Market Segmentation to Grow Customers, Sales, and Profits
This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
Orchestrating a business turnaround, expanding customer base by 60%, and introducing a new product embraced by consumers in the midst of a deep recession are among the marketing successes of Neil Lindsay. He's the chief marketing officer for Sprint Prepaid Group, which created and introduced four prepaid brands in the past year.
Market segmentation fueled the conceptualization and launch of Boost Mobile (emphasis on nationwide talk, text and web); Virgin Mobile (emphasis on messaging, email, data and web rather than talk); Common Cents (basic talk with easy-to-understand billing); Assurance Wireless (free phone and 200 minutes of talk for qualifying customers, supported by the Universal Service Fund). Features vary but include product purchase separate from service agreement; nationwide coverage areas; no-contract, unlimited and per-minute plans.
Identifying market segments, reaching multiple types of customers, serving their unique needs, and leveraging resources to generate greater profits amidst the day-to-day turmoil of running a business isn't easy. Lindsay shared his approach to brand positioning, messaging, and go-to-market strategies with me. These basic principles can be adapted to your small business.
Market Segmentation at Sprint Prepaid Group
Growth in the prepaid market was the impetus behind market segmentation for Lindsay's business. Over the past year, new wireless customers have been just as likely to prepay for service as sign a contract.
When prepaid comprised a much smaller share of the market, wireless carriers reasonably made general assumptions about prepaid customers: They were very often credit-challenged, independent youth not able to qualify for contract service. But as the industry grew and more people opted for prepaid plans, the opportunity to slice the market into multiple segments emerged. Designing multiple, targeted offers — products, service features, pricing plans, etc. — aligned with the needs of customers representing all ages and levels of creditworthiness held the potential to grow sales and profits.
Lindsay's team members reviewed Nielsen reports, gathered information directly from Sprint customers, conducted market research drawing from the general population, and hosted focus-group sessions. Quantitative data drove analyses of the market based on not only traditional demographics and geography but also psychographic characteristics and behavior. Focus group sessions helped to explain the reasoning of customers.
This research provided insights useful in beginning the process of defining new market segments along with brand messaging and mix of media buys that could resonate with target audiences.
Lindsay gathered his brightest people to review findings and talk about the best ways to think about the market in context of research, their domain knowledge, and instinct. They determined how to delineate market segments and approach each market. They predicted what types of consumers might respond to certain offers.
Finally, he led the design of each brands' go-to-market strategy, which integrates all customer touchpoints: products, customer care, and more — wherever, however, and whenever customers interact with the brand.
To create diverse, desirable offerings while controlling costs, the group tapped common back-end support, such as customer care and technical infrastructures; and shared financial services to further leverage the business.
Marketing Lessons for Small Businesses
Lindsay provided guidance for smaller businesses:
- Deepen market research when you realize that the market is shifting, growing, and becoming more diverse. Identify possibilities for segmenting your markets or identifying a new niche through ongoing conversations with customers and analyses of industry trends.
- See the benefits and constraints of segmenting markets solely on traditional demographics (age, income, and ethnicity), which are very often geographically clustered. Recognize that income doesn't necessarily indicate willingness to spend; instead, personal priorities are just as likely to dictate consumer behaviors and spending habits.
- Let research findings and focus-group results inform, but not dictate, your decisions. Simplify information. Trust your instincts and that of your best people, guided by knowledge.
- Develop and test hypotheses about how customers will react to new offers (inclusive of products plus pricing). Adjust marketing plans using real-world reactions.
- Consider all customer touchpoints when creating, launching, and managing a new brand or new offer. Remember that the product is just one component of the customer experience. Devise and execute a consistent, holistic strategy that covers all elements of the customer's interactions with your business including pricing, policies, customer service, and billing.
- Understand that your business can create fresh, compelling offers with or without the introduction of a proprietary product (though intellectual property can provide a "sustainable differentiation" that is immensely valuable). Create brands, messaging, and products based on greater market segmentation.
- Make sure that expected volume will support incremental operational costs (staffing, advertising, infrastructure) associated with attracting and serving new markets.
The "sweet spot" for business and market segmentation, Lindsay tells me, is the "intersection of customer needs, technology capabilities, brand credibility, and business model."
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