Power Direct Marketing: The Book
Benefits and Reasons for Market Segmentation
Direct marketing has a host of definitions. There is much disagreement—even among the so-called experts and professionals—as to how to define direct marketing.
But all agree one of the key benefits of direct response is its ability to segment a marketplace in order to reach it more effectively with a message.
Six Marketing Concepts
Here are a series of 6 directly-related marketing concepts. They will help you segment your market . . . will help you analyze your prospects and customers . . . will help you understand their behavior toward you and attitudes about you and your products.
These are the who, what, why, when, where, and how of direct marketing:
- Who—the organization or individual who buys the product
- What—the product, which is defined as what is purchased
- Why—the objective, which is the reason why the product is purchased
- When—timing, which is when the product is bought
- Where—channel of distribution, which is where the product is bought
- How—the method of operation, which is how the product is purchased
Getting answers to even some of these questions will help you reach your customer base with a greater level of success.
Five Reasons for Segmentation
There are five primary reasons why market segmentation will benefit your direct marketing program.
Reason 1: Adds Competitive Advantages
By segmenting you are adding a competitive advantage to your product/service. You are "specializing" in an area. You are being the expert. You are diving deeper and doing it better than anyone else. You respond faster. You are more accurate. You understand opportunities and can react accordingly. You pinpoint an audience—you target an account.
For example, our population is growing fastest in the over 55 age group. Within this era of specialization—segmentation—publications such as Prime Time Tennis and Golf for Seniors have a place in the market. These two magazines are aimed at very specific and special interest groups. Segmentation at its finest.
Here is another example. Unisys is making its mark in specific fields with a focused approach. They have segmented the marketplace and reach it with materials and a staff that "think" like the customer. Bankers sell to bankers; food service specialists sell to the package goods industry.
Here is a definition of market segmentation according to the DuPont Company: "A group of customers anywhere along the distribution chain who have common needs and values—who will respond similarly to our offering, and who are large enough to be strategically important to our business."
Notice key elements of that definition:
- ". . . common needs and values . . ." This is most important. Lots of folks need things. To some they are worth more than others.
- ". . . respond similarly to our offering . . ." This can only be shown when you make offers over and over, on a continuing basis. And you measure what happens. One time is not a test—you need to take at least three shots at your audience, sometimes many more, before you know what is similar between your customers.
- ". . . strategically important . . ." This says they are the type of company that will buy in relationship to the NEEDS and your goals. That is, what they buy will help you meet your objectives. So they are most important to your plans.
Reason 2: Identifies New Markets
This is not obvious. The reason is that on the surface you many times don’t see these new market niches. They don’t necessarily jump at you. By segmenting your markets you can find new markets. They may be small, only in a few locations, very specific, or very particular.
Many times what happens is you start looking to reach, for example, chief financial officers of major insurance corporations, and find you can use the same approach with those in manufacturing SIC code #31, Leather and Leather Products.
Or you can select all the account supervisors working for CFOs in all Fortune 1000 companies. Who, if not decision makers, are great influencers.
Segmenting can bring you additional market benefits.
Reason 3: Reduces Your Costs
Obviously, if you select carefully and only reach into the marketplace for a smaller segment of all that is there, your costs will be less.
This applies to all media, but particularly direct mail and telephone marketing, where lists represent such a large part of segmentation.
Saving on lists is only the beginning. Production is a major part of all marketing campaigns. It includes paper, printing, and lettershop for direct mail. People and time for telemarketing.
If you don’t mail as many or call as many, you most certainly enjoy large savings. Being selective not only makes money—it saves money.
Reason 4: Reduces Credit Risks
You get a handle on credit. As unfortunate as it is true, there are folks and companies out there who don’t pay their bills. Fortunately not many of them, but enough to make the bravest financial officer quake upon occasion.
Using market segmentation allows you to eliminate those who cause credit problems or handle them "cash only." You can reduce bad debt ratios, cut cancellations.
On the opposite side, positively, you can offer extended credit terms to those who have earned a good rating with you.
Only by segmenting your market into units do you have these options. In short, you can truly manage your markets, business and consumer.
Reason 5: Purge Your Lists
By eliminating suspects who have a lesser probability of buying from you today, or soon, and concentrating solely on those prime prospects who are most likely to turn into customers today, your marketing efforts will bring rewards more quickly and at a higher profit level. And the opportunity for second and continuing orders also comes faster.
With speed of sales comes a lowering of costs. You don’t take the extra time to sell. Instead you begin profitable service immediately, which reduces your costs, all of which falls to the bottom line and becomes those very nice increased profits.
The segmentation theory says that those people most likely to buy from you are exactly like those already buying from you. It is relatively easy to divide markets into 2 main groups: Those that buy—and those that do not.
As with any theory, it is easier to talk about it on paper than it is to perform in the marketplace. Your current customers have specific needs. Certain desires, concerns, wants, and expressions. Your product gives satisfaction.
Others who have similar needs, desires, concerns, wants, and expressions are very likely to also find satisfaction in your product or service. If you will but ask them to buy, to become your customer.