Who cares if you have good creative. If you have not figured out who you are going to mail (and why), then you are in deep trouble. You will be better off stapling a $5 bill to a postcard and asking the prospect to "please call for more money." It's all about S.T.P.
Most people over complicate this step. They get too tricky for their own good. They slice, dice, chop, peal, mince, blend and whip up a segmentation strategy that confuses even themselves. More times than not it's the simple segmentation applied in a rigorous manner that works the best. Why? Because most folks don't have reliable enough data to create effective micro-segmentation. Most businesses don't have much data at all actually. And, when they do, it's usually a complete mess kept on spreadsheets or desperate databases. Focus, simplicity and scale is the ticket to success.
Let me give you a simple example. Let's say you are targeting the transportation and distribution business sector, and you sell GPS devices. You have some traction within this sector. How do you figure out who to go after with your direct mail campaign?
SEGMENTATION: What makes up the transportation & distribution sector? There are some simple ways to figure that out beyond your internal data. You can look at public sources like Melissa Data and review their SIC codes to see how they categorize this sector. Or, you can look at a competitor or company that targets this area (say Qualcomm) and see how they approach segmentation. In this example, Qualcomm does not get granular enough. So, let's use Melissa Data to pull out some categories:
- Transportation Services
- Trucking and Warehousing
- Less Than Truckload (LTL)
- Full Truckload (TL) or Long Haul Trucking
- Retail Distribution
- Wholesale Distribution
- Taxi, Limousine, Para-transit
OK, now we have some basic segments to target. Now, go back and append your internal data with the SIC codes (if missing) and sort the information out accordingly. This should prepare you for the next step of the process:
TARGETING: So, you now have 7 segments, but which one(s) should you be focusing on? Well, what segments are you doing well in right now? Where are the green fields? Where do the diminishing returns hide? Get into your numbers and figure that out.
Go back to Melissa Data and determine the size of the addressable market. Then compare your customer counts to determine your level of penetration. Get an understanding of penetration on several levels as well. For example, what is your company level penetration versus your total employee penetration?
I find that the standard bubble chart works well in this situation. Make the Y axis percent penetration. Make the X axis a key figure such as average purchase size or revenue per customer. Make the bubble size the total addressable market per segment. Then stand back and look at where you need to attack. A simple rule of thumb is that big bubbles that are low and to the right are areas to concentrate on. Any bubbles high and to the left are areas to retain and protect as they are your customer base. Any bubbles that are small and in the lower left corner are a waste of time.
In the example shown, there are some obvious conclusions as well as some decisions to be made.
- Segments 1, 5 and 6 are your bread and butter
- Segment 2 is not worth the effort due to low perceived value
- Segment 4 is an obvious target
- Segment 7 should be tabled due to its small size, average value and decent penetration
- Segment 3 may require attention despite its low value due to its large size
Considering this is an acquisition campaign, you want to spend your dollars wisely. Thus, you should target Segments 4 and 3 but at different weights. For the sake of simplicity, let's mail 70% of our volume to Segment 4 and 30% to Segment 3. There are more sophisticated ways to determine weighting if you have historical response rates for each segment. One approach would be to determine the blended customer value and / or units required and use a solver model in Excel to determine the optimal mix.
For the sake of our segmentation example, Segment 3 will be Taxi, Limousine & Para-transit, and Segment 4 will be LTL Services. Now that you know who you want to target, what do you want to say to them?
POSITIONING: You could not be focusing on 2 more different types of companies. Taxi drivers in big cities and regional truck drivers. Do they have anything in common? How are they different? How does your product fit into their needs? What are their needs? You can get pretty deep into this exercise. I would highly suggest spending some time with the customers in focus groups and doing surveys to get a clear understanding of the situation. But, for the sake of this example, we are going to make some quick assumptions.
What do they have in common? Well, they both pick up and drop things off. They both burn fuel. They both need a dispatcher of some sort. They both have schedules that change throughout the day. Both expect their cargo to arrive on time and safely. Both also want to be as efficient as possible.
How are they different? One moves humans, and the other does not. This means the main customers for one are the shipper and the receiver, and for the other it's the passenger. One operates on high volume and low margins (passenger transit etc), and the other operates on slightly less volume and slightly better margins (big assumption on the latter when it comes to margins though).
So let's take a shot at some positioning statements:
- Reduce fuel cost by making your fleet more efficient with dynamic dispatching with GPS
- Increase customer service with real time departure and arrival information with GPS
- Find the closest vehicle at any time to any pick-up with GPS
- Make U-turns obsolete with real time GPS directions
Now obviously things can be made more complicated than this, but the example provided above should give you a good idea of what is required. The next step would be to begin creating your test matrix that pairs various combinations of offer, creative, pricing and positioning. We will discuss this in one of the next articles on Effective Direct Marketing.