Monday, June 27, 2016
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THAT SCARY SEGMENTATION
It happens almost every week. We begin work with a pharmaceutical or medical device client on a brand positioning for one or more of their brands. Quite naturally, we start with defining—in some research-based detail—their target customer or consumer segment/s. And that’s when it happens…the rising, palpable anxiety in the room. The first indication of this anxiety is often a question from the floor regarding customer segments, or segmentation, such as: “We already do segmentation in the field; our Sales Force breaks their markets into logical groupings based upon customers’ prescribing or procedure frequency.” Or, in a more skeptical vein, “We really don’t have the wherewithal to reliably segment the physician or healthcare professional market—it’s not like the consumer market.”
We say that questions like these typically mask an inherent anxiety or skepticism about the value (let alone the how-to-do) of brand positioning segmentation because of the obvious: almost no one is doing it, despite Phil Kotler’s famous dictum that “if you’re not thinking segments, you’re not thinking marketing.” In fairness, though, you really cannot blame the marketers for shying away from positioning segmentation. It’s their senior management that, more often than not, drives the “scary segmentation” anxiety. Tweaking a well-known quote by the legendary ad-man, Al Hampel (former Chairman of D’Arcy-MacManus & Masius, among other things) that we have referenced before in DISPATCHES, we might say, “The fastest animal on the planet isn’t the cheetah. It’s senior management running away from a positioning segmentation proposal by marketing.”
In the broadest sense, one could argue that this aversion to positioning segmentation derives from a fundamental failure to understand it, and therefore failure to appreciate it. And yet, at its most basic level, segmentation is about only one thing: maximizing the return on a Company’s always-limited resources, which is something that every senior management should understand and definitely appreciate. Yes, there is almost always an appreciation for Sales Segmentation, but that endeavor is ultimately about maximizing the efficiency and effectiveness of the Sales Force—by implementing a precise plan for marketplace coverage. What about the efficiency and effectiveness of all the other resources that the Company invests?
We think that, for senior managements everywhere to better understand and appreciate the immense value (no, the competitive advantage value!) of positioning segmentation, there are 3 key “thinking changes” that need to happen:
- Segmentation ≠ small; segmentation = smart. Knowing the volume potential of each marketplace segment is obviously important. And well-crafted segmentation research will always place a numeric value on the segments that emerge: usually both the number of customers the segment comprises along with the number of prescriptions or procedures the segment as a whole is worth. The “smallness” thinking dilemma arises when marketing recommends investing positioning resources against, say, two of the five identified marketplace segments; these would usually account for 35-45% of the entire market volume. Compared to the entire market volume potential, 35-45% is clearly small…but only if you are thinking about achieving and holding a relatively small share of those two segments. On the other hand, if the predisposition of the customers within those two segments aligns better with our brand than it does with those of our competitors (leading to high brand loyalty probability or high lifetime value of the customers for us), then you are not thinking small share. You’re thinking dominant share within these segments. And since resources are never unlimited, this means segmentation is smart, not small.
- Share of segment matters more than share of market. This thinking follows logically from above. And it plays out no more convincingly than by comparing Apple’s share of total US laptops (around 10%) with their share of laptops costing over $1,000 (around 90%). Both numbers are worth knowing and tracking; but there is absolutely no doubt about which number of the two matters more financially—to Apple senior management and to Apple shareholders. From a competitive standpoint, share of segment matters more too. Which demonstrates a stronger, more-insulated-from- competitive-inroads marketplace position, holding a “fair share” of the total market, or holding a dominant share of our chosen segments? Conversely (even better yet), which demonstrates a more alarming position: some erosion of our total market share, or some loss of dominance in our segment shares.
- Segmentation ultimately leads to more precise ROI analysis—“ROLI” analysis. The real beauty of positioning segmentation is that it facilitates the execution of two critical customer-acquisition principles: (a) it’s easier to retain a loyal customer than to win over a new one; and (b) it’s easier to win over a new customer who is predisposed to your brand than it is to win over one who is predisposed to a competitor’s brand. Said another way, by consciously choosing to invest limited company resources against target customer segments where our brand already has a strong base of loyalists or against those where loyalists can more easily advocate for us to win new customers, the odds of maximum returns increase. Segmenting actually forces a more precise kind of ROI analysis: Return on Customers Retained + Return on New Customers Acquired. The more we think about it, the abbreviation ROI isn’t nearly precise enough—for any organization. It ought to be ROLI—Return on Limited Investment—to reinforce that our resources are never sufficient to effectively target every customer.
It will take these changes in senior management thinking, at least for starters, to transform scary segmentation into essential segmentation.
Richard Czerniawski & Mike Maloney
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