Strategic Consumer Segmentation
Who are your customers and how can you make them spend disproportionately with you are the two most fundamental strategic questions for brands and retailers. Often, companies define their core customers based on demographics, creating a profile that may read something like this: 35-to-50-year-old white males living in suburban markets with deep pockets. But this information is woefully incomplete. Probing beneath the surface of shallow customer profiles reveals critical information that can unlock hidden opportunities and provide the intelligence required to focus strategies on areas with the highest growth potential.
True customer segmentation requires sophisticated analysis to look beneath the market’s surface, identify distinct consumer segments and track changes in each consumer group. To do this, L.E.K. Consulting recommends a four-step approach:
1. Discover and define key customer profiles
In-depth consumer research is critical to quantitatively defining consumer groups based on multidimensional factors, including their attitudes, life styles and behaviors, as they relate to the category. Most important, the output must size each segment and provide clear insights into their wants and needs to understand their purchase triggers.
2. Map brand positioning to market segments
Following definition, the company must objectively analyze each consumer group’s likely affinity for its business, critically assessing where the company is strong and where it falls flat. This should result in a clear view of where the brand or retailer’s business model is the best fit.
3. Prioritize market opportunities
With learnings from steps 1 and 2, the business can now understand the relative value potential from each consumer segment. With that information, strategies for each prioritized consumer group can be connected to the triggers most likely to unlock spend (e.g., product assortment, marketing and brand alignment, channel, and pricing strategy).
4. Track behaviors and correct course
Once the strategy is in place, it is critical to track and monitor success. Ongoing consumer surveys are key to tracking improvements in areas important to each consumer group. Conducting this systematic tracking ensures the focus remains on the most important strategies, and can also help identify new ones.
Global footwear and apparel brand: The client needed to better understand whether its growth story was being driven by a temporary fashion fad versus a true connection with the brand, and ultimately, whether there was further room to grow with existing or new customers. We conducted a consumer segmentation and gathered deep insights on decision-making behavior and brand positioning, which was the foundation for a major strategic decision to double down on targeting new consumer groups where the client was under-indexing. Today, our client is one of the largest global footwear brands and continues to rely on our consumer framework to drive strategic decisions across the business.
Regional home improvement retailer: Having underinvested during the recession, it was clear that a redefinition of the shopping experience and value proposition was required to ignite growth for the client. We developed a robust segmentation and recommended changes to the client’s assortment/merchandising, pricing, inventory/in-stock and service approaches to better cater to these customer segments. Stores comped up 15-25% in the year following the rollout of a new store experience that hit these dimensions, and the company was acquired as a new concept and a growth engine by a competitor about two years later.
National specialty apparel retailer: Facing steep comp sales declines amid consumer brand misperceptions, the client engaged us to identify the core consumer segments and understand their key behaviors and needs. These insights were the basis for a holistic evolution of the brand and retail concept, which resulted in a new store concept that had double-digit sales growth and has been rolled out nationally across the chain.
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