by Nancy Appelquist, Entira
At Entira, we’re frequently asked about some of the basics of marketing, in particular, customer segmentation, customer targeting and product positioning.
The first of these — customer segmentation — is an important aspect of marketing for our clients and the readers of our newsletter due to several factors:
The size of the ag market makes communicating with everyone difficult and expensive. Segmentation helps prioritize customers that are most likely to need what you have to offer.
A shotgun approach for a product launch most often fails to meet budget projections. Segmenting the market and focusing on the correct, identified segments helps you stay within budget.
Larger competitors have more people on the ground to call on farmers. Segmentation helps level the playing field by ensuring you spend your limited resources wisely — and group customers so they’re easier for you to serve.
- Launching a product in a new industry sector requires knowledge of that sector. Segmentation reveals customer wants and needs so you can position your product effectively with your target group(s).
In each of the above situations, customer segmentation, along with proper targeting and product positioning, can mean the difference between success and failure. In this issue of Strategic AgriBusiness Review, I’ll discuss the basics of customer segmentation and why it should be the first step in your marketing strategy.
Beyond the 80/20 rule
Servicing customers in today’s market is an expensive proposition, so many companies focus on the 20% of their customers that make up 80% of their revenues. But which of your customers are really in that top 20%? To figure this out, you should evaluate your profit stream at the customer level, including the costs associated with servicing each customer. Then, if you decide to concentrate all your efforts on your top 20%, you need to determine how to differentiate your products from those of your competitors in the minds of your largest and most profitable customers. This is where true customer segmentation comes into play.
Many companies sort their customers and prospects based on basic demographic data such as crops, animal species, size or location. But to gain a competitive edge, you should develop more robust and unique customer segments. For example, if you were to look at the swine production industry sector, you could sort producers according to the size of their operations in farrowing sows, pigs born per year or finished hogs marketed per year. Any of these factors would give you an indication of each producer’s buying potential, but no one of them reveals the producer’s critical needs or wants. Therefore, you don’t know how to communicate your product’s unique, most meaningful advantage for every producer. Plus, you can’t create a specific, targeted offer for those that most need your product.
To do this, first, you need to determine the producer’s needs and wants for products and services. The sheer size of an operation is one data point, but other factors have a much stronger correlation to why producers buy different products. Some of these include:
The level of vertical integration within the producer’s organization. Is it a feeder pig production facility, a finishing facility or an integrated farrow-to-finish operation?
The diversity of the producer’s organization. Does it produce crops in addition to its swine operation? If so, are those acres used to provide feed?
The vertical integration outside the producer’s organization. Is it involved in an ethanol plant, a producer’s co-op or a buying group?
The management structure of the organization. Is it a sole proprietorship, a partnership or part of a larger corporate entity?
The roadblocks to its increased productivity and profitability. How can your products help improve the producer’s operation?
- Its decision-making process. Does the owner or top manager make all decisions or does this person rely on others within or outside of the operation to assist in the decision-making process?
A thorough segmentation study using both qualitative and quantitative interviews to provide the depth of data necessary to gain real insights into your customers and prospects is the only way to effectively determine their needs and wants. Gathering data and opinions from your existing customers provides some of the pieces. But surveying a representative sample of all your potential customers — and having the survey done by individuals who know farming personally and are experts at drawing out valuable insights during interviews — gets you the complete picture. In this way, you can take your survey well beyond demographics and into lifestyle, as well as behavioral and attitudinal issues.
Once you have a completed, solid farmer survey, it’s time for the next step of the segmentation study: an analysis of the survey results to provide insights into factors with a high correlation to one another. By combining these correlations, you can separate groups of farmers with similar behaviors and attitudes from one another and determine segments. Done properly, your segmentation study will yield groups that are totally inclusive, mutually exclusive and actionable. In other words, all potential customers are represented in the various segments, individuals cannot exist in more than one segment simultaneously, and the segments are based on attributes that allow you to target and market to the segments most desirable for your company.
Customer segmentation allows smaller companies to compete with the big guys by using their time and resources more effectively. But identifying those key customers, their wants and needs, and the best ways to communicate what your company has to offer can be a complicated process. Consequently, many companies rely on outside assistance to help them see past their products and focus on their customers’ needs and wants.
Entira has helped many companies devise, conduct and analyze customer segmentation studies and surveys to improve their marketing results. Call me at 901.753.0470, or email me at firstname.lastname@example.org if you’d like to discuss how we can help your company.
For more marketing insights, be sure to check out our second article in this series — targeting your market. Find out the opportunities and issues of targeted marketing and what many companies struggle with the most — focusing on priority customer segments while letting go of others.
This article appeared in the November 2007 issue of Strategic Agribusiness Review.