors to assist a company in identifying the long-term customer needs, the main components are family evolution and earning potential. Family evolution: i.e. is the customer a parent? If so, then they will ultimately become an empty nester then a grandparent, and secondly, anticipated income. Based on customer occupation, is their disposable income expected to grow significantly, or maintain the current rate?
The next challenge is how to influence future customers – it may be word of mouth, product placement, free samples or an expertly targeted ad campaign.
Therefore the advice is twofold: 1. anticipate when your future customers make decisions on brand preferences and work to influence that; and 2. work to understand how your current customers may grow and evolve and ensure they are incentivised to remain customers throughout their life.