Targeting and market segmentation are terms that get thrown around a lot these days.

The fact is these tools, used thoughtfully, can help almost any company drive focused and profitable growth in even the most difficult economic times. The most successful global companies understand that insight and data-driven decision making is the key to insuring return-on-investment from their marketing and sales activities.

A recent IBM global study by of Chief Marketing Officers revealed that demonstrating ROI to support their decision making was one of their greatest areas of uncertainty and unpreparedness as they make their future spending plans.

There are several different ways to analyze your target market and current customer base to strategically determine where to make growth investments. In our work with clients all over the world we suggest they consider the following analytic exercises:

Market segmentation – The process of segregating current customers and/or potential growth prospects by financial or psychographic factors and organizing them into definable segments. These segments can be organized on the basis of financial measures (e.g. profitability; annual revenue) or by behavioral factors such as needs/wants or demand characteristics.

Customer Tiering – A financial exercise intended to organize customers/prospects into three tiers – high, medium, or low. These definitions could relate again to revenue or profitability performance factors over a one or more year time horizon. Typically Pareto’s Principal or the 80/20 rule applies in most businesses. That is 20% of the customers drive 80% of the revenue or profit for the enterprise.

Customer Profiling– This refers to the use of primary market research targeting specific segmented or tiered  customer or prospect groups to understand – what they look like, where they live, what they need/want. Building strategic customer profiles for each customer segment or tier can be a valuable tool to inform a company’s going forward growth planning.

The goal of doing this type of analysis is to invest in activities that help drive more of the profitable customers and less of the ones that cost an organization money.

Importantly these principals don’t just apply to major corporations.

We saw how purposefully executed market segmentation was artfully used by the Democratic Party to micro target four demographic groups to ultimately win re-election for President Obama in the 2012 national election.

Key Questions to Ask Yourself
Before getting started in strategic segmentation exercises, we recommend clients always begin with an honest assessment of themselves and their true appetite for pursuing a segmented growth plan. Many companies find market segmentation to be the latest “shiny object” but fail to conduct the required analysis correctly or simply do not have the resources to get the job done with internal resources.

This is where the objective support of an astute consulting firm can help augment internal talent and available strategic and analytic resources. Once a decision is made to move forward we recommend that ask themselves the following questions and let the answers guide their going forward actions:

Data Access – Current + potential customers are your best source for new business. Do you have empirical data that will allow you to understand size characteristics and relative profitability?

Insights – Do you have information on your current customers and/or prospects that will allow you to understand their needs/wants and attitudes relative to your product/service offerings?

Organizational Alignment – Are you organizationally prepared to align your product processes and distribution channels to meet the specific needs of your target customer segments?

Customer Considerations – Do you know and understand the regulatory, technological, and practical needs of your best customers/prospects? If not how would you acquire this information to drive your segmentation model?

Financial – Do you have the financial tools/information to accurately value the potential of one segment vs. another?

Return – Can we estimate the return to your organization of executing a segmented go-to-market plan?

Activating Segmentation as a Tool for Your Organization

Before moving forward with any effort to segment your market make sure you have the necessary resources on hand. This means data, people, systems, and strategic thought leaders.

In our work with clients we find most companies could do the required data analysis and planning themselves. However given the pressing demands of day-to-day operations and the lack of on staff resources it is often helpful to have the help of an objective outside consultant to drive the process working collaboratively with your internal staff.

Leverage the tools used by the most successful companies in the world to drive growth for your organization. If you don’t have the resources in house find a capable consultant to help you. It does not take long or cost a lot of money to get focused on driving informed growth in the year(s) ahead!

How to Leverage Strategic Segmentation for Your Company

Taking an objective and thorough look at your customer and prospect financial data is critical to effective market segmentation. If your company has not analyzed the profit dynamics of your business in a while – the time may be right to get some help.

At Ascension, our team of data and financial analysts use powerful SAS based tools to quickly and efficiently help our clients understand where they do and do not make money.

Strategic analytics leads to important going forward marketing and sales plans that are targeted and informed thereby improving the overall ROI on marketing and sales investments.

If you company could use some help getting its arms around customer and market segmentation, contact us at info@ascensionstrategy.com.

In less than 60 days we will provide you with insights and strategic recommendations that you will surely want to leverage in you’re going forward plans!

It’s that time of year again. Later this year marketers at companies across the country will begin developing their plans and budgets for budget year 2016.

Two key questions to be resolved during this exercise are (1) how much to spend on marketing, and (2) where to spend it.

The most recent findings from The CMO Survey™ sponsored by Duke University and the American Marketing Association might offer some insight and guidance.

Don’t Be Timid – Budgets at U.S. companies are expected to increase by 6.4% over the next year, marking a continuation of 6%+ budget growth going back to 2010 when the economy was in the early stages of emerging from recession. If 6.4% sounds healthy, it is. Given that inflation is expected to run 2%-3% next year, depending on whose forecast you embrace, this translates to approximately 4% real growth in marketing spending. Not bad, when real GDP growth is running about 2%.

Further, marketing expenditures as a percentage of overall corporate budgets are increasing significantly. They’ve gone from 8.1% to 11.4% just 18 months, a remarkable 40% increase! (see chart)

What’s underlying this aggressive increase in spending?  Marketing is being recognized as the currency for success in today’s economy. Coming out of the recession, firms focused on cost cutting efforts to improve profitability. By now the benefits from these strategies have largely run their course. Future profit lift will need to be driven by improvement in top line revenue. Marketing, and sales, investments are the means to grow revenue and corporations are backing that up with their pocketbooks.

Strategies: A Focus on New Customers and New Markets. There is a shifting focus towards new products/services and new markets in 2013 for achieving growth targets. As one would expect, existing markets and existing products/services will still receive the greatest amount of marketing support. But, the proportion of total spend allocated to “existing” is expected to decline for want of seeking riches among new customers and through new offerings. As the table below shows, the greatest emphasis next year will be on cultivating new markets, with spending increasing about 15% in this area. Even with the additional support, spending on new markets is expected to total about 30% of total, versus about 70% for existing markets.

Making bolder commitments to “new” growth strategies is understandable in the current economy. Given that overall economic growth is still so tepid, companies are feeling compelled to “push the envelope” and reach outside their comfort zones to achieve their revenue goals.

Marketing Spend Pie: Analytics and Social Media Take Larger Share. The greatest increases in marketing spending next year and beyond, by category, are projected for analytics and social media. Marketing analytics spending will increase by 60% over the next three years, from 8% to 13.5%. More research to better understand evolving markets and behaviors, coupled with greater usage of big data tools to glean insight and meaning out of ever larger volumes of marketing data will be the key growth drivers. When firms are committing more resources to marketing initiatives, it’s nice to have good intelligence for guiding the journey.

Spending on social media will grow even more rapidly. This is really no surprise given the ever deeper penetration of smartphones, now over 50% of all cell phones and still in ascent. From a current level of 7.6% of budgets social media should more than double to 18.8% in five years, a growth rate of almost 20% per year!

Want to Improve Your Overall Marketing Impact Next Year

Why not get some objective and informed assistance determining where to allocate next year’s marketing and sales budgets.

At Ascension, we help clients get the most out of their available growth investments.

If you would like some help rethinking your go-to-market approach, contact us at info@ascensionstrategy.com.

We are confident you will find our perspective quite refreshing.

As marketers, we all know that pricing strategy is important. Pricing, along with Product, Promotion, and Place are the cornerstone four Ps of the marketing mix. Getting your product or service pricing right is essential to maximizing revenue. Sometimes, the path to this goal is not as obvious as it may first appear.A recent study done for The Economist magazine provides an object lesson of this point.

The Economist was offering three different types of subscriptions:

#1  Web only subscription for $59

#2  Print only subscription for $125

#3  Web + Print subscription for $125

From a consumers’ standpoint offer #2 doesn’t make any sense.  Why not opt for subscription #3 and add a web subscription for no additional cost?  Subscription #2 represents a lousy value.  Indeed, as one might expect, no customers chose #2 and the mix of subscription sales between #1 and #3 was skewed heavily to #3 as shown in the chart below.

Sales Mix Percentages:

#1  Web only subscription for $59 : 16%

#2  Print only subscription for $125 : 0%

#3  Web + Print subscription for $125 : 84%

Here’s where it gets interesting.  Professor Dan Ariely of Duke University decided to conduct an experiment with the Economist’s pricing structure.  He eliminated the supposedly meaningless #2 web only subscription.   Makes sense, if you’re not selling any of a subscription type why not eliminate it from the lineup?  But, an unexpected change in consumer behavior occurred.  Customers began to shift their buying preferences dramatically away from the more expensive #3 Web + Print subscription to the cheaper #1 Web only subscription.

Sales Mix w/ 3 Options compared to Sales Mix w/ 2 Options:

#1  Web only subscription for $59 :           16%    /   68%

#2  Print only subscription for $125 :         0%

#3   Web + Print subscription for $125 :     84%    /   32%

The #2 Web only subscription turned out to be quite meaningful after all.  Consumers were originally looking over the three Economist subscription options, comparing #2 versus #3 and choosing #3 often because it clearly seemed to represent the best value among all the options.  Once #2 was eliminated from the mix the #3 Web + Print subscription was perceived to be much more expensive by comparison and customers shifted their choice to the cheaper alternative.  Eliminating of the seemingly meaningless #2 price point had the psychological impact of transforming many customers from value shoppers to bargain shoppers.  This shift negatively impacted the Economist’s revenue.

Moving Your Company’s Pricing Strategies Forward

As you are developing your own product/service price it’s not enough simply to evaluate item price levels in isolation.  It’s also important to consider the interaction between prices for the items/services you sell.

At Ascension Strategy, we are proponents of testing significant changes in pricing strategy for existing products, and pricing strategies for new products, in either a controlled or small test market environment before they are rolled out broadly to avoid the kind of problems The Economist experienced.

If your company is considering any major pricing analysis or program changes you may want to get some outside perspective. At Ascension our analytics team can process massive amounts of product, category, or aggregated data to help clients identify the optimal pricing structure.

At Ascension we believe driving consistent top line revenue growth depends on having an informed and analytically supported pricing model.

Additionally we help clients conduct thorough and objective competitive analysis to include pricing to insure our client’s product mix is optimized in the market for maximum ROI.

If pricing is a top-of-mind issue in your company and you’d like some help… contact us at info@ascensionstrategy.com.

As senior managers we all get caught up in the day-to-day issues and challenges of attempting to keep the train on the track.

Budget meetings, customer issues, new product discussions, management reports, and personnel problems often fill our days. Just achieving the minimal requirements of our daily jobs can keep our calendars quite full.

However driving real and consistent top line revenue growth is job #1 for “C Level” executives. They cannot afford to take their eyes off the ball….even for a minute or risk losing ground to competitors and missing key financial metrics.

In our work with companies around the world we have found seven deadly sins that often result in missed financial targets and can (and often do) derail very promising senior executive careers.

The seven deadly sins often overlooked are as follows…

Deadly Sin # 1 – Not Understanding True Customer Profitability

Many people erroneously assume that any customer is a good customer. Or they believe even unprofitable customers serve some purpose (ex: help absorb manufacturing overhead) or can be made profitable over time.

In most organizations Pareto’s rule is alive and well. Typically 80%-90% of current customers/accounts are not profitable. Said another way 80%-90% of an organization’s profit often comes from only 10%-20% of its customers.

When the true cost to acquire and service the customer is taken into account the net margin resulting from the relationship is often negative. Even when up-front cost-of-acquisition costs are amortized over longer term customer relationships the result is still often negative.

We suggest a 360° financial analysis of the current customer portfolio which might include the following objective analysis:

– Comparative 3-5 year revenue per customer analysis (ranked and trended over time)

– Overall “value” analysis (identifies which customers/accounts are driving real enterprise value)

– Customer tiering exercise (large, medium, small revenue and profit customers)

– Average ticket analysis (on a customer specific basis)

– Net customer profitability (before and after allocated overhead)

– Customer tenure analysis (length of time a customer remains active on  the books)

– Product and overall gross revenue analysis by customer

The following is an example of a five tier analysis for a financial business – bank, mortgage company, credit card portfolio, etc. Colors are used to illustrate the customer tiers that contribute positive, neutral, or negative overall or financial value to the organization.

Deadly Sin # 2 – Neglecting to Profile the “Ideal Customer”

Once an objective analysis of relative customer/account profitability is done managers can begin to move toward pro-active growth planning.  A key aspect of this activity is to develop both a quantitative (from a financial perspective) and qualitative profile of the “ideal customer”.

Many organizations have developed target audience profiles which largely consist of demographic or psychographic factors. While helpful from the marketing and/or media targeting perspective this limited customer/prospect profile does little to help organizations insure their strategic and financial success.

We recommend a more quantitative analysis be performed against all current (and potentially past) customer accounts. This analysis would look at more objective and quantifiable financial measures

To use a banking or financial services example this analysis would put all customers into perhaps five tiers based on:

– Length of time they have an account

– Average balance on deposit

– Average net profitability (spread income + fee income)

– Average cost to service the account (statements, calls to customer service department, etc.)

Typically one or more factors will emerge as indicative of true financial profitability at the account level. This will vary by industry and market so it is important to go into this type of customer tiering analysis with an open mind and look at multiple variables/factors.

Deadly Sin # 3 – Lacking True Marketplace Differentiation

Customers buy products/services that offer compelling features/benefits that appeal on both a functional and emotional level.

Dominant brands that persevere over the long term deliver functionally day in and day out but also find a way to hit an emotional chord with their users/customers. Examples are Apple, Coca-Cola, Abercrombie & Fitch, Zara Stores, and BMW.

Effective differentiation strategy has two important components:

(1) How your brand differentiates itself from competition?

(2) How your brand differentiates itself in the mind of your customer?

Competitive differentiation is largely built around tangible product features/benefits and the overall positioning of the brand visa vie other players in the same space.

Customer differentiation is more a function of how the brand communicates to/with its target audience. It is more a result of effectively creating “mindshare” with your target audience and when done right achieving some deeper level of emotional commitment.

Deadly Sin # 4 – Failure to Analyze Your Marketplace “Positioning”

Effective positioning is critical in today’s competitive marketplace where me-too entrants can arise with relative ease to distance customers from a once popular brand. An example of this is the speed at which Apple’s iPhone unseeded the once venerable Blackberry and sent the product and the overall RIM company into a veritable tail spin in the marketplace.

There are several key questions to be addressed when developing or evaluating a brand’s positioning:

– Who are we?

– What makes us different from competitors?

– How do we help our customers solve their problems?

– How do customers “win” with us?

– Why should a customer consider us?

– How do we make our customers feel good about us (viscerally)?

Deadly Sin # 5 – Limited Understanding of Competition

Because markets are dynamic and competitors come and go in most product/service categories it is imperative to analyze the relative strengths and weaknesses of your competition. This is not a “one and done” exercise but rather something that all companies/brands should address on a regular basis.

To do this analysis objectively the organization must first start with the key factors customers value the most relative to your product/service category. Then for each competitor an objective assessment can be made against each factor.

Deadly Sin # 6 – Fuzzy or Poorly Targeted Marketing Program

In today’s world of big data and digital media there is no excuse for not targeting every aspect of a marketing program.

Companies like Simmons, Claritas, and Scarborough capture consumer behavior and product/service usage and media consumption data throughout the year. This data and the insights from it can be acquired directly from these companies or through data mining or database marketing consultants that have licenses issued on a syndicated national or global basis.

The process of using household level data and matching it to specific customer behaviors allows companies to develop highly refined direct marketing and media planning/buying models that can be created to pin point specific consumers at the household level.

Unfocused and poorly targeted marketing plans should not be tolerated in today’s world.

Deadly Sin # 7 – Lacking a Strategic Sales Planning and Accountability Process

If you don’t know where you want to go no road or any road may get you there.

Successful companies understand that having a consistent sales planning and performance review process is the difference between winning and losing in the marketplace.

A strategic sales planning process requires front-line sales managers to address aspects of their territories, accounts, or even large individual sales opportunities. And by sales we mean outside sales, distributor/agent reps, and inside sales.

Often customer service charged with up-selling and cross selling also falls into this group.

Effective consultative sales planning requires objective market analysis, competitive intelligence, and realistic forecasting. If the resulting plan is going to be a living and breathing document useful in day-to-day sales execution it must be supported by objective territory/market analysis.

It must also be part of a consistent, ongoing sales “check in” or accountability process supported by senior management coaching/mentoring and written feedback.

This regularly scheduled sales performance review process requires that sales managers provide progress updates to a cross-functional team of senior managers that provide feedback and coaching directly to the sales reps.

Where to Turn for Help?

If your company has ignored any of the “Seven Deadly Sins” and you’d like to take action… contact us at info@ascensionstrategy.com.

We work hand in hand with our clients to address mission critical strategic marketplace factors that can and often do derail growth.

Our consulting team will hit the ground running and augment your company’s existing internal talent and resources to help your organization drive real and measurable revenue growth in the months and years ahead.

Consumers are up to three times more likely to purchase brands that were in their initial consideration set for a purchase versus brands that were not. Check out three truths about how consumers make purchase decisions that shows research directly related to this.

In other words, brand awareness does, indeed, matter in the consumer purchase decision making process. It also begs the question, how can you raise the awareness of your brand to enhance the chances that you are included in that consideration set? This issue is particularly relevant if your brand is not well known and you have limited budgets. Fortunately, there are three low cost strategy options that can help.

Neophobia and the Role of Brand Preference

First, however, we need to understand the core of the problem. Humans like may animals, have an innate resistance, even fear, of change and new things. We prefer comfortable and established routines. Animal behaviorists call this phenomenon neophobia, avoidance of the “new.”

For consumers, neophobia manifests itself as a preference for established and recognized brands. The neophobic response can be powerful and can result in consumers preferring a recognized brand even if it has clear shortcomings versus other competitive product offerings.

For example, consumers in a recent study believed that airlines whose names they recognized were safer than unrecognized carriers. On the whole, this belief persisted even after participants learned that the known airlines had poor reputations, poor safety records, and were based in undeveloped countries. In other words, a lack of recognition had a more powerful influence over consumers than three simultaneous, data supported risk factors.

In another example, laboratory controlled taste test respondents preferred an unrecognized brand of peanut butter only 20% of the time even though the product was chosen to be better tasting in blind tests. Conversely, they liked a worse tasting product 73% of the time when they thought it was a recognized brand.

In 1975 Pepsi famously took on a similar consumer bias for Coca-Cola years ago when they ran the very successful “Pepsi Challenge” campaign showing that most consumers preferred the taste of Pepsi over Coke in national blind taste tests, oftentimes to the shock and disbelief of many participants when the true brand identities of the products was revealed. In this case those participants were convinced in their own minds that Coca-Cola was a better tasting product.

Familiarity Breeds Brand Preference

As a general rule, if you assume that when customers have a choice between a known quantity (brand) and an unknown quantity they will take the one they know, even if there’s something wrong with it—you’ll be surprisingly accurate in predicting their choices.

Neophobia is certainly understandable. It saves people time and effort in the decision-making process. Moreover, it often reduces risk because much of the time, this approach to decision-making works.

Well-known brands are often popular for a good reason – their inherent high quality. But neophobia makes life difficult for relatively unknown brands—that is to say the majority of brands on the market today. Recognized brands do tend to perform well in the marketplace even if they don’t fully meet customers’ needs, while unrecognized brands never even get tried/sampled by consumers.

But…There is Hope for Second Tier Brands

It is possible to alleviate the effects of neophobia, however. Here are three proven strategies marketers and sales personnel can use without spending millions of dollars and attempting to dominate the share-of-voice in the marketplace.

1.  Give Buyers Time

It has been shown that if people make choices when they are under time pressure, they are more likely to favor recognized alternatives. If you want customers to choose your relatively unknown brand, don’t force them to respond quickly.

In a business-to-consumer selling situation try to position unfamiliar products in store “havens”, either physical or online, where potential buyers have time to stop, learn more about the brand, and compare benefits and features.

In a business-to-business setting, engage early and often in the sales process. Corporate buyers have a particular bias to going with the longstanding, established, and well recognized option because the inherent career risk of selecting a new, unknown vendor can be significant.

Remember the cliché “No one ever got fired for choosing IBM.” The better a corporate buyer knows you and your brand/product – the less likely you will be eliminated from consideration due to a relative lack of recognition.

2.  Encourage Direct Comparisons 

It’s wise to list the benefits and features of an unrecognized brand side by side with those of the more familiar competition. Introducing “data or fact based” factors during the decision process helps to level the playing field in buying situations where multiple brand/product options exist.

When customers can easily compare benefits and features from among various brand/product options, they rely less on brand familiarity to make their buying decisions. When they can’t make direct comparisons, though, they’re more likely to fall back to brand familiarity and overall brand recognition.

3.  Redefine the Category

What’s the name of the 54th American to be launched into space? Many will remember that Alan Shepard was the first American in space, but the 54th?

Suppose I ask the question a slightly different way. Who was the first American woman in space? I bet a lot of you would say Sally Ride, and you would be right.  She was also the 54th American in space, but nobody remembers her for that distinction. She is well remembered as the first American woman in space, though.

In business, when you present a customer with an unfamiliar or new brand/product in a category full of familiar offerings, recognition will kick in, to your product’s ultimate disadvantage. The solution is often to redefine the category is such a way that lack of brand/product awareness or familiarity is not a disadvantage.

Jack Trout and Al Ries posited as much in their best-selling book “The 22 Immutable Laws of Marketing”. Per their Law of Category – if you can’t be first in a category set up a new category you can be first in.

When Apple introduced they iPad they could have positioned it as a smaller, lighter netbook computer. It would have been another entry into an already crowded field competing against well-known brands like HP, Dell, Acer, etc.  Instead, they created a whole new category – the tablet – in which they were able to achieve almost immediate brand recognition and product leadership that they still hold today.

Redefining a category can eliminate, or at least reduce, the inherent familiar brand recognition bias that exists in current categories.

Advertising and public relations campaigns are typically expensive means to raise a brand’s awareness.

By contrast, managers can artfully use time, direct comparisons, and category framing to raise brand profile… at little or no direct cost.