By Jon Weber, firstname.lastname@example.org
As a consumer, you’re aware that basic demographic information doesn’t reflect your personality or pinpoint why you make your purchasing decisions. Retailers that probe beneath the surface of shallow customer profiles can gain the true market intelligence required to uncover new opportunities and focus on areas with the highest growth potential.
Retailers need to identify the unique customer segments within their market, the relative value of these segments, and how their distinct profiles shape decisions about what and where they shop (e.g., their attitudes, lifestyles and behaviors). Marrying this knowledge with an understanding of how different consumers perceive your brand compared with alternatives can reveal eye-opening intelligence about a company’s most and least promising growth prospects. This clear picture of your market can then enable you to prioritize your company’s strategic agenda.
Without this baseline, L.E.K. Consulting has seen many companies run blind strategically and pursue imperatives that are destined to fail. Take the example of a CEO who looks at his company’s 4% market share and projects that the runway for growth is exponential. With this perspective, the CEO pursues a status quo strategy that supports the same programs that have propelled sales during the past five years. However, this executive fails to recognize that his market is really comprised of six unique consumer segments. Further, the brand only resonates strongly with one segment, where it already enjoys a 32% market share. Because the business may be reaching a saturation point with its core customer segment, maintaining the current strategy is unlikely to generate new growth.
Target customer segments for growth
Just as scientists monitor the earth’s interior for early signs of earthquakes and other dramatic geological changes, true customer segmentation also requires sophisticated “market seismology” to look beneath the industry’s surface, identify distinct segments and track changes in each customer group. Although every retailer has slightly different needs, L.E.K. has found that the following four-phase model enables companies to identify their key customers and then use this information to increase sales.
When used appropriately, a strategic market segmentation program can be pivotal to identifying new opportunities with increasingly fickle customers. Importantly, a clear and common definition of your addressable customer base can also enable organizational functions to work in lock-step to achieve the same focused goal. This is especially critical today because constrained consumer spending is forcing companies to fight for increased share in entrenched markets.
Jon Weber is a VP of L.E.K. Consulting, a global management consulting firm with a focus on retail and consumer products. He can be reached at email@example.com, or visit http://www.lek.com/industries/retail for additional information.