Four steps to truly understanding your customers and unlocking new opportunities
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.
- Discover and define key customer profiles: Bring customer segments into focus by uncovering the various customer groups that exist within your addressable market. This phase further determines the size and value of these segments, and clearly defines them based on their multi-dimensional attitudes, lifestyles and behaviors. Insight into the wants, needs and aspirations of each customer segment is pivotal to locating the purchasing “triggers” for each group.
- Map brand positioning to market segments: Understand how your brand is positioned vis-a-vis the specific customer profile that defines each segment. Here, retailers should closely examine individual segments to quantify your current share position, understand consumers’ affinity for your brand relative to competing brands, and map the dimensions where the brand resonates with consumers and where it’s falling flat. This insight measures the brand’s “fit” within each segment.
- Prioritize market opportunities: Prioritize market segments based on their expected value, and also consider each market’s size and your brand’s share position. This process also pinpoints where your brand is most likely to unlock additional spend based on the relevance of your offering to distinct market segments. The result prioritizes consumer groups based on their “accessibility,” and the triggers to driving incremental share gains (e.g., product assortment and pricing strategy).
- Track behaviors and course correct: Survey customers periodically to measure evolving trends and calibrate operations to address market and consumer shifts. Conducting systematic “tracking” research on an annual basis will also help identify new opportunities as they emerge, and allow you to capitalize on them quickly.
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.