This post is part of a series of 10 articles examining the most frequent Value Funnel leaks. And more importantly, what you can do to fix the leak!
The Value Funnel is a customer-centric marketing approach which guides you through the five stages of customer value: comprehension, creation, communication, conviction and capture. For more background information on the Value Funnel, please head over here.
TIP # 1: Where is your focus?
One frequent value leak encountered among my clients which has repercussions throughout the Funnel is the lack of focus. The problem is an issue around confusion about market mapping and segmentation.
Mapping your Marketplace
Market Mapping is the activity where you identify your key players and their relationships with each other. You can highlight the connections as financial flows, physical movements of goods or as networks of influence. Market Mapping is the first step in understanding your marketplace. The more detailed and the better quantified, the richer your final decisions will be.
Market Mapping may seem easy, but there are some watch-outs. The first is the quality of information and data themself. The challenge occurs as you start going down the different layers or relationships. The further away the key players are from your business, the less reliable the data becomes. Your channel partners drive the second challenge. For whatever commercial reasons, they may be reluctant to share sales and customer data concerning their activities.
And whatever you do, try to look at your mapping with fresh eyes to avoid the status quo!
Breaking down your key players into segments
Once you have mapped out your market, you can start the segmentation process. Segmentation is all about breaking out a specific key player into groups of customers having similar needs, attitudes, or buying behaviours. A common mistake is to believe that the key players that you have identified are the segments. They are not. Segments are groups of customers that belong all to the same given key player.
The reason we want to segment is to be able to design an extraordinarily relevant and focused value proposition that closely matches the expectations of customers in the targeted segment.
If we were to create a value proposition at the key player level, we would only be addressing the common needs across all segments. These common needs tend to be extremely generic and high level, leading to weak and undifferentiated propositions.
There are different segmentation techniques, but in most cases, a mix of 4 buckets of criteria should be used:
- Geographic: where the customers are
- Demographic: who the customers are
- Psychographic: how and what customers think
- Behavioural: what the customers do
The first two buckets are relatively easy to apply. Your sales data and public databases (census data, for example) are great starting points. However, while they will help to describe your customers, they will not help in understanding how they think. The psychographic and behavioural criteria will provide deeper insights about your customer.
And last but not least targeting: the most valuable segment.
The last step is to decide which segment is your ideal segment.
Consider these different factors when targeting:
- Ensure that the segment is large enough to serve profitably.
- Check that there is an alignment of the customer needs and your company’s capabilities.
- Think beyond the short term. Does the segment present growth potential in the future?
- Does the segment recognize and is willing to pay for the value you create?
Too often targeting is done by gut feeling. But you can apply some process to the exercise. I recommend that my clients think about the following three dimensions.
- Size. The number of customers and individual margins governs the size of the segment. The more sophisticated approach would be to consider the Customer Lifetime Value (CLV) and Customer Cost to Serve (CCS) when estimating individual margins.
- Impact. The impact we can have on our customer will depend on the fit of our value proposition on the one hand and the uniqueness compared to the competition on the other hand.
- Influence. The influence that we have on the customer depends whether we can first reach or access the customer and secondly whether we have the arguments and credibility to change his or her thinking.
These three dimensions can be plotted out with Impact on the horizontal axis, Influence on the vertical one and Size for bubble dimension.
- Market Mapping and Segmentation are two different exercises
- Segmentation goes beyond geography and demographics and needs to include psychographic and behavioural aspects
- Use facts and data while targeting and not just gut feeling
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Do you want to learn more about how the Value Funnel approach can help you grow sustainable margins and customer loyalty? Head to value-funnel.com