Customer Segmentation
What’s the difference between a lawyer, an accountant, a car mechanic and a shop owner?
Sorry, loaded question! There are many differences, if they are all running their own business then there are some similarities too, but if you agree that there are many differences then; why would you send exactly the same piece of direct mail to all of them? Each of these segments has their own list of priorities, objectives and pains.
If you knew what the top ten pain points were for your average accountant and that your product could directly address one or more of them, would you be able to target them precisely in such a way that far more would buy from you?
Role reversal time! If you got a mailshot that clearly understood your business and your pain points AND offered a solution to some of them, would you be more interested than in that glossy, blanket mailshot you dropped in the bin this morning? If not then maybe we are wasting our time.
You will find references to the 80/20 rule all over our web site, we are great believers. Soon you will be too because it works.
Here are some 80/20s to look into, we are going to help.
- 20% of your customers account for 80% of your business
- 20% of your marketing accounts for 80% of your leads
Just to try and put this into context.
Pull up a list of all your existing customer
Sort the list into group of customers that are in the same or similar business.
Don’t be too granular or you will have them all in their own group
Put in the revenue you get from each customer and then total it by group
Most companies find that a large portion of their business comes from just a few segments.
If this didn’t work for you maybe accountants shouldn’t be in the same group as car mechanics, just a thought ;0)
There are several other things you can try with your list now:
Do customers in one group tend to spend more on average than other groups
Do you get lots of small sales from a particular group
Are there other trends I can’t guess for you
Find the trends and use them.
Pick your top group, (here after called a segment). How much do you know about this segment? Talk to some of your customers from this segment and ask them to tell you what their top issues are, why they bought your product and how they use it. Ask them how you could improve the product or service to better meet their needs.
Armed with this information write a new mailshot, eshot specifically addressing the issues you have learned about. Use the same kind of language they used when answering your questions. Attune the mail to that particular segment, tell them clearly how you understand their pain and how your product is already being used by their peers to address just those issues.
There is another way to segment potential customers; size of business, usually done by number of employees. Businesses of any size will have industry specific issues as mentioned earlier, but there are also common issues they face based on how big they are. As companies grow, the size related issues can become as onerous as the industry specific ones
The graphic above shows industry segments by type and by size. We have put industries next to each other where we feel that there is the most synergy. So if you are doing well in FMCG, you should look to expand into the industries in that same group and then into adjoining industries.
Warning; this grouping is subjective, we had a long hard debate about it and agreed to differ in the end, use this as a starting point and please let us know if you have a different opinion, that’s how marketing works, a continual evolution based on feedback. In truth, the one that doesn’t really fit into this is the Arts and Entertainment
To put some idea of scale on the diagram. There are close to a million small businesses in the UK, those with less than 10 employees and that accounts for around 98% of the total number of businesses in the UK.
So, consider the graphic above as a dart board and each marketing campaign as a single dart, if you use that degree of targeting for your campaigns you will have a much better chance of success
To turn that around, imaging writing a single piece of advertising copy that would be meaningful to anyone reading it from any of those sectors and business sizes above.
Location, Location
Another way to segment your market, one most small businesses use, is Geographic. A posh way of saying that you deal mostly with companies within reasonable distance of your home or office. Remember that bit above about there being a million small businesses in the UK, well that means that unless you are based somewhere pretty remote, then there are enough in your target area that you can still segment further so that you can use pain points and benefits as a way of precisely targeting your marketing efforts.
We have treated segmentation pretty conventionally so far but you are the expert on your business and you will see further segmentation that can be applied to specific customer groups you deal with.
We have talked about industry groups and size but there are other factors that may be more appropriate to you.
- Way of buying
- Trade fairs
- Shopping habits
- Use Docklands Light Railway
The scope is only limited you’re your creativity; remember that it is worth spending time on this, it WILL pay dividends.