Recent Target Market Analysis Provides Interesting Customer Segmentation Insights
Catalina Marketing studied the consumer purchase dynamics of the top 25 new 2010 product launches across a variety of consumer package goods departments. Granted, the study does focus on one industry, however, I think there are some important lessons for all of us for the development and implementation of a diligent integrated marketing strategy.
A quick summary of the findings:
- Purchase-based targeting for new product launches shows extremely small concentrations of shoppers make or break the success of new products.
- Target marketing, identifying the right audience segment based on past behavior, dramatically improves the odds of success.
- Top brand buyers, especially for line extensions, are much more likely to be higher value buyers for new products.
While you may not find these results all that surprising, read on because there are some important implications for all marketers in these findings; but first let’s look at a few of the study’s specific conclusions.
Small Market Segments Drive Big Results
To be more specific, 1.5% of shoppers made up 80% of the sales volume for the average new product in the study. Let that soak in for a moment.
Think about how you target your customers, where you spend your marketing dollars; more on this in a moment.
Top category buyers were 3.8 times more likely to try new products than the average shopper.
Repeat purchases for top category and brand buyers were 19% and 28% respectively above average shoppers.
Understanding Your Target Customer is Critical
In many respects the consumers in this study may appear to be quite similar. The important difference, at least in this study, is the past buying behavior. Here, heavy category and brand users were the deciding factor.
While this fact may not seem like a revelation, in my experience most CPG marketers are focused on acquiring new users or expanding the category by attracting new users. This study would suggest that may not be the best strategy for launching a new product or product extension.
Target Market Analysis Basics
Customer segmentation is the foundation of target marketing. Insights based on detailed analysis of data regarding customer buying behavior are the cornerstone of effective marketing strategies. Yet, all too often, marketing is driven by a combination of intuition, promotion and advertising.
In this particular instance a very small portion of a market segment is overwhelmingly driving sales, determining the success or failure of new product launches. Brands must have the means to collect and analyze data in order to inform their marketing efforts and budgets.
Target marketing requires an understanding of the behaviors of your target customer by answering questions like:
- How do my customers buy?
- What motivates them?
- How many of them are there?
- How do I reach them?
- What data do I need?
- Can I collect it? How else can I obtain it?
Customer Segmentation is at the Heart of Relationship Marketing
Once identified and properly understood, you can create audience segmentation. Audience segmentation is the foundation of any relationship marketing strategy. The primary goal of relationship marketing is addressing the needs and desires of your target audience.
Since there may be nuances due to life stage, or location in the buying process, relevant content has to be delivered through the right channel(s) at the right time. With the advent of the social shopper, listening, engaging and responding to consumers is now more important than ever. Social shoppers engage with companies and each other, one of several reasons why building social into marketing is a significant competitive advantage.
Nurturing relationships with small but powerful market segments is becoming an increasingly important requirement for companies that want to sustain revenue growth.
Target Marketing Challenge
Perhaps you are wondering how this might apply to your situation. Here are a few questions to ask yourself:
- Do I know who my most valuable customers are?
- Does my marketing spend focus on retaining, understanding and motivating this valuable segment?
- Do I track the behaviors of this valuable segment? Do I monitor behavior trends?
- Am I listening and responding to this segment?
If you answered yes to all these questions, then congratulations, keep on growing your business.
On the other hand, if you were not able to answer in the affirmative, consider these suggestions as a starting point:
- Determine the data you would like to have in order to identify and understand your target customer.
- Verify if you are able to collect the necessary data; if you can’t, are you able to secure it from a 3rd party?
- Pull together the appropriate team members to help devise a plan for capturing and understanding the data.
- Once you have some data and insights, you’ll be able to create appropriate marketing communications and incentives to develop, grow and retain this vital target customer.
What are other ways you might think about audience segmentation?
Great post! As always, proper execution of strategies is the name of the game whether you are dealing with a small business. Of course, the fastest way to get rich or earn is to take it slow-that’s BAU! These days, you really have to educate your very self to be globally competitive. Thanks for the insights!
Great points education/global certainly go hand in hand these days. Thanks for stopping by.
Great summary… This is a crucial message that everyone needs to remember. In fact when I introduced “Integrated Marketing” in 1984 it had this exact focus. http://bit.ly/IntMkt
Most of the time, these core-of-the-core customers are relatively easy to identify (they keep buying from you) especially after you’ve been in business a while. However, in start-ups, we used to deliberately market wider than our expected target… because if you are too focused at the beginning, you can completely miss. If you cast a wide net at the start, those “I LOVE YOU” customers will turn up.
Identification can be more difficult since many ‘target marketing’ companies use traditional scoring Recency, Frequency and Monetary (see http://e-RFM.com). If they use normal quintile scoring, it masks the super-good customers and lumps the top 1% in with the next 19%. For a more complete discussion, http://bit.ly/RFMscoring Thanks! Great! @JRMigs
Thanks John can tell you have a lot of wisdom and experience thanks for stopping by and sharing