In environments where target markets are diverse or highly stratified, organisations may find it difficult to design a product range that sufficiently accommodates all potential buyers, or formulate cost effective marketing strategies capable of reaching the entire market. For example, a superannuation fund may find it challenging to develop a communications strategy that successfully 'speaks to' its diverse member base. Similarly, a large financial institution may find its consumer product range does not necessarily appeal to its entire market.

In situations such as these, Forethought Research employs Segmentation Analysis to divide the market into smaller, more homogeneous groups within a market or a client's existing customer base. Segmentation allows for the ability to create customised marketing strategies for different market segments, as well as improved reach and channel efficiency. It enables a company to increase its return of investment (ROI) on its marketing and communications, and can positively impact on customer loyalty, uptiering and retention. It has the ability to uncover the best positioning strategies and allows organisations to allocate scarce resources in the most efficient manner, resulting in decreased supply chain costs.

Segmentation Analysis aggregates prospective buyers into groups that have common needs and will respond similarly to marketing actions. The process is exploratory: the exact number of segments is not necessarily known in advance; usually two to four segments are identified. Groups that emerge from the market segmentation process form a relatively homogeneous collection of prospective buyers, and each group is distinctive (or heterogeneous) from each other.

Bases for segmentation may include:

• Demographic and lifestyle factors such as sex, age, income;
• Usage patterns;
• Attitudes and behavioral characteristics;
• Product attributes;
• Brand awareness; and
• Potential for increased profit and return on investment.

Forethought conduct Segmentation Analysis that aims to provide organisations with segmentation solutions that have a strong clustering mechanism and at the same time are highly actionable. Essentially this requires a balance between clustering based upon tangible constructs such as demographics and usage patterns, and more intangible variables such as attitudes, satisfaction and loyalty.

Often, internal Customer Relationship Management (CRM) data can be combined with the results of survey research for a complete segmentation that uses all available information. Indeed, Forethought own Prophecy® methodology is a unique predictive tool that works by energising and integrating dormant behavioural and survey data, along with client CRM data, to create new commercial opportunities. Forethought has successfully employed Prophecy® to flag important customer segments within a client’s own database.

Forethought has conducted numerous Segmentation projects for a range of organisations that have resulted in insightful and highly actionable outcomes. For example, a major Australian logistics supplier commissioned a segmentation and channel optimisation project to ensure resources were allocated most cost effectively. The research identified two distinct segments within the organisation's customer base: a low cost, low maintenance service segment and a high value segment. As a result, our client was able to modify service delivery from a single channel service platform to a multi-channel platform. The cost savings from optimising the existing service delivery channels were forecast to save approximately 60% of costs.

However, Segmentation Analysis doesn’t just deliver cost savings. In a project commissioned by a Superannuation fund, Forethought were required to identify specific segments of the fund’s member base that, when targeted and marketed to, would most likely provide the client with growth in market share. Specifically, the clients needed to segment their existing customers in order to identify those with the greatest propensity and ability to purchase additional products and services. The research resulted in segmenting groups of customers on the basis of their demographic characteristics, investment behaviour in terms of the products and services they used, their preparedness to pay for these services, their expectations of investment providers and their future intentions.

The analysis provided the client with insight into the key drivers of their purchase decisions, including the types of information that they sought to assist their decision-making. However, contrary to initial thoughts, the research revealed that their ‘high value’ customers (i.e. high income earners) were not the most attractive segment to target with respect to obtaining an increased share of their wallet. This was a crucial key finding of the Segmentation Analysis, as the fund was able to avoid a possible misallocation of resources. In addition, the profiles the analysis provided on each segment enabled the client to develop marketing campaigns targeted to the segment that was in fact the ‘most attractive’ in relation to future growth for the business.

Segmentation Analysis enables organisations to truly capitalise on the homogeneity of particular segments of the market. It allows for the formulation of more customised marketing and communications strategies as well as the opportunity to target those segments within the market that are most likely to provide an organisation with growth and increased market share.