“People don’t want to buy a quarter-inch drill, they want a quarter-inch hole.”— Theodore Levitt, economist, Harvard Business School.
Soccer moms drive minivans. Lawyers like BMWs. How do we know that?
Typical segmentation should yield that insight. Sort customers by age, gender, income, and zip code, then cross-index that with your sales information. But are you overlooking an unseen segment? What if the soccer mom has a day job as a lawyer?
If you segment by need, you might spot the lawyer who needs a minivan. Segmenting by need is a little tricky and less direct. It is too easy to say you already have the segments and the data. You have to go one step further and ask the right questions to get the right answers.
Where to begin?
First, don’t fall back on the way things were always done.
“Sales reps and advertising companies often resist needs-based segmentation because the potential customers are harder to identify using legacy practices.” said Joseph Stephan, president of Broadview Analytics. “It is easier to answer how many females 18-34 in Milwaukee were reached than how many healthy eaters were reached.”
People have different needs at different times, which may see them shift from one defined segment to another, noted Saul Dobney, heads research at UK-based dobney.com. “[S]omeone buying wine will make different decisions if they are buying as a gift for someone else, compared to if they are placing a regular order for themselves. “ Marketers need to be cognizant of how customers signal need. “[T]here might be little point in presenting a 1967 Chateau Lafite to someone whose purchase history suggested they buy on price. But for someone who has a history of looking up the best wines, that might be an appropriate offer to make.” he said.
The insight may already be in the data, contended Ari Saposh, vice president of data at oneAudience. “Keeping people in a box (category) may turn people off,” he said. Rather, marketers can cross-join data to run custom analyses to glean their own insights, based on what they know about their customers. At oneAudience, over half such data queries are custom-built for its clients, he said.
One can also assess customer needs simply by talking to them. That means using an experienced interviewer to conduct a focus groups or face-to-face interview, explained Dr. James Taylor, S.S. Kresge Professor Emeritus of Marketing at the University of Michigan, author of an upcoming book on needs-based marketing. “[T]he interviewer should be one who thoroughly understands the product/service market situation.” Taylor wrote. “However, the interviewer’s role is to portray a position of an “outsider” to the interviewee(s). This allows the interviewer to ask ‘naive’ questions that require the interviewees to explain in depth their knowledge of the issue.” It will take four to eight such sessions to arrive at an insight, with each requiring serious review of transcripts or recordings.
Juggling groups, not segments
Marketers will have to be deft and clever to operate along needs-based lines. A single demographic may contain five different needs-based groupings, each with its own customer journey, its own sales funnel, its own sense of timing. Again, spot clues.
For example, if someone buys a smart phone, pitch a new one as the current model reachers the end of its service life, roughly 1,000 days after purchase, Saposh noted. Or start flashing ads for a new car as the current model reaches the end of its warranty, he added. Owners need to replace the smart phone or the car eventually, and the advertiser knows roughly when in the future to ask.
“For modern marketers, we can present offers almost at will, so we can practically target to an individual’s history and background. That means we might integrate purchase or viewing history, referral keywords, landing page and the type of ad that they clicked on.” Dobney said. “And if we don’t know the customer, we can use a sales gambit to filter customers into different categories. “ That could involve making different kinds of sales offers that would induce customers to “self-segment,” he explained.
“Those that try to serve more than one segment must be nimble, and have a process for presenting a different message when there is not a response to the first message. This process often involves considerable A/B testing and constant evolution of the process.” added Stephan.
Which brings up the issue of “creepiness”. You want to know your customer, but not too well. You never key a pitch off of age or health data, noted Saposh. You never make an offer based on a life event. (The infamous Target mailer offering baby goods to a teenage girl comes to mind).
Taking a needs-based approach could probably avoid that grief. “The creepiness of marketing comes when people are trying to persuade and mis-sell. For instance, to use a message that the customer likes to push a product they don’t like.” Dobney said “That’s a mismatch, and in the long run will damage the brand and ruin the customer experience.”
Don’t forget the bottom line
Needs-based marketing can be a hard sell in a company where the demographic approach is what has always been done. “[T]he needs-based segmentation approach requires a manager to champion the research study and argue for an adequate budget to support accurate information. This can be difficult in an environment of ‘don’t we already know what our customers want?’” Taylor said.
In the short term, a company can develop focused marketing, product development and sales-promotional efforts aimed at high-yield segments. In the long run, companies can now track changes in the size and dynamics of their markets, he explained.
“Clear quantitative customer information regarding the road ahead can be a big competitive advantage.” Taylor said. “In the land of the blind, the one-eyed competitor has an advantage.”