The success of every business is dependent on developing products that address customer needs and delivering a great customer experience better than its competitors. To achieve this, you need to identify the target market for your social enterprise.
It’s not as easy as it seems. There are challenges.
First, it is not easy to completely understand customer needs – expected benefits and preferences.
Second, the efficient and effective use of limited resources – time, money and human resources.
But, you shouldn’t worry.
Segmentation, Targeting, and Positioning (STP) tool will help you to identify the target market for your social enterprise and develop effective marketing strategies that address unique customer needs and preferences.
What is Segmentation, Targeting, and Positioning (STP)?
STP is one of the most important and widely used tools used by marketing professionals.
Dividing markets into groups of consumers who have common needs or who respond similarly to the marketing mix (4Ps).
Identifying market segments which you can serve effectively.
Developing products and marketing messages to influence consumer perception about a brand or product relative to competitors.
I will elaborate on each of these concepts later in this blog post.
Why STP is very important for social enterprise?
Many social entrepreneurs tend to serve all the potential customers in an attempt to maximize social impact. But that is not a good strategy. Utilizing the resources productively and developing the right products are the keys to maximize social impact and make the social enterprise profitable.
Sometimes, segmentation is a very complex and time-consuming process. But the benefits outweigh the challenges in doing this entire exercise.
Business Opportunities and Social Impact:
Need-based segmentation gives social entrepreneurs the required information to develop new products or enhance existing products.
Outcomes of your marketing efforts will be greater as you have developed strategies that address your target audience’s unique needs and preferences.
Resources will be efficiently used as you will be targeting only the right customers who are more likely to respond to your marketing efforts.
There are different segmentation approaches which you can use to achieve different business goals. Needs-based segmentation is one of the basic and effective ways to segment customers.
Needs-based segmentation is based on customer needs and benefits sought. This approach helps in taking strategic decisions about product development brand communication.
You can also use other segmentation approaches like geographic, demographic, psychographic and behavioral segmentation (GDPB) to develop tactical plans to achieve business goals. These approaches help in developing communication and customer experience strategies.
To make the needs-based segmentation more effective, it is quite important to segment the customers further based on other segmentation approaches. This approach is called multi-dimensional segmentation.
Also, segments should not be static as many variables like customer’s age, income level, life cycle stage, behaviors, and attitudes change over time. Segments need to be modified periodically or when required. This approach is called dynamic segmentation.
Kindly check this link for detailed information on different variables used in different segmentation approaches.
For profit-driven enterprises, value segmentation is more appropriate as this approach focuses more on potential high-profit customers.
Effective Segmentation Criteria
To efficiently use segmentation in developing and implementing effective marketing strategies, you should consider the following criteria.
Steps in customer segmentation and identifying the target market
1. Goal Setting:
Before working on the segmentation process, it is quite important to set business goals. This helps in using the right segmentation approach and collecting the right information.
Different goals can be:
- New product development
- Brand communication
- Customer acquisition
- Customer retention
Group the customers into segments based on common needs and preference. You can find this information in a variety of ways: online or offline surveys, third-party research data, and internal records.
If you have internal records of customer’s data, it is always a good idea to start segmentation using internal data as it is readily available.
3. Segment Identification:
For each needs-based segment, identify the GDPB factors which make the segments distinct and identifiable.
You can use the Directional Policy Matrix (DPM) to determine your preferred segments. It measures the attractiveness of a segment and the capability of your organization to support that segment.
You can implement DPM using the following steps:
- Identify different factors to evaluate the attractiveness of a segment and capability of your organization
- Give weights (importance) to each factor
- Rate the factors based on data
- Calculate the total index score
Interpreting the Decision Policy Matrix:
The easiest way to interpret a Decision Policy Matrix is using a bubble chart. Take capability score on X-axis, attractiveness score on Y-axis and score of any other important factor on Z-axis. In this case, I took market sizes for different segments on Z-axis.
You can use the bubble chart to develop tactics for each segment.
This segment has a high segment attractiveness score and organizational capability score. The appropriate strategy here could be to allocate more resources in proportion to its value contribution to the business and become a market leader in this segment.
This segment has a larger market size and a high segment attractiveness score. But the organizational capability score is not high. The appropriate strategy here could be to invest in capabilities to capture the larger market.
This segment has a low segment attractiveness score and organizational capability score. The appropriate strategy here could be to withdraw and reallocate resources to other attractive segments.
5. Segment Positioning:
Positioning is the heart of marketing. I will discuss this concept in my next blog post.
6. Segment “Acid Test”:
You can use the segment “acid test” to present tailored product offerings to a small sample of potential customers in the market. The purpose of the test is to check if the tailored offering is providing the desired outcomes. If yes, tailored product offering will be presented to the entire segment. If not, you need to check where the mistake had occurred and change the strategy accordingly.
7. Marketing Mix (4Ps) Strategy:
I will come up with 4 separate blog posts to discuss strategies for 4Ps — product, price, place & promotion.
8. Measure and Optimize
Once you identified target market for your social enterprise and implemented marketing strategies, you need check if segmentation is working. If segmentation is not giving you the desired results, either you need to change the segmentation process or the markting strategies.
- Segmentation sometimes is a very time consuming and costly process. It is quite important to set business objectives and work backward to ensure the entire exercise is fruitful.
- If you have an existing customer base, always start with analyzing your existing data instead of segmenting. Identify your ideal customer, their needs, preferences, and purchasing behaviors.
- The effectiveness of segmentation depends on identifying the right segmentation variables and developing effective marketing strategies based on the segmentation data.
- Segmentation done based only on customer needs may not be effective. Use multi-dimensional and dynamic segmentation, whenever necessary, for effective segmentation.
You can download the Directional Policy Matrix here to identify the target market for your social enterprise. You need to change the segmentation variables based on your product offering and characteristics of your target audience.