The joy of segmentation
pharmafile | May 8, 2012 | Feature | Business Services, Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | MSI, Michael Craig, marketing, segmentation
We are all different. Different heights, shapes, hair colour and we are not just different physically – what about our habits, hobbies and preferences?
Every day we make choices based on our very personal motivations. The reasons behind these choices are not always based in logic, but more often are based on something less tangible, i.e., emotion and perception. These variations create one of the most valuable and yet difficult strategic marketing challenges for us to navigate.
For every marketer, our customers’ behaviours are driven by different motivations and attitudes, which in turn are driven by their specific needs, wants and desires. And for different combinations of needs, wants or desires, one solution is likely to fulfil those better than others.
If we look at our world and accept these differences, we then have the understanding to make our brand offer more competitive than others, and by characterising and owning this space, we can make our communications and interactions more efficient, more relevant and more personal.
Segmentation
This is the art and science of segmentation. So what is segmentation, and what is its value? Firstly let’s agree a definition: Segmentation is the art and science of dividing your market into distinct groups within which everyone has the same priority needs.
An art, because there is no right or wrong way of segmenting a market – just better or worse and a science, because any good segmentation will always be quantified and validated and therefore based on strong evidence and fact.
Sebastian Perini, EMEA marketing manager at Celgene says: “You can’t be all things to all people – great segmentation clearly identifies priorities, and defines those areas in the market which are more profitable and easier to conquer.”
He adds: “The biggest challenge companies seem to face in building great segmentation is getting the balance between being too complex and using segmentation which is too obvious and doesn’t give you competitive advantage.”
Two major benefits of great segmentation
Firstly, it forces us to look at the market as our customers do, breaking it down into the reality of what our customers face. This enables us to identify those places in that market within which we are most likely to win versus the competition. Once we have this understanding, it allows us to characterise and own a space or ‘position’ in the minds of our customers.
By definition then, segmentation combines both an external analysis – the way the world is, with a realistic consideration of our internal profile – what we offer (or could offer) and our capabilities. Great segmentation balances how we choose to define our external world and the combination of what we choose to offer and how we offer it.
Secondly, great segmentation also ensures that communications, interactions, product modifications and investment are as efficient as possible – increasing the effort to customers who are motivated and interested in our offer and reducing the (wasted) investment in those that are not.
The problem with segmentation
All too often, however, segmentation is not as useful as it should be, mostly because it is not insightful and is based on the obvious. It is constructed on behaviours, i.e., ‘what’ customers do, and doesn’t consider their much more valuable underlying motivations, i.e., ‘why’ customers do what they do.
Even worse, for most of us segmentation is often poorly executed and as a result is misunderstood and undervalued. Here are three reasons why disenchanted managers don’t believe in segmentation:
• Great theory, but impossible to implement. We spent a vast amount on the thinking but came up with something that none of our field teams could use.
• Secondly – we already use segmentation through our CRM system – high users of our brand versus medium users versus yet to use.
• Finally they might say: “Why would I target a niche when we could be aiming for the whole market?”
For me, belief in the value of great segmentation relies on brand teams accepting one key principle – we are all different.
Are all patients the same? Are all fundholders the same? Are all doctors the same? Do their patients all have the same motivations and needs? No, of course not! We could take this further – are all haematologists the same? Or specialist nurses or specialist registrars? Yet how often do we segment based on speciality or job title or usage, despite knowing that within each of these groups there will be differences in priority needs?
Only when we recognise the joy of differences, can we then recognise the value of segmentation. When I first meet a client, I like to ask a simple question, which generally tells me how valued segmentation is:
MC: Please could you quickly summarise who your brand is for and why it is ideal in that situation? (I am sure you will have heard the usual reply):
SPM: “Brand X is for all patients with disease Y, because it is the logical first choice standard of care based on its gold standard efficacy, safety, tolerability and superior QoL data (potentially something about strong heritage too).”
In this answer, I struggle to see recognition of the unique benefits of the product, a definition of where in the market or for whom the benefits of the product are most valued by customers, and how the client clearly characterises that space in the minds of their customers.
Of course segmentation is critical in FMCG, because many of the differences are based on creating a perception of a space in the market. FMCG companies have the flexibility of changing what they choose to offer and how they offer it whenever they like.
Pharma is different – it doesn’t have that marketing luxury. In pharma it takes years to create the data and significant P values which demonstrate our unique attributes and prove clinically that we are different. And evidence, fact and P values are what all prescribing decisions are based on – right?
Right, but it isn’t purely the facts. It is more the interpretation of the benefits of those facts and translating those benefits into everyday practice into a clear space in mind, for when those benefits sit in front of you as a customer.
Characteristics of great segmentation
Firstly let’s clear up any confusion between segmentation and targeting. If segmentation is the art and science of dividing your market into distinct groups within which everyone has the same priority needs, then targeting is how we choose internally the highest potential customers we will approach within the segments we have identified.
So how can we tell when we see great segmentation? The beauty of great segmentation is in its simplicity. It is easily understandable, almost obvious and easily implementable.
With great segmentation you can clearly visualise the space in the market within which the brand offer fits and you immediately recognise clear competitive benefits of your brand versus the competition in that space.
A good starting point is to use the following 5-point checklist to confirm your segmentation:
• Reflects reality: is this a believable way that our audience views the world – i.e., does the way we have defined the segments represent a real challenge/problem that our audience faces and will be motivated to change habit to overcome?
Will the segmentation approach be credible reflecting the way customers make decisions and the language they use?
• Allows differentiation: when we look at the segments, have we chosen those within which our audience spontaneously prefer our brand to the competition? Does the segmentation approach allow us to exploit our USP/competitive differentiators?
• Is substantial: is the segment large enough to satisfy our financial needs and justify resources required to access them?
• Will be sustainable: given our assumptions on the way the world is changing, is it likely that these segments will still exist in our planning period? How long will our competitive advantage be sustainable?
• Is accessible: will we be able to easily identify and communicate with these segments, or is this just a great theory?
How do I segment?
One question often asked is “Do I need to segment at all?” In some circumstances the necessity to segment is more obvious. Would you segment your market if you had the cure for non-small cell lung cancer?
As a rule, segmentation has increasingly more value when there are very small practical differences between products and in markets where there is greater competitive intensity. Actually, I believe that segmentation is always valuable, as it will guide how best to communicate and evolve your brand offer in any market.
So what are the key steps to developing great segmentation?
Step one
Develop a market map – a view of how the market is made up. The goal of the market map is to break down our market, based on the reality of disease management decisions.
To build our market map we need a detailed understanding of the variables and dimensions on which our market operates, both the functional – where are patients seen/treated/the clinical goals and more emotional the beliefs of physicians/patients (customer) aspirations, beliefs and motivations. At this point asking the question: “Are all customers the same?” – is very useful.
Once you’ve defined a long list of potential variables and dimensions you can pull them together to reflect our market. Clearly with so many variables, there are many different ways to build these maps and this step can take both time and a little bit of creativity – this is the ‘art’ part of the process.
Building a market map is the critical stage in developing an insightful yet realistic way of looking at the world and by doing it based on insights, rather than the obvious. This stage can offer us a first step on the route to developing competitive advantage through our segmentation.
Step two
From our preferred market maps, we identify distinct groups where we believe everyone has the same priority needs – these are our potential segments. At this point we turn to the science, ensuring that we ask the market for their view.
Do these needs exist in the market? Do the alternative ways that we have built our market maps provide greater competitive advantage? Do these segments exist, what is their actual size and is our brand offer motivating in this space?
Step three
There then follows an iterative process of characterising our preferred segments and developing the most compelling communication and interaction platforms to win and own these market spaces.
Think about air travel and imagine you are part of the marketing team for United Airlines. Your first question would be “Are all people that travel on airlines the same?” Clearly not. Why not? Are they business or recreational flyers, frequent or first time flyers, people who love to fly or scared of flying, people looking for the cheapest flight or contract customers?
It is evident that in a short space of time we have listed some very obvious and yet very individual motivations and needs for different airline travellers. Does United offer only one solution? Do they target all of these segments? Do they communicate differently to each of these groups?
That is the choice of the marketer. The key thing is that they have accepted the joy of differences, and defined their market in an insightful way, on which they can tailor their brand offer and communications to most efficiently reach and motivate their chosen audience.
United segmented the market and highlighted the following way of defining their world:
United Airlines – Segmentation Example
• Global executives: face frequent business travel and enjoy it because of the high level of service
• Schedule optimisers: must reach their destination by a certain time and select their flights accordingly
• Corporate troopers: use an airline and a class of travel that has been chosen for them by their company
• Mile accumulators: go out of their way to take flights that will build up their air miles entitlement
• Reluctant travellers: do not enjoy travel and look for services that will make the experience bearable e.g., special privileges and frequent flyer programmes
• Travel seekers: love to travel and seek out new experiences. They want travel to be comfortable
• Frugal flyers: seek out the lowest cost carriers, but still expect their flight experience to be a good one.
In summary
As marketers we need to recognise our audience will have different motivations and needs, and it is our choice whether we decide to accept these differences and modify our marketing, or whether we decide that our audience all have the same needs, wants and desires and that our product is for everyone.
Great segmentation is all about understanding how our market can be broken down, ensuring we define the world in a realistic and more insightful way that the competition. And allocating our communications and investments to an audience who are interested in what we have to say.
Are you sure your customers understand the space in the market that your brand occupies? Do you believe that marketers can leverage the joy of differences to gain competitive advantage?
Maybe it is time to review your segmentation approach and see how much more value you can get from this essential strategic marketing tool.
Michael Craig is an associate partner at the MSI Consultancy. For more information visit: www.msi.co.uk
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