“Change is the law of life. And those who look only to the past or gift are obvious to miss the future.”- John Fitzgerald Kennedy, 1917-1963
To corollary in today’s fiercely contentious world of business, classical shop seg-mentation characterized by demographic, socioeconomic and geographic criteria won’t cut it any more. A powerful new tool to forge a cutting edge is segmentation based on psychographic criteria, as demonstrated in Germany’s power market.
Pragmatic
The German power sector is characterized by an exertion at liberalization, that after ten years has created a fragmented scene of multiple small clubs and four loom-ing giants. In their struggle to distinguish themselves from the competition, some of the clubs have adopted innovative customer segmentation techniques – cutting-edge marketing strategies based on defining customer groups by signs and lifestyle types. The following describes a range of psychographical shop segmentation tech-niques, followed by their implementation in the power sector.
Changing business conditions
Social and technological changes have been spellbinding the way business is done. In the past, the buyer wielded petite sway over product characteristics and variety.
This is changing. We are in an era of individual buyer empowerment, which is even influencing product development processes.
Once, cultural values and buyer behavior had been relatively predictable. Up-to-date data imply a strong individualization, and rapid changes in how the buyer acts. Unsaturated markets turned into mature markets with exchangeable products in which added value and target-group aligned campaigns become increasingly important. clubs today acknowl-edge that not every offer will suit every customer, nor will every customer be equally re-sponsive to a given marketing activity.
Not only is the nature of the shop changing: by nature businesses, however successful, are also vulnerable to convert in the normal economic environment, along with demographic change, urbanization (where applicable), individualization and fragmented global societies. The way to remain relevant in this rapidly changing world is to track who the customers are, what their needs and values are, and where time to come potential lies in a world in which indi-viduals have very separate requirements. Each individual becomes a segment of its own in a global market.
For example, the so called “hybrid customer” buys basic groceries at a allowance outlet, but eats the weekend luxury dinner at a five-star restaurant. It is important to understand that price is not always the key buy criterion. It is poor insight of the actual desires of customers that leads suppliers to focus on price competition.
The need for new shop segmentation models
The greatest objective of an efficient segmentation model is to improve profitability by rec-ognizing that each identified customer group has separate needs, priorities and economic levers. Armed with that knowledge, customer service can be adapted and resource alloca-tion can be optimized.
Put otherwise, the greatest goal of segmentation is the pragmatism of first-rate deployment: how best to use corporate execution capabilities to meet the needs and expectations of the customer population.
The final outcome of segmentation for the customer is first-rate satisfaction. clubs for their part expect the shop segmentation model to deliver clearly defined groups of cus-tomers, unique customer insights, and shop insight concerning time to come opportunities and innovations.
Traditional segment classification focuses on statistical characteristics such as geography (city, region, size of place of residence), demographics (age, gender, nationality, income, house status, size of household), and so forth. This arrival is favorable because the data is normally easy to collect, and is clear-cut and objective. But it fails to take into ac-count that customers do not behave consistently within these defined clusters.
Also, because new markets are difficult to locate, it is essential to actively cultivate the shop and explain or model customer behavior.
Traditional sociodemographic criteria are not capable of describing the (potential) customer of today. For instance the same data set of “gender-age-income-habitation” would apply equally to Ozzy Osborne and to Prince Charles.
Examples of innovative segmentation models
To fulfill time to come segmentation requirements, psychographic and behavior-based models be-come significant. Characteristics such as lifestyle, values, collective standing, media usage, buying patterns, brand preference, product usage pattern, and the like can be used to de-scribe customer groups.
One example for a state-of-the-art segmentation model is the Sinus-Milieus® approach, which clusters homogeneous groups by shared aspirations in life, value systems and life-styles. When individuals share similar life contexts, they are likely to be part of the same milieu. The model distinguishes several milieus and builds a quantitative windup straight through a representative sample of the given population.
Another example of an innovative segmentation arrival is semiometrie, a quantitative tool to distinguish groups by values and attitudes. This methodology is based on evaluating 210 premium words such as hero, victim, present, and fire on a seven-stage range, from “very agreeable” to “very disagreeable”, to quantify the person’s values.
The four dimensions of the “words/value map” are sociality, vitality, individuality and re-sponsibility. The identified customer cluster is characterized by 14 value fields, such as familial, social, religious, rational or dominant. The data are then statistically evaluated for the exact product, service or brand.
Another psychographic model, developed by the international shop study business GfK Group, is called Euro-Socio-Styles. Its Value Map is based on four dimensions: ap-pearance and reality, convert and stability. Arranged behind these four dimensions are dif-ferent needs: appearance implies materialism and price orientation, reality stands for qual-ity orientation, convert for dynamic, and stability for security. GfK identified eight Euro-Socio-Styles: magic world, secure world, steady world, standing world, authentic world, new world, cosy tech world and crafty world. Each segment is described with typical attributes, attitudes and habits.
Consumer market-based segmentation models can also apply to the broader business mar-ket, using separate premium attributes such as value perception, position in the value chain, buying behavior, its own value proposition downstream and so forth.
Building up buyer insight
Developing a trend-setting segmentation model for a exact shop commonly starts with defining the relevant group of customers (consumer/business), insight the buildings of the whole value chain (also downstream) and identifying value levers and decision mak-ers along this chain.
The second step is to watch the attributes describing the group in terms of buying criteria – identifying the needs behind their purchasing. This can be conducted straight through shop research, devotee interviews, customer surveys and multifunctional customer workshops in B2B environments.
The third step is to generate separate clusters with comparable attributes and buying criteria and qualify them in terms of enough size, differentiation in the middle of the groups, and feasibil-ity on the part of the business.
Finally, the identified shop segments are summarized as profiles and are given a descrip-tive name. The profiles tell the distinctive attributes, main buying criteria, values, so-ciodemographics and other characteristics of each group. For each of the groups which seems attractive, an individual value proposition needs to be developed.
These psychographic segmentation methods give enterprises powerful tools to improve profitability straight through differentiatiation, positioning and a focused and tailored transportation towards the relevant target group. They were applied to great corollary in Germany’s power sector, as it transformed from a blanket monopoly into a liberalized market.
The German power shop before liberalization …
The trend towards freedom of selection for the customer is spreading in both the commercial and private sector. In Western Europe the process of liberalization aimed to set the whole power shop free. The results have been mixed.
The pace at which the separate countries within the European Union are liberalizing their power shop differs from one nation to another. Some countries, such as Germany and the United Kingdom, have completely liberalized their power sphere while others, such as France, are more tentative.
Before liberalization, a defined supply area was served by a single power supplier, normally a local utility, resulting in a monopolistic shop structure. Ten years ago, “Grid way for everybody” was a vision. Now it’s the reality, if not quite the reality that its engineers envi-oned.
The European Union Directive of December 1998 eliminated guaranteed territorial monopo-lies, resulting in new, oligopolistic power markets. The Eu aimed to minimize political in-tervention and intensify competition into grid way and power distribution (electricity and gas) by letting in new suppliers, and lowering prices for consumers. In Germany, in addi-tion, power production, converyance and distribution were unbundled, to deliver a transparent as well as efficient and well-priced power supply.
… And its implications ten years after
It failed. The “steps to boost competition” resulted in anti-competitive concentration. Ten years after the liberalization drive began, the German buyer is paying more than ever before for electricity.
Moreover, ten years after the reform, instead of true liberalization and competition over price, 80% of Germany’s shop remains dominated by four big companies: Eon, Rwe, EnBw and Vattenfall. About eight hundred collective utilities and municipal power providers, some belonging to the giant four, use way to the grids of the big clubs to originate and spread their business and products into new regional geographic areas, which had not been potential before liberalization.
Germany’s power shop harbors risks for the power producers and suppliers such as regulator-induced allowance of power consumption and other changes, feeble shop growth, high prices, and internationalization and consolidation of the market. But it also offers opportunities such as the trend towards online marketing, changes in the power output technologies (decentralized power supply, renewable energy), branding, and a rising (though still low) tendency among customers to switch the power supplier.
The questions for the new power suppliers are how to win consumers and lock in long-term success. The answer many found lay in psychographic models to identify differentiation opportunities, at long last addressing the customer.
When the era of liberalization began, its architects assumed that customers would switch in droves as competition arose. They did not: or at least commercial clients do, but not house-holds. Only 7% of these have changed provider. Private-sectors tend to stay with their ven-dors mainly because of sheer passivity, assumed high switching costs, and varied barriers along with ignorance of alternatives. Within the commercial segment, 37% did query changes to their compact with their supplier. Price remained the most important criterion for change. However, this switching rate is lower than what surveys show to be the switching intention of such customers.
Challenging shop conditions
In the years to come, switching is likely to increase as competition intensifies, in part due to persistent political efforts and changing buyer patterns in power use. buyer sensi-tivity to price is also likely to intensify. Other impetuses to switch may include subjectivities such as perception of bad service or the wish for “ecological” energy. Customers will stay with their current provider when either they are satisfied, don’t know a good alternative or are not even considering convert due to lack of interest.
Today’s power providers in Germany can be allocated to three clusters:
1. Consolidated clubs and utilities with an “all-round” mainstream strategy, a mix of representative products over all output sources, targeting for the middle price segment on a regional basis with a low customer concentration and low level services.
2. Ecological Specialists that adopted a “green” transportation strategy in a high-price segment with high customer satisfaction, developed services and a nationwide presence.
3. Online providers with a allowance and brand strategy, zero or a low share of “green” products, tailored online services to ensure inexpensive customer delight in a low price target segment.
All three clusters seem to target obvious shop segments and customer groups, but they have learned in the last few years that retaining customers is cheaper than acquiring new ones. Yet many clubs tend not to fulfill the potential value of their relationships with their existing customers: they remain focused on winning new customers, spending heavily on marketing while losing sight of the existing base. They neglect to analyze and leverage customer relationships to exploit supplementary potential and product opportunities.
The “big four” still live off their contentious benefit due to their vertical integration (pro-duction, grid and distribution) and are less vulnerable to shop dynamics in the short term. Smaller clubs and “newcomers” face higher challenges in getting a inexpensive eco-nomic model to work. But they are arrival up with answers.
nnovative techniques in Germany’s power market
Energy experts have found that more than half of Germany’s power providers have started to invest in innovative marketing and sales campaigns. They are employing developed mar-keting concepts such as product bundling in cooperation with loan institutes, insurance, and real estate clubs based on cutting-edge psychographics and a broader view of cus-tomer needs.
In short, these clubs plan to conquer niches using customer-orientated innovations. Objective classical segmentation criteria such as power consumption, query set and solvency cannot supply meaningful clusters to value customer needs and to originate the right value proposition and value delivery system for their shop strategy.
Energy clubs still need to distinguish within their segmentation arrival in the middle of the two main former user groups of commercial customers (B2B) and private customers (B2C). For both such groups the clubs have to define the relevant attributes which sway switching behavior.
Within the German shop the following seven visible characteristics have emerged and have proven to be a valid set of criteria:
o Price sensitivity
o Desired level of services
o Brand consciousness
o Value orientation
o Affinity to innovation
o Willingness to take risks
o Tradition consciousness
Having analyzed the degree of the varied attributes for the respective customer groups, eight separate customer segments can be derived.
Within the B2C group for example, so-called “Piggybacks” can be identified. They are char-acterized by strong brand consciousness and intense safety needs, whereas so-called “Ra-tionalists” focus on smart shopping and known consumption.
“Traditionalists” are reacting against “globalization”: they query local values and tradi-tions in a globalized world and a high degree of collective responsibility. The “Impulse Buyer” is an enthusiastic and interested shopper in divergence to a “Self Actualizer” who is seeking individuality and quality.
Within the B2B group three segments can be distinguished.The so called segment of the “Neglected Buyers”, the “Added-Value Oriented Buyers” and the “Price Buyers”.
The “Neglegted Buyers” seek individuality, risk allowance and comfort, whereas the “Added-Value-Oriented Buyers” focus on smart shopping combined with a high query for ser-vice.The “Price Buyers” can be compared to the “Rationalists” in the B2C group: these clubs are becoming more price known as they comprehend the development of an expanding price volatility in the market.
As described, each segment is marked by strong characteristics. The more distinctive these unique features are, the more focused shop development can be.
Having segmented the market, the power providers must now prioritize them – selecting the most spellbinding segments that offer spellbinding profitability at inexpensive shop risk , and determine which products and services to offer to each chosen segment at what price level. The clubs need to position themselves with a “new”, innovative value proposition and tell their “unique selling point” (Usp) accordingly and sustainably.
Companies that adopted a psychographic analytical arrival are showing introductory success in retention rates and in developing new shop shares. This proves that in today’s fast-moving society, innovative and former B2B clubs in “pure commodity and low in-terest” markets can apply psychographic-driven segmentation to reshape their shop posi-tioning and to generate contentious differentiation and advantage.
Trend-setting market Segmentation – A New Wave in the German power market
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