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| == Background ==
| | [[Category:Marketing]] |
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| | A college student and a business executive both walk up to your food truck. Do you think they want the same thing? Not even close. |
| {{#ev:youtube|https://www.youtube.com/watch?v=A5c5KzR4gwc|||Copyright of Standford University||start=05&end=65}}
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| Identifying the needs of different customer groups and targeting them with tailored offerings is a hallmark of successful businesses. This practice is called '''Segmentation'''. It helps organizations to divide large, diverse markets into smaller target segments more likely to be receptive to a product or message. Subsequently, they can hone in on one target audience and customize their marketing to be meaningful to that audience.
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| Customers are divided into categories based on shared [[Human Needs|''needs'']], demographics, priorities, common interests, and other psychographic or behavioural criteria. It is a helpful way to discover and understand the needs and desires of potential customers.
| | == Different People Want Different Things == |
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| == Benefits of Segmentation ==
| | This might seem obvious, but it's one of the most important ideas in business: not everyone is your customer, and that's okay. |
| Segmentation helps businesses market and sell more effectively. Some of the benefits of segmentation are:
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| # '''Increased revenue''': Businesses can boost sales by tailoring their content and marketing efforts toward specific customer groups. They will be able to sell more product or service because it is relevant to the needs of their specific audience.
| | A 14-year-old buying lunch with pocket money cares about price. A tourist on vacation cares about the experience. A busy office worker cares about speed. If you try to please everyone with one menu and one price, you'll probably end up pleasing nobody. |
| # '''Improved ROI'''<sup>{{#info-tooltip: <big>Return on Investment, or ROI, is a metric used to calculate the amount of money an investor receives as a result of investing money into a business. This rate of return is determined by comparing the net gain or loss on an investment to the original capital investment</big>.}}</sup>: Segmentation helps businesses identify which channels will work best to reach each customer group. This information helps to optimize spending and achieve the greatest return on investment possible.
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| # '''Effective marketing communications:''' Businesses can dump the one-size-fits-all communications and refine their messaging for a specific group. Thereby establishing a more meaningful connection with their audience.
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| # '''Higher customer retention:''' Meaningful connections also mean customers feel understood and well-served. This feeling leads to increased loyalty, lower customer churn rates, and a higher [[Customer Lifetime Value|''Customer Lifetime Value'']].
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| # '''Enhanced consumer engagement:''' When customers feel like they're getting value from, and are valued by, a business, they are more likely to tell others about it.
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| # '''Identification of niche opportunities:''' Segmentation helps businesses identify and gain new insights into underserved markets and find new ways of satisfying existing customer base needs. This leads to brand and business expansion of their business and brand.
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| == Types of Segmentation == | | == The Real Term: Customer Segmentation == |
| ===== Demographic Segmentation =====
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| Demographic segmentation is popular method of segmentation. It involves understanding the makeup of a business's market and dividing it into distinct groups based on factors like age, ethnicity, socioeconomic background, religion and marital status. Other demographic segmentation factors are:
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| * Employment status and work experience
| | '''Customer segmentation''' means dividing your potential customers into groups based on what they have in common. Each group is called a '''segment''', and each segment has different needs, budgets, and preferences. |
| * Family size and composition
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| * Income level
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| * Sex and sexual orientation
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| * Education level
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| * Residential environment (urban, rural, suburban)
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| ===== Psychographic Segmentation =====
| | Common ways to segment customers: |
| Psychographic segmentation groups people into different segments based on their psychological profiles. When dividing people into groups, this approach looks at factors such as personality, values, lifestyle, and interests. The goal is to create homogeneous segments in terms of their psychological makeup so that marketing messages can be tailored to appeal to each group.
| | * '''By budget''': Price-sensitive vs willing to pay premium |
| | * '''By need''': Quick convenience vs leisurely experience |
| | * '''By lifestyle''': Health-conscious vs indulgent |
| | * '''By location''': Locals vs tourists vs commuters |
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| Psychographic segmentation can be used to target specific audiences with tailored marketing campaigns. For example, a company might use psychographic segmentation to target young adults with an advertising campaign that is designed to appeal to their sense of adventure and desire for new experiences.
| | Once you know your segments, you can tailor your product, pricing, and marketing to each one. This is way more effective than a one-size-fits-all approach. |
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| This type of segmentation can effectively reach consumers who are difficult to reach with other methods.
| | == Product-Market Fit == |
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| ===== Behavioral Segmentation =====
| | '''Product-market fit''' is the magic moment when you're selling something that a specific group of customers really, truly wants. Not "it's okay" but "I need this." |
| Behavioural segmentation groups customers and potential customers into segments based on their behaviour and actions. Such behaviours include purchasing habits, usage patterns, and responses to marketing efforts. It is based on the idea that customer behaviour is a better predictor of future behaviour than other factors such as demographics or psychographics. By understanding these behaviours, businesses can create more targeted and effective marketing strategies.
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| Streaming services often rely on behavioural segmentation through algorithms to track user behaviour on their platforms. By monitoring actions such as watching, rating, or skipping content, the service can gather data on individual user preferences and use this information to personalize the content they display. This allows the streaming service to tailor recommendations based on individual user behaviour.
| | You know you've found product-market fit when: |
| | * Customers come back on their own without you having to convince them |
| | * People tell their friends about your business |
| | * You're selling out regularly because demand is so strong |
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| This is a classic example of behavioural segmentation based on customers' content consumption habits.
| | Getting there takes testing and iteration. Try something, see how customers react, adjust, and try again. Most businesses don't nail it on the first attempt. |
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| ===== Geographic Segmentation ===== | | == Targeting, Testing, and Iterating == |
| As the name implies, Geographic segmentation groups people based on their geographic location, such as their country, region, city, or neighbourhood. Geographic segmentation recognizes that customers in different areas may have unique needs, preferences, and behaviours. There are a few considerations businesses need to account for when using geographic segmentation as a marketing strategy.
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| # The impact of regional differences in customs, culture, and language. For example, what works in North America may not work in Asia. To be successful, businesses need to tailor their marketing mix to the specific region they are targeting.
| | Here's how smart businesses find what works: |
| # The climate's impact on demand. For example, the need for cold weather gear will be higher in Canada than in tropical countries.
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| # The stability of the political and economic climate when choosing a target market. Countries experiencing political or economic turmoil may not be the best markets to target.
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| # Consider the cost of entry <sup>{{#info-tooltip: <big>Cost of entry refers to the costs associated with starting and operating a business. These costs typically include purchasing or leasing equipment and facilities, hiring and training employees, obtaining licenses and permits, and marketing and advertising the business.</big>.}}</sup>into a given market. For example, it may be more expensive to enter a market like the United Kingdom than New Zealand.
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| ===== Firmographic Segmentation (Business to Business) =====
| | * '''Targeting''': Pick a specific segment and focus on them. Trying to serve everyone at once means serving nobody well. |
| Firmographic segmentation is a business-to-business grouping method that categorizes customers based on shared company or organization attributes. Organizations use it to tailor their marketing efforts and messaging to specific groups of businesses with similar needs, goals, and challenges. Some common firmographic characteristics used for segmentation include industry, company size, annual revenue, location, environmental orientation, and business model.
| | * '''Testing''': Launch a product or menu item and watch what happens. Do people buy it? Do they come back? |
| | * '''Iterating''': Based on what you learn, make changes. Adjust the recipe, the price, the portion size, or even the whole concept. Then test again. |
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| For example, a technology company that sells enterprise software solutions may want to target small businesses with annual revenues between $1 million and $10 million in the north-eastern United States.
| | This cycle of target, test, iterate repeats over and over. The best businesses never stop doing it. |
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| To do this, the company could use firmographic data to first identify businesses in this specific geographic region with the desired revenue range. Then create marketing campaigns and messaging tailored to the needs and challenges of these businesses. The company could also use such data to identify potential partners and competitors in this market and tailor its sales and marketing efforts accordingly.
| | == How It Works in Business Heroes == |
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| == How to conduct effective segmentation ==
| | The game features distinct customer segments, each with different behaviors: |
| '''Identify the key segments''': This is an essential first step in conducting effective segmentation. It involves analysing data on individuals to identify common characteristics and behaviour patterns that can be used to group them into segments. The goal is to create a clear and detailed picture of the different groups within the market, allowing businesses to target and communicate with each segment effectively. This phase is where businesses employ any, or a mix of, the segmentation strategies mentioned above. Businesses can use various methods to identify key segments, such as market research surveys, customer data analysis, and focus groups. It is also important at this stage to discover differences in the requirements, preferences, and motivations of consumers in each group. Finally, a business will regularly review and update its segments to ensure they continue to reflect the market and target audience accurately.
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| '''Differentiate products by segments''': After identifying the key segments, the business creates differentiated products that meet each segment's needs. Product differentiation may be based on pricing, distribution, features, design, additional services etc. It is essential that the business considers its capabilities at this stage as successful product differentiation by segment can be challenging and costly. Apart from a thorough understanding of the needs and preferences of each market segment, it also requires the ability to develop and produce customized products or services. Finally, reaching and persuading each segment may require significant marketing and sales investment. | | * '''Students''' have small budgets and want cheap, filling food. They show up in large groups near universities. |
| | * '''Parents''' care about value and family-friendly options. They appear from the early stages of the game. |
| | * '''Office workers (Staffs)''' want fast, convenient lunches during business hours. |
| | * '''Tourists''' are willing to pay more for something unique and special. |
| | * '''Influencers''' chase trendy, photogenic food. You need upgraded trucks to attract them. |
| | * '''Environmentalists''' care about eco-friendly practices and organic ingredients. |
| | * '''Managers''' and '''Foodies''' are premium segments that demand the highest quality. |
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| == Segmentation, Targeting, and Positioning ==
| | The key to winning is matching your recipes to your segments: |
| | * Use the R&D system to discover what each segment prefers |
| | * Create recipes that target specific groups rather than trying to appeal to everyone |
| | * Price differently based on what each segment is willing to pay |
| | * Set up different trucks in different locations to serve different segments |
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| Segmentation in the food industry can be based on Demographic categories or food-related lifestyles. Demographic categories include age, education, income level, etc. Food-related lifestyle covers aspects like price consciousness, attitude towards environmental control, health, body consciousness, etc.
| | The "aha moment" in the game comes when you discover the perfect recipe for a segment. Suddenly, customer satisfaction jumps, reputation grows, and revenue takes off. That's product-market fit. |
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| For instance, some factors known to influence a customer's choice of a food stand vendor include:
| | == Real-World Example == |
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| * Stand appeal
| | Spotify is a great example of segmentation done right. They offer a free version with ads (targeting casual listeners who don't want to pay), a premium plan (targeting music fans who want no interruptions), a family plan (targeting households), and a student plan (targeting young people with less money). |
| * Pricing
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| * Brand popularity of the business
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| * The food and service quality of the stand
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| * Dietary considerations
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| A business can categorize and target customers based on any combination of the above factors. Success depends on the business's ability to identify and attract the right customer by offering value that appeals to them.
| | Same product, different packages for different segments. Each group gets exactly what they're willing to pay for. |
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| == Tips for choosing the right segment == | | == Key Takeaway == |
| Knowing the right customer segment to target is about understanding the type of customers the food stand can serve based on its existing capabilities. A business with a low-end food stand and only basic facilities cannot expect to target a luxury-loving segment, like Managers, successfully. Here are three steps to follow when picking a customer segment:
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| # '''Understand the business's capabilities''': The first step in targeting the right customer segment is understanding the business's capabilities. What type of Stand does the business own? Which customer segment will find it appealing? Is the employee trained enough to deliver excellent customer service? What is the quality of ingredients available? Will customers seeking food with fresh, organic ingredients be satisfied? Knowing the answers to these questions will help determine which customer segments are a good fit for the business.
| | Don't try to sell to everyone. Figure out who your best customers are, learn what they want, and build your business around serving them better than anyone else. |
| # '''Research the market''': The second step is to research the market. In which locality are the customer segments that fit the business gathered? What is the cost of a spot there? Can the company afford it? This information will help you narrow down your choice of locality.
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| # '''Test the market''': It is time to hit the ground running with the first recipe. Which segment visits the Stand most? Which customer thinks the recipe and price are perfect? What is their feedback about the employee's service? Testing the market will help fine-tune the business's assumptions and determine which customer segment best fits the business in its current state. | | == Watch and Learn == |
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| | {{#widget:YouTube|id=hnz1kClvHcs}} |
A college student and a business executive both walk up to your food truck. Do you think they want the same thing? Not even close.
Different People Want Different Things
This might seem obvious, but it's one of the most important ideas in business: not everyone is your customer, and that's okay.
A 14-year-old buying lunch with pocket money cares about price. A tourist on vacation cares about the experience. A busy office worker cares about speed. If you try to please everyone with one menu and one price, you'll probably end up pleasing nobody.
The Real Term: Customer Segmentation
Customer segmentation means dividing your potential customers into groups based on what they have in common. Each group is called a segment, and each segment has different needs, budgets, and preferences.
Common ways to segment customers:
- By budget: Price-sensitive vs willing to pay premium
- By need: Quick convenience vs leisurely experience
- By lifestyle: Health-conscious vs indulgent
- By location: Locals vs tourists vs commuters
Once you know your segments, you can tailor your product, pricing, and marketing to each one. This is way more effective than a one-size-fits-all approach.
Product-Market Fit
Product-market fit is the magic moment when you're selling something that a specific group of customers really, truly wants. Not "it's okay" but "I need this."
You know you've found product-market fit when:
- Customers come back on their own without you having to convince them
- People tell their friends about your business
- You're selling out regularly because demand is so strong
Getting there takes testing and iteration. Try something, see how customers react, adjust, and try again. Most businesses don't nail it on the first attempt.
Targeting, Testing, and Iterating
Here's how smart businesses find what works:
- Targeting: Pick a specific segment and focus on them. Trying to serve everyone at once means serving nobody well.
- Testing: Launch a product or menu item and watch what happens. Do people buy it? Do they come back?
- Iterating: Based on what you learn, make changes. Adjust the recipe, the price, the portion size, or even the whole concept. Then test again.
This cycle of target, test, iterate repeats over and over. The best businesses never stop doing it.
How It Works in Business Heroes
The game features distinct customer segments, each with different behaviors:
- Students have small budgets and want cheap, filling food. They show up in large groups near universities.
- Parents care about value and family-friendly options. They appear from the early stages of the game.
- Office workers (Staffs) want fast, convenient lunches during business hours.
- Tourists are willing to pay more for something unique and special.
- Influencers chase trendy, photogenic food. You need upgraded trucks to attract them.
- Environmentalists care about eco-friendly practices and organic ingredients.
- Managers and Foodies are premium segments that demand the highest quality.
The key to winning is matching your recipes to your segments:
- Use the R&D system to discover what each segment prefers
- Create recipes that target specific groups rather than trying to appeal to everyone
- Price differently based on what each segment is willing to pay
- Set up different trucks in different locations to serve different segments
The "aha moment" in the game comes when you discover the perfect recipe for a segment. Suddenly, customer satisfaction jumps, reputation grows, and revenue takes off. That's product-market fit.
Real-World Example
Spotify is a great example of segmentation done right. They offer a free version with ads (targeting casual listeners who don't want to pay), a premium plan (targeting music fans who want no interruptions), a family plan (targeting households), and a student plan (targeting young people with less money).
Same product, different packages for different segments. Each group gets exactly what they're willing to pay for.
Key Takeaway
Don't try to sell to everyone. Figure out who your best customers are, learn what they want, and build your business around serving them better than anyone else.
Watch and Learn