Customers are like oranges: they're best in segments | Issue #13
In this week's bulletin, I share my favourite book right now, look at the benefits of segmenting your customers, and ask: how would you spend £200 billion?
It’s unlucky for some, but I’m hoping that the thirteenth edition of The Leadership Bulletin will be helpful for you and your organisation.
Over the coming weeks, I’ll be unpacking the Segmentation, Targeting and Positioning (STP) model of thinking about a business’ customers or clients. It might sound dry, but I’ve found it an essential way of understanding to whom you are talking in business and how you can best meet their needs.
Let’s begin.
MY FAVOURITE BOOK RIGHT NOW.
Over the past couple of weeks, when driving around the north of England, I’ve been listening to the audiobook of Alchemy: The Magic of Original Thinking in a World of Mind-Numbing Conformity by Rory Sutherland, the Vice Chairman of advertising giant the Ogilvy Group and one of the leading champions of behavioural economics. The book has gripped me. It is full of insights which, at first, might sound trivial, but have the potential to dramatically change the way we think.
For example, Sutherland points out that 1 x 10 and 10 x 1 are the same thing on a P&L report. It doesn’t matter whether you sell one item to ten customers or ten of those items to one customer. The figures look the same on a spreadsheet. But in reality, these are fundamentally different. After all, if you were buying one car, you might pick a perfectly boring and functional one; if you were lucky enough to be buying 10 cars, you wouldn’t buy that same car ten times over. The same applies to buying a house, shoes, meals - almost anything. And it can even apply to recruiting people.
If you ask ten people in your organisation to pick one person each to recruit, they may all pick safe options - the well-qualified, articulate, obvious pick. But ask the team to come together and pick 10 people, it’s unlikely they will pick ten carbon copies of that person; instead, they will introduce diversity into their picks with a more interesting team. This could be of significant benefit to organisations looking to bring together more interesting and creative teams.
This is just one example of the original thinking Sutherland brings to everything he does and which is in abundance throughout this book. You can pick up a copy by clicking here.
IN FOCUS: THE BENEFITS OF SEGMENTING YOUR CUSTOMERS.
As a leader, how do you know who your customers are?
Sometimes it’s obvious. The business I used to run was an End-Point Assessment Organisation for apprenticeships, which is to say we delivered independent assessments - tests, discussions, observations etc - for apprentices. In our case, in a regulated industry, our customers were obvious: apprentices’ employers and their training providers.
Sometimes, it isn’t quite so clear, usually because almost anyone could be interested in what you do. This might be because you sell goods - food, books, gift items, etc - that almost anyone will need to buy at one time or another. But whether you’re a focused business in a regulated industry or a business with unlimited potential clients, you will still want to understand your target market.
The Segmentation, Targeting and Positioning (STP) model is one way of doing just that. It doesn’t do anything that you don’t, at some level, already know. But thinking through the process and clearly identifying your audience and how you’re targeting them can help to keep you focused on what matters most. In the coming weeks, I’ll be looking at the different elements of it but this week I’m starting with segmenting.
No company or product can be all things to all people. Take UK supermarkets, for example. Everybody in the UK eats food, so everybody is a potential customer of a UK supermarket. What’s more, on the face of it, Aldi, Tesco, Sainsbury’s, Waitrose and Booths are all selling similar, or even the same, products. So they have the same potential customers and are serving them the same product. But as we all know, they’re not selling their goods in the same way and rarely to the same people. They’re targeting a segment of their potential customers.
How do they, and how should you, segment your target customers? Here are some key ways to segment your market:
Demographics - are you targeting people of a certain age, gender, educational level, family status or wealth? You don’t have to be segmenting among these groups, but doing so can help you focus on an audience and appear relevant to them.
Location - where does your audience live? You might want to focus in closely on people in one area, such as the UK or the county of Lancashire, or you may be set up to sell globally. The broader the market, the harder to understand and deliver, so make sure you’re clear where you’re targeting and why.
Behaviours - how do your target market access you and/or use what you sell? Will they find you online or in a shop? Is your product for use at work or home? What benefits do you want to emphasise based on the behaviours of your ideal customers?
Imagine what this process might mean to you if you run a handmade toy shop in Southampton. You may conclude that you are targeting new parents, with a significant amount of disposable income, in the Hampshire area, who tend to do the majority of their shopping in-person. This isn’t to say you’re limited to those people alone, but it does mean you can better target them in your advertising by asking “Where will they see us? What messages are most relevant to them? And what do they want from this product?”
I’ll expand on targeting and positioning in future weeks, but to wrap up this “in focus”, here’s my key takeaway: segmenting your target market is essential if you’re going to speak to your audience in a way that resonates with them, converts them into customers and, in fact, makes them devotees of your business.
HOW WOULD YOU SPEND £200BN?
Have you ever asked yourself how you would spend £200 billion? It might sound fanciful - in fact, for almost all of us, it is - but it’s the question Britons are collectively facing. In his regular Sunday Times Business column, David Smith highlighted the £200 billion of “involuntary” savings the UK acquired from the pandemic - money saved from holidays cancelled, meals out that never were, etc. The key question is: with consumer confidence sluggish, could the UK’s collective savings glut keep the economy rosy? Time will tell.