The Homa Files

Excerpted from The Boston Consulting Group, “Consumer Segmentation: A Call To Action”, by Mary Egan and Jean-Manuel Izaret, July, 2008.

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Segmentation should be based on a combination of qualitative and quantitative data.

Qualitative research allows a company to explore its category from the consumer’s perspective and learn how consumers think about, shop for, and use its products. The identified behavioral and attitudinal factors the qualitative phase must be supported with a rich set of quantitative data .

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Segmentation should be designed to yield specific business actions that will result in measurable performance.

The segmentation scheme that will have the greatest financial impact can be identified by focusing on three areas: 

1. Category involvement

2. Segment profitability

3. Opportunities for action

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Category Involvement:

Assesses the degree to which consumers consider a product category important given their needs, emotional makeup, values, and interests.

• Most consumers can identify at least a couple of categories for which they have a special affinity. Such shoppers may make up as little as 20% of the consumers in a category but may be responsible for as much as 70-80% of its sales.
• Sociodemographic segmentations (age, race, income) are mostly inadequate at predicting consumer spending. They may make it easy to identify and track consumers, but they don’t necessarily lead to effective actions.
• Occasion based segmentation may prove more effective than one that looks at consumer alone.

Implications: Segmentation surveys should focus on category-specific attitudes and avoid general questions not relevant to the category.

The explanatory power of the segmentation comes from the link established between category-specific attitudes and the particular kinds of behavior they produce.

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Segment Profitability:

Quantifies profit pools by segment and prioritizes them by looking at the proportion of consumer spending by channel, the frequency of splurging or trading up in the category, and the proportion of buying at full price versus taking advantage of discounts, sales, or promotions.

Even in an uncertain economy, there remains in almost every category a segment of highly involved and highly profitable consumers whose emotional attachment to the category largely insulates it from economizing decisions that consumers make elsewhere to cut back.

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Opportunities For Action:

Business actions a company intends to take as a result of the segmentation effort.

Possible levers to improve value creation: pricing and promotional strategies, consumer marketing messages and channels, new products and sub-brands, customer retention strategies, new retail concepts.

Begin with a clear hypothesis about which actions will achieve the company’s objectives and make sure that those actions are addressed in the research design and analysis.

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At the very minimum, a segmentation should answer the following questions:

• – Which consumer segments represent the largest profit pools in our category?
• – What is our share of wallet across segments today?
• – How should we prioritize the various growth opportunities within and across segments?
• – What messages and offerings will command the attention of these consumers?
• – How can we position our brands for growth against competitors and one another?
• – What changes should we make in order to increase share among targeted segments?

Edit by DAF

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Full article:
http://www.bcg.com/impact_expertise/publications/files/Consumer_Segmentation_July_2008.pdf

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