Target Market Segment Strategy: Segment-Of-One Marketing For Your Business🧍
A target market segment strategy involves breaking down a base into demographics. Market segmentation parameters include age, geography, or income.
It might surprise you to know that the digital age calls for a complete rethink of these principles. Instead of marketing to groups of people, innovative companies are marketing to segments of one. Read on if you’re interested in learning more or in adopting a segment-of-one marketing strategy for your business. This article will provide you with a comprehensive overview of what you need to know.
Table of Contents:
Target Market Segment Strategy: What is Segment-of-One Marketing?
The first thing to understand is the difference between target market and market segmentation and positioning. Target markets are a defined group of people a business wants to focus its marketing and branding on. However, to arrive at a target market, a business must first focus on a market segment.
But what is marketing segmentation and positioning? This is the process of breaking down a customer base into categories and identifying which ones your business caters to. An easy way to look at is that market segmentation is the process, and your target market or segment is the result of that process.
It’s important to consider that business to consumer or B2C marketing has a wider and more varied consumer base, but their decision making is simpler. In business-to-business or B2B target market segmentation is easier to identify, but decision making is more complex.
Segment-of-one marketing is a type of target market segment strategy that involves creating intimate and personalized relationships with your customers. Rather than segmenting your audience into groups of broad variables, this involves focusing on the individual. This means analysing customer behaviours, attitudes, and preferences.
Looking beyond demographics allows marketers to gain a more granular understanding and comprehensive insight into their buyers. This is important when a customer decides to buy a product based on their values, lifestyle choices, advocacies, etc.
The ability to tailor-fit marketing strategies like this only became possible in the last few decades, following the birth of the digital age. Companies now have large databases of personalized customer preferences. They can tap into these databases for relevant information and understand exactly how and why customers do what they do. By doing so, they can create custom market campaign segmentation.
If this is sounding something like the Minority Report, where Tom Cruise walks by ads that begin to speak to him as he walks by, you’re not too far off. Such technology already exists in our smartphones – and it works.
Competitive Advantages Using Segment-Of-One In Your Target Market Segment Strategy
One common misconception of segment-of-one marketing is that you have to be a niche marketer to use it. These days, anyone from banks to supermarkets, to clothing or makeup brands can utilise this method. Companies that are able to “own” their markets and satisfy their customer’s unique needs will have a competitive advantage.
Adopting segment-of-one marketing can be subtle and customers might not even be aware they are receiving unique offerings. This can be in the form of personalised catalogues or financial advice in banks.
Netflix and Amazon use a more obvious technique to tailor their selection to individuals. They achieve this with algorithms that present new movie or product recommendations based on past behaviour.
A deeper step to take would be convincing individuals to explore options outside their usual interests. If the marketing is done well, customers feel like they are making the choice rather than being blatantly advertised to.
Knowing how to execute this type of marketing in a way that suits your company and customers is the deciding factor for success. The way you tailor your marketing – whether blatantly or subtly has to be appropriate to your business.
Advantages To The Customer
Segment-of-one marketing allows businesses to cater to customers’ ever-growing desires to be treated as an individual. Technology enables customers to see personalized advertising. Products are also more customisable and able to be delivered almost immediately to people’s doorsteps.
Formerly only accessible to the upper class, information technology has enabled better products and services to reach more people than ever before. Banks are now able to greet customers by name, no matter what branch they visit. They can also give better advice relevant to unique client behaviour. All of this is made possible with accessible and comprehensive customer databases plus some personalized service approach training.
Businesses can form relationships with their customers and on platforms beyond face-to-face interaction. Social media and e-commerce are some examples that can bring people and businesses closer without having to even be in the same country.
The ability to connect and collect insights also allows businesses to get to know their customer’s values and reflect that onto their branding. For instance, Adidas has adapted to the market’s call for sustainable alternatives.
Likewise, makeup brands like Glossier have identified their “tribe.” This allows them to continuously speak their message through their marketing, content, and branding. These things make customers want to associate themselves with Glossier. More than creating advertising, they’re able to create a lifestyle to aspire to.
Personal relationships are even more important in B2B markets. They’re usually long-term buyers with their suppliers, therefore catering specifically to their needs can give you a great advantage. Products supplied are usually essential consumables and machinery which require ongoing servicing and expertise.
Target Market Segment Strategy Through Databases
Besides advantages to the customer, segment-of-one marketing can help businesses fine-tune their operations. The ability to data capture and organize digitally can lower the overall costs of a company.
Rather than launching a general product as an experiment to gain customer insights, the data already exists and technology can help carry out what is learned. For instance, research shows that each person on earth generates around 1.7 Megabytes of data every second. That’s a wealth of information – more than anyone can ever be able to completely utilise.
For instance, customers can now use apps to create custom makeup colours. Similarly, selective binding technology creates possibilities for advertisers to custom-made magazines or catalogues based on an individual’s preferences.
Another advantage is that less manpower is required to track down information. In this case, products can be custom made on-demand so less storage space is required. The possibilities have truly become endless.
Market segmentation enhances campaign planning
The company and its marketers gain a deeper understanding of their customers’ needs and desires, allowing them to personalise messaging to the consumer groups most likely to purchase products. Some businesses have world-class pricing and marketing teams working together to look at major market segments for more revenue pricing opportunities. They also conduct an analysis of the trends within these segments.
For other companies, however, price and market segmentation are still a mystery. They find themselves guessing about what’s happening within major market segments. Debates are ongoing over which variables to omit, and which are best for price optimisation and analytics projects.
In this article, we define major market segments and customer classification. Then we proceed with major segmentation variables for business markets. Lastly, we identify the most effective ways to create major B2B sales and marketing funnels. We then show you why dividing your target market into groups increases sales.
At Taylor Wells Advisory, we argue that B2B businesses are at a greater risk of both overcharging and underselling themselves due to not knowing the basic rules of segmentation. How do you identify major market segments and improve pricing across these customer groups?
Fundamentals of An Effective Market Segmentation: How To Identify Customer Groups?
Market segmentation is the process of dividing a large market of potential customers into sections. Consumers are segmented based on whether they meet certain criteria or have similar traits and product needs. Customer segments have common interests, needs, preferences, and demands.
Segmentation and Customer Classification in a B2B sales and marketing funnel
There are different types of market segmentation. The most common types are based on:
Each type of segmentation is defined by a category of variables. For example, when a B2B business chooses a geographic segmentation to divide a major market segment, they will most likely investigate corresponding variables, such as country, city, suburb, etc. It is also possible for B2B businesses to choose some or all types of segmentation variables. This is called a nested approach.
It is sometimes referred to as a multi-dimensional approach. This is the opposite of a mass marketing approach, which views all major market segments and customer groups as the same (or a homogeneous group).
What is an Efficient Market Segmentation in a B2B sales and marketing funnel?
B2B businesses often use the four basic criteria for segmentation:
- A market segment must be substantial and have enough potential customers to be viable.
- A market segment must be identifiable and measurable.
- Members of a market segment must be accessible to marketing efforts.
- A market segment must respond to particular marketing efforts in ways that distinguish it from other segments.
B2B businesses use segmentation variables depending on their objectives, operations, and wider industry dynamics.
For example, if a B2B business is undertaking a segmentation process to improve their pricing decisions, they would typically want to understand segment level activity, as well as sub-group activity.
A micro-segment is another name for a subgroup which is a smaller group in a larger market segment.
Like a major market segment, smaller, micro-segments within a major market segment can change depending on the business’s objectives and line of investigation. It is possible to create both customer subgroups as well as competitive subgroups to understand micro-segments activity at different levels.
Before selecting variables to analyse a micro-segment or segment, a B2B business needs to understand the dominant drivers in major market segments. As a result, they will typically divide a major market segment into subgroups or micro-segments based on these drivers.
Micro-segment analysis allows B2B pricing teams to adjust prices across segments and products (sometimes referred to as price optimisation).
Market Segmentation in a B2B sales and marketing funnel
Segmenting a B2B market is not easy especially if you want to improve the overall pricing decisions in the business.
Key issues to consider before you segment a B2B market for pricing projects are as follows:
- The same industrial products often have multiple applications.
- You can use several different products in the same application.
- Individual customers don’t think the same way. They don’t want or need the same things.
- It can be difficult to discern which differences are important and which are trivial for price optimisation.
- It can be difficult to convert customer value drivers into quantifiable estimates of value.
Consequently, the biggest problem with segmenting a B2B market is identifying the best variables for segmenting.
It is almost inevitable that pricing and marketing teams will be overwhelmed at the start of a segmentation project. But there’s no need to worry because there are a lot of different approaches and criteria that can help. The challenge is to determine relevant segmentation bases.
You can include all major market segment criteria, i.e., from geographic, demographics to value-based and psychographic. However, having a specific focus is always preferable because you’ll need to undertake a series of hypothesises testing as well.
A multi-dimensional or nested approach to major market segments typically starts with an analysis of demographic variables first. Demographic variables are easier to develop, observe and monitor. However, they are not sufficient.
After analysing demographic variables across major market segments, pricing teams move to the more specific and detailed customer and purchase characteristics. Behavioural and psychographic variables are more subtle and thus harder to develop, observe and monitor in major market segments. It is also quite difficult to bring together transaction-level data too.
A multi-dimensional approach to major market segments will become clearer as we explain the criteria and associated variables for major segmentation variables for business markets.
Segmentation Variables and Approaches in a B2B sales and marketing funnel
Major segmentation variables for business markets vary according to the pricing approach you choose. It also depends on the industry and market you serve. A business must be clear about its approach to pricing and target market segmentation before it can identify the variables for market segmentation.
Below are some major segmentation variables for B2B markets in relation to pricing:
- A traditional approach to separates the market based on geographical variables, such as neighbourhoods, towns, cities or countries. It can also be based on demographic variables, such as gender, age, family size, and life-cycle stage.
- A customer characteristics approach segregates the market based on consumer behaviour – i.e., buying behaviours, customer loyalty, usage rates, features, and benefits buying.
- A purchase-situation approach groups the market based on the purchase situation itself. For instance, the quantity customers buy, the company’s purchase policy, purchase department structure, relationship with the company, the company’s market positioning.
- A value-based approach to segmentation divides the market based on specific customer value drivers: perceived value (customers’ perspective) and the value delivered to the customer (business perspective). The key to value-based segmentation is the concept of value in use and value at risk.
- A psychographic approach divides the market based on a customer’s mission, motivations, interests, and habits. These are:
- Concerns about the latest products and trends
- Preferring quality over cost
- Being career or family-oriented
- A bigger or smaller circle of friends
- Being a brand advocate because your mission aligns with the business
It is important that pricing and marketing teams understand the differences between approaches too then identify the right variables for investigation.
A clearer understanding of major segmentation variables for business markets helps businesses to identify and omit variables during their segmentation process. As you can see, there are a lot of different ways to do proper segmentation. There are lots of marketing tools on offer. Each proposes various segmentation-modelling frameworks to segment major market segments.
However, a lot of marketing tools used for segmenting are set up to provide segment level descriptions only. They are completely unsuitable for detailed price segmentation and analysis. Some emphasise statistical differences in personal demographics or company variables (i.e., customer size, standard industrial classification, and so forth). In contrast, others are really difficult to implement or incredibly difficult to integrate with a pricing and revenue management system.
Identifying Market Segments and Targets For Price Optimisation
- To avoid a lot of confusion when segmenting for better pricing decision making, we advise pricing teams to work systematically. Dissect all the different approaches and segmentation variables from general demographic variables to specific behavioural and psychographic variables.
- Run through different types of segmentation and approaches and identify important factors and variables. This helps to balance between reliance on the easily acquired demographic data and the detailed analyses required from value-based and psychographic variables.
- We recommend gathering enough necessary data and information first at a segment level. Then weigh up what variables and approaches you need to take at a subgroup level.
Benefits of Segmentation in a B2B sales and marketing funnel
Market segmentation provides a number of advantages including the following:
- It improves your marketing campaigns by targeting the right people with the right message at the perfect time. For instance, an orthodontic tools manufacturer will only market their products to those who practise the profession. Marketing them to a larger audience would be a waste of budget.
- It facilitates developments that better meet customers’ needs. As a result, you will make your customers happier and will sell more. Your company’s reputation will undoubtedly improve.
- Lastly, it identifies groups that a company’s marketing efforts are not presently reaching. This generates new paths for expansion. For example, a company that primarily sells beauty products to teenagers may decide to begin targeting middle-aged consumers as well.
Conclusion on Target Market Segment Strategy
A large amount of price, marketing and sales decision making is based on the effectiveness of your segmentation. We see an increasing number of B2B companies looking forward to marketing and pricing at the segment, niches, local, and individual levels. However, there are still a lot of companies choosing traditional or behavioural segmentation models over value-based models.
We find that an efficient segmentation for pricing decision making tends to be value-based segmentation models or nested segmentation models. Therefore, most marketing and pricing tools come with a pre-defined segmentation and cannot be changed. When you buy pricing software, make sure that your segmentation strategy fits with the pre-programmed framework in the software.
Segment-of-one marketing is a target market segment strategy. Thanks to technology, a wider variety of industries can utilise this method. Optimising data and personalising marketing to individuals can really lend a competitive advantage and allow you to build personal relationships with your customers.
What is Tesla’s Target Market Strategy? 🚗
Tesla has a record of beating the odds with its prestige pricing strategy and data-driven marketing segmentation and targeting. Their Model S sells for circa AUD 120,000 and their Model X sells for AUD 107,650 (excluding taxes or other costs). They have tested different ways to segment a market and positioned Tesla firmly in the premium sports car market despite being a newbie with an alternative offer in a well-established automotive industry.
However, it wasn’t always like this. Before 2008, the Tesla brand was a relatively unknown, techy brand. Tesla Motors Inc. was predominately an engineering firm. Their target market segmentation and price positioning were vague and undefined.
Then, in 2008 everything changed. Elon Musk took over the company as CEO and transformed the Tesla brand.
Their brand went from geek-sheek to Hollywood glam in a fairly short space of time. They re-positioned their brand as Tesla the ‘new technology for clean energy,’ rather than a premium electric sports car with gadgets and benefits. They created a demand for an entirely new premium, all-electric sports car segment using a prestige pricing strategy, clever storytelling, and marketing segmentation and targeting.
From 2008 onward, Tesla attracted the demand and attention of their ideal target audience: i.e., an elite group of customers and private investors with lots of money to spend on a product that propped up an underlying belief or fantasy that successful individuals could change the world.
However, despite Tesla’s impressive turnaround situation (and ability to capture our imaginations with space travel and Elon’s glitzy parties with Hollywood celebrities and models), Tesla has been posting consistent deficits and continues to be a profitless company.
Tesla doesn’t have much cash compared to other industry giants – just over $US3 billion – and a debt-heavy balance sheet. In this article, we will argue that although Tesla’s marketing segmentation and price positioning are huge revenue streams for Tesla. It’s likely to impact their mid to long-term growth plans.
What is Tesla’s Target Market segmentation?
A lot of people are intrigued about Tesla’s market segmentation because the brand and story of Tesla (post-2008) are so powerful. But Tesla’s marketing segmentation and targeting are and always have been quite simple.
Tesla only really serves one target market. The one they created: i.e., the premium all-electric sports car market. They are currently working out their plans to cross over into the everyday market with their model X series. However, this is going to take another couple of years to achieve and more private investment funding.
Tesla, therefore, uses mono-segment positioning which means they focus on one segment in detail. However, they pay close attention to understanding customer sub-group activity (or micro-segments.)
Their marketing segmentation incorporates different types of segmentation.
It includes geographic, demographic, behavioural, and psychographic. Their target market segmentation criteria include multiple variables: i.e., region, density, age, gender, life-cycle stage, occupation, loyalty, benefits sought, personality traits, social class, and lifestyle.
Tesla also uses an anticipatory type of positioning within its marketing segmentation and targeting process. They position Tesla’s products and services for a market segment that has low turnover based on forecasts that the turnover will increase in the future as clean energy becomes a societal norm.
Tesla’s pricing strategy
Tesla’s new product pricing strategy is created using psychological theory but informed by a data-driven marketing segmentation and targeting process.
In 2008, the all-electric sports car was a novelty product in the traditional gas-fuelled automotive industry. People were unfamiliar with the concept of an all-electric sports car. The “uncool” Toyota Prius formed people’s knowledge of all-electric vehicles. Hardly a sports car image Tesla wanted to be associated with.
Most people back then were also pretty new to the idea of clean energy – i.e., Tesla’s mission statement. Tesla didn’t know if people would buy their novelty products because they didn’t have enough data on demand. They couldn’t set pricing based on capacity levels because they hadn’t sold any cars. Their product was new and their futuristic mission statement was quirky or odd.
They also didn’t want to set prices on their costs either because this would cap revenue. The cost of production is a relatively small percentage of the overall profit value of the Tesla brand. Cost-based pricing would limit their profitability. Investors and executives would not like this and it would be harder to increase prices in the future.
They then looked at people’s willingness to pay set prices for their products.
But found this approach was lacking too. Because when they launched in 2008, people hadn’t heard of them or didn’t know what they were buying. There would be little point in setting prices based on what people said they were willing to pay when the customer didn’t know what they were buying.
So instead, Tesla created a pricing strategy that leveraged its ideological brand using a mixture of psychological and pricing theory and data-driven target market segmentation. They looked at their marketing segmentation and research and found common pricing and psychological principles were driving sub-group activity toward the brand and products.
Below are some basic psychographic profiles Tesla has created to develop their prestige pricing strategy for their Model S and X series:
- Hardcore loyal users – They are wealthy, socially responsible, and place importance on status. They’re early adopters of trends and intellectual concepts who care about the environment. They are also successful thinkers and activists. They’re often guilty about mass consumption and consumerism in general.
- Fad users like novelty and being on-trend. These customers are socially compliant and will strive to keep up with the group. Usually, they’re not early adopters of trends and have a limited commitment to clean energy. They embrace mass consumerism, are fun-loving and rich who prefer the lifestyle aspects of Tesla.
- Switchers – Have a limited loyalty to clean energy and the environment. They would switch based on price and if Tesla’s competitors offered a low-cost alternative.
Tesla’s marketing segmentation and targeting research showed customer groups (as profiled above) within their target segment were conforming to fundamental psychological and pricing principles. Namely: Social Identity theory, social compliance theory, and loss aversion.
They found that some customers would pay a lot of money to show how socially responsible they were.
They called this segment their hardcore loyal customers. Their marketing segmentation and targeting process revealed that their loyal target market wanted to buy a fun, all-electric sports car as opposed to a gas-guzzling alternative like Bentley or Mercedes, etc. because they identified with Tesla’s mission or saw themselves as activists (Social Identity Theory).
Their marketing segmentation and targeting process also revealed that other customer groups within their target market behaved and valued different things from the group above. They called them fad users because they would eagerly comply with a popular trend or identify with status and celebrity (social compliance theory).
Next was a series of price trials to test different price points for their prestige pricing strategy for their Model X series. They produce segmented prices for the Model X and S range based on the most prominent customer value drivers emerging from their ongoing segmentation research.
Tesla’s target market segment strategy
Tesla’s approach to pricing and marketing segmentation is a huge potential source of revenue for the business and its investors. However, their current business model and operational capability are impacting their future pricing power and mid to long business growth plans.
First, there’s an increasing number of new players entering this marketplace. This includes different processes, customer channels, and product life cycles. Tesla needs to update operations quickly. They are the ones being disrupted in a market segment they created.
Second, the arrival of new SUVs from other manufacturers will highlight production and pricing problems for Tesla which marketing segmentation and targeting alone cannot fix. Tesla plans to produce a second SUV, the mass-market Model Y, in the next few years. However, other competing electric brands have cheaper SUVs available now.
The new Jaguar I-Pace all-electric crossover, for example, is cheaper than the Tesla Model X and fits into a different segment.
The cheapest car Tesla has is the Model X is still about $10,000 more than the I-Pace. After this, they’ve only really got the Model S to sell.
Third, they are now finding they cannot easily serve all their customers’ needs in their marketing segmentation and targeting. Some customer now wants a smaller sedan or a smaller SUV and Tesla simply doesn’t have one yet.
Fourth, Tesla is losing market share. Existing players are reclaiming potential buyers with all-electric crossovers and sedans. But Tesla only really has the Model S and Model X. People are looking for all-electric luxury crossover versatility in Tesla’s target market segment with a good range in an appealingly designed package.
They like the Jag and its less expensive price tag of $US70,000. The latest all-electric Jag is an extremely attractive offer to switchers and fad buyers looking to move to an exclusive electric car segment. Tesla may not be able to compete with this.
Fifth, unlike other car manufacturers, Tesla lacks a variety of offerings in their marketing segmentation and targeting. Apart from drivetrain variations and some appointments. It also completely lacks competitive vehicles in other segments.
Finally, Tesla doesn’t have a mass-market EV on the market, in the compact sedan target market segmentation. Chevy does have a mass-market vehicle in the compact hatchback segment, which is adjacent to the sedan segment.
Critics of the traditional industry say that people will continue to buy Tesla simply because of its branding.
But, even their data-driven marketing segmentation and targeting process will be telling them a different story. Some people will be willing to switch to something just as good or better than Tesla if it’s offered to them at the right price point (i.e., the Jag).
People within Tesla’s marketing segmentation are looking for cheaper offers with benefits in this segment and Tesla just can’t offer them now. Also, the strength of Tesla’s loyal customer base hasn’t been tested up to now.
Will an everyday all-electric car and price point diminish a brand when its data-driven marketing segmentation and targeting indicate its business and brand are largely built on exclusivity, ideals, and status?
Tesla may get away with idealistic storytelling and “stretching” fewer vehicles across more segments for a couple more years. However, this approach tends not to work for longer very well. Or potentially, they could increase their range to appeal to more segments. However, this means more factories and more capital investment.
Tesla can’t go into the everyday market using a penetration pricing strategy without a huge upfront investment. And, they’re facing serious competition from existing players with scale, heritage and money. Industry car manufacturers have entered Tesla’s target market segment. What’s more, they have the money to compete and penetrate this niche target market with lower-cost alternatives.
Tesla’s business strategy uses four strategic pillars:
- Product innovation (i.e., a premium all-electric car)
- A prestige pricing strategy
- Personality-driven PR advertising
- Substantial private investment.
Tesla leverages a data-driven marketing segmentation and targeting process to develop a prestige pricing strategy based on psychological and monetary value drivers, as opposed to cost-based pricing.
Porsche’s Target Market Segment Strategy 🏁
Porsche is currently the most profitable automotive brand in the world. In 2011 they were integrated with Volkswagen to form the Integrated Automotive Group. They are most noteworthy for designing, manufacturing, and marketing sports cars, crossover utility vehicles, and automobile parts worldwide.
They also offer services through their operating divisions and subsidiaries, including Porsche Design Group, Porsche Engineering, and Porsche Consulting. But did you know that a lot of Porsche’s success comes down to its profit scraping pricing strategy and customer profiling and segmentation techniques?
In this article, we argue that customer profiling and segmentation are what fuel Porsche’s pricing power and ongoing profitability. We also explain how Porsche uses customer profiling and segmentation to set optimal price points anchored to value rather than the cost of production. We’ll also provide several customer segment pricing examples. Finally, you will learn how to set the price like Porsche in five easy steps.
How Porsche Uses its Target Market Segment Strategy to Improve Its Pricing
Porsche’s pricing provides consumers with a frame of reference for the company. They strategically position the brand as a high priced, high quality, exclusive sports car to attract the right customer groups to the brand.
Below listed are some basic customer profiles developed by Porsche to set their prices across products and segments:
- The top gun profile consists of an ambitious and driven individual who cares about being noticed, power and control.
- The elitist profile includes an individual from old money (blue blood), who has the attitude a car is just a vehicle and not an expression of a person’s personality.
- The proud patron’s owner profile sees a Porsche as a trophy considering it a reward for hard work with ownership as the main goal not being noticed.
- The Bon Vivants profile consists of thrill-seekers and jet-setters with the Porsche as a means of excitement.
- The fantasist profile sees Porsche as a form of escape and does not care about impressing others.
These customer profiles feature unique customer value drivers present across customer segments to varying degrees.
Porsche uses these value drivers and profiles (listed below) to set price ceilings for their products based on value (as opposed to production costs) for their products.
A large amount of Porsche’s pricing success comes down to their detailed understanding of consumer psychology, including their customer profiling and segmentation techniques. For Porsche, customer profiling and segmentation is vital to strategic price-setting and positioning.
People that have or want to buy a Porsche expect to pay a lot of money. Therefore, a low price would put their target market off.
People around the world know that Porsche is not just a car, it’s the definition of success and self-actualisation. Someone who buys a Porsche has likely achieved their personal goals. The high price they pay for a Porsche is evidence of their success. Porsche has turned prestige pricing into a celebration of individual success and Porsche’s ongoing success and heritage.
The profiles above consist of an elite group of customers that are a mirror image of the brand. Porsche has used customer profiling and segmentation to find customers that personify the brand.
Porsche is looking for a specific group of customers who have demonstrated that they have lived up to the brand. The ease of paying a high price for a Porsche is proof of individual worth and ongoing success.
The price distinguishes a Porsche buyer from the rest. The brand distinguishes a Porsche buyer from other luxury sports car buyers.
Let’s compare a Porsche buyer with a Maserati buyer. It seems like both types of customer groups have money and can buy almost what they want. However, a Porsche buyer buys a Porsche because they want to join an elite club with history and provenance that reflects their own lives. In contrast, a Maserati buyer buys a Maserati because the buyer wants to celebrate a glamorous lifestyle reminiscent of the generation in which we now live.
Five easy steps to set the price like Porsche
Porsche is at a sophisticated level with its pricing because its customer profiling and segmentation techniques give them useful information at a sub-group level. They are confident where they probably fit in the automotive market. So they pay a great deal of attention to what people want and value when they buy into the Porsche brand.
But, if you are not used to pricing and segmenting like Porsche, but want to learn more, listed below are five easy steps to start pricing like Porsche:
1. Identify distinct consumer characteristics in your market segmentation.
Porsche’s pricing and marketing tools are closely aligned. Because they are designed to analyse differences at a subgroup level, not just segment level. Segment level descriptions are too vague for price optimisation to work properly.
2. Leverage and quantity customer drivers.
The Porsche case study above shows value drivers tied to customer profiling and segmentation. Psychological value drivers such as ambition, desire, satisfaction, and security all require quantitative techniques.
Similarly, these include conjoint analysis, price trials, and experiments. As well as research to quantify the worth of various elements of a product across different segments and micro-segments. You need to understand why and how people buy, to identify the relevant metrics for your pricing structure.
3. Build an effective pricing structure.
Porsche’s pricing structure anchors price to perceived value and desire for status. Design a structure based on the finding from your customer profiling and market segmentation. Identify the right fences (price, buyer, etc.). Above all, pay attention to your customers’ needs and wants at a subgroup level. This will enable your pricing team to set the right price floor and ceilings for your products.
4. Begin to optimise and refine price points.
Select low volume products and a low-risk subgroup of customers. Also, update your price list as required. You may find that you probably need to re-think your approach and price positioning in the market. Porsche uses a prestige pricing strategy for its premium (luxury) segment. Along with sports cars (five segments) and a penetration pricing strategy for their crossover utility vehicles (two segments).
5. Certainly, adjust your offers.
Use offer design techniques to implement segment pricing with minimal enforcement of the segments. Like Porsche, you may find that your customers self-select offers. i.e., different packages, editions, loan repayments, insurances, additional extras, and different ranges of the car.
Let customer profiling and segmentation guide offer configuration. Porsche uses segmentation information to put features together in the “premium sports package” or the “luxury edition” and uses a single price for that bundle of options.
Building a prestige pricing strategy based on a Target Market Segment Strategy
Porsche’s prestige pricing strategy based on marketing segmentation and targeting makes them one of the most profitable automobile manufacturers, with a 17% profit margin. The first Porsche 911 campaign alone has seen a sales increase year on year since the very first campaign. Even more, the introduction of the Cayenne, Macan, and Panamera has enabled Porsche to extend the brand because the vehicles are better suited for everyday use.
Conclusion on Target Market Segment Strategy
Consequently, Porsche’s approach to pricing is customer-focused as opposed to cost-based. Hence they seek to optimise prices based on value, rather than cost structures. As a result, Porsche offers high-quality products at a premium price with various price points for products across their range. They optimise prices for the product by leveraging their lifestyle brand.
Finally, their brand is certainly made up of numerous customer drivers. Most notably, heritage and status as well as the typical features of a sports car. These value drivers are the source of their pricing power.
Porsche takes time to understand key customer value drivers across segments and subgroups because it improves its strategic price positioning in the market.
With better marketing and pricing tools, including customer profiling and segmentation, Porsche knowa what types of customers they’re after and why. How much are they are likely willing to pay for a new car.? They can refine and precisely target at around the top 30–40%.
Therefore, aligning your pricing, customer profiling, and segmentation means the business is in a better position to capture the market opportunity. A mass marketing, cost-based pricing approach would miss this.
B2C Principles of a Target Market Segment Strategy
Psychographic segmentation has taken value-based pricing practices to a whole new level. Using psychographic segmentation it’s now possible to tweak the method of setting prices typically based on superficial demographic categories like age, gender, ethnicity, and other broader variables.
On top of this, it modifies how consumers respond to different price points and offers. Think of product benefits, buying patterns, and the volume of purchases.
Pricing teams that refine pricing based on psychographic segmentation examples such as values and interests are now able to determine optimal price points with a greater degree of accuracy. Identifying and understanding consumers’ emotional and psychological responses to price and value is fast becoming the focus for profitable revenue growth.
In this article, we will discuss psychographic segmentation examples and their synergies with value-based pricing. As we go through, we will use B2C fuel industry case examples. These will point out ways a pricing and revenue management team can use psychographic segmentation questions to inform and test their assumptions on consumer pricing and buying preferences.
From there, we’ll go through some possibilities of how pricing teams can trial more dynamic pricing in industries used to fairly fixed and traditional pricing and offers.
What’s the value of a Target Market Segment Strategy?
If you want to drive more profitable sales without sacrificing volume or revenue, one sure-fire tactic is to figure out a way to charge different prices to customers with different values and reasons for buying.
The late Sir Colin Marshall, CEO, and chairman at British Airways (BA), touched upon the value capture possible of using advanced pricing and psychological principles (psychographic factors in market segmentation) when he said:
“You’re always going to be faced with the fact that the great majority of people will buy on price. However, even for a seeming commodity such as air travel, an element of the travelling public is willing to pay a slight premium for superior service. In our case, we’re talking about an average of 5%. On our revenues of £5 billion, however, that 5% translates into an extra £250 million, or $400 million, a year.”
Colin Marshall’s statement here, explains the significant dollar contribution of a sophisticated management price change. Literally, BA got millions of dollars from implementing smarter pricing. However, he did not explain how. It’s not surprising because the CEO is not a pricing or psychology expert. He may not know the cause and effect relationship between consumer psychology and psychographic variables market segmentation.)
Target Market Segment Strategy: A case study
To see the full value of marketing segmentation and targeting questions, let’s look at a case study of the B2C fuels market and what revenue opportunities get missed when we assess the consumer fuels market through demographics alone.
Yes, people with different incomes, cars, and postcodes make somewhat different fuel purchases (i.e., demographic variables). Knowing this does, however, not tell us why they are buying different amounts of fuels or what they value, and what they are willing to pay for or not. What consumers value and their motivations for buying are also essential to any pricing function looking to set optimal price points by product, customer segment or micro-segment.
We all buy fuel for different reasons…
The price of fuel is just one of the reasons we buy fuel. Some people may choose, for example, to purchase fuel from a particular service station because they value convenience. This means they are prepared to buy more expensive fuel to avoid a detour from their daily commuter route. They are prepared to pay more for the convenience of staying on their preferred route to work.
For this group, the price of fuel may be on their list of considerations when they buy their fuel, but it may not be their top driver for purchasing fuel. They have probably made a conscious decision to trade price for convenience. They want to buy from a service station that is convenient to them at a critical point in their daily routine or journey.
Other people may not value convenience or price but the ease of access
This means they are willing to buy petrol from service stations with large forecourts and clear and visible entrances and exits. They may even go out of their way to find a service station with ease of access. Some go off their main route because they like a particular service station.
Again, the price may be a consideration for them as well. However, they are willing to spend more on fuel because the service station is easy to access, navigate and leave. They value their time and don’t want to cue up for cheap fuel. Especially at a service station with a limited number of pumps. Being late for work, or a meeting is a massive risk driver that they are willing to pay a bit extra to avoid.
9 Advantages of Target Market Segment Strategy for pricing teams
1. Direct the appropriate amounts of promotional attention and money to the most potentially profitable segments of the market.
2. Work out an appropriate margin for a product line. Identify gross margin percentages that truly parallel the demands of the market. Rather, than cost-plus margin pricing that bulks in some areas and ignores other potentially quite profitable segments.
3. Identify the first signs of a major trend in a swiftly changing market. Give the business room to prepare or take advantage of it.
4. Determine the advertising campaign that will be most effective for a particular pricing strategy or campaign. Quantify and monitor the market responsive to each by-product, group, and segment.
5. Develop targeted promos and loyalty programs for different segments and customer groups.
6. Determine the proportion of the budget that should be allocated to each campaign.
7. Identify trends to anticipate the financial impact, risk, and competitive tension.
8. Correct the timing of advertising and promotional efforts. Ensure that they are massed in the weeks, months, and seasons. Especially when resistance to the price increase is low and responsiveness is at maximum.
9. Understand otherwise seemingly meaningless psychographic information about consumers. Develop new scoring and rating systems to measure consumer value drivers by group and segment and inform segmentation and strategy.
Target Market Segment Strategy
Using psychographic factors in market segmentation allows you to create smarter pricing. You understand why some segments and customer groups overlap with others. Aligning your prices to your customer’s values and preferences rather than just following or reacting to your competitors’ pricing tactics moves you beyond differential pricing and price gouging. When pricing teams uncover what consumers actually value, they’re in a stronger position. Implementing dynamic pricing offers real value for their customers.
A pricing team needs to understand its target market segment strategy to employ value-based pricing
They can also re-calibrate their demand forecasts based on an accurate understanding of current trends and be less dependent on past volumes and trends with little significance to what customers actually value now. These in turn will override tiered demographic categorisation and hypothesis about price and consumer preferences, typically based on analysis of simple cost and demand drivers.
Traditional demographic methods of market segmentation don’t usually provide enough information to inform segmentation. Customer segments by age, sex, geography, and income level are not likely to provide as much direction for pricing strategy.
Believing consumers don’t buy based on their values and interest is a mistake. Consumers in B2C markets act just like customers in B2B markets. They increasingly identify their values and interests over their geographic or demographic profiles when they make a buying decision.
Using a cookie-cutter approach to customer segmentation is not very effective. Demographic or even geographic variables often ignore the reasons why customers buy. It doesn’t provide leverage why they are willing to pay more or not.
For a comprehensive view on driving pricing strategies to maximise growth,
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