One of the things all businesses need to do is be able to segment their customer base in order to maximize the profit potential of that customer base. By segmenting the customer base a business can better meet the buying needs of a specific group of customers and provide better offers to meet those needs. This in turn reduces promotional expenses and increases profitability.
In a perfect world every business would be able to be all things to all customers, meeting every wish of each customer. Yet, the economic reality clearly doesn’t permit this type of approach. A business who attempts to extend itself in this manner ends up alienating more customers than gaining loyal ones.
As we have discussed previously, the key to a successful business comes down to fully understanding two key points. The first is knowing what business you truly are in. The second is having a comprehensive understanding of who are the most profitable customers for your business. Knowing how to segment your business based on these two principles can open your business to hidden profits and expand its growth.
At times a business may be faced with a product or service that may polarize the target market. In other words, there can be one group of consumers who love the product/service and another group who just hate the product/service. As we will see, this is not always a bad thing and there in lies a hidden profitable opportunity. In this article we will look at how a business can take advantage of a polarizing situation as a profit and growth strategy.
How to know if a business has become a polarizing brand
During the course of running a business, management may not be aware of polarizing factions developing within their target market place. As we mentioned above there may exist people who praise the product/service while others abhor the product/service. Social media sites, blog sites, and forums can provide any business with insights on what the target market thinks about the brand, and a proactive businesses should be monitoring these sources.
Another way to determine if a business has a polarizing brand is to survey the customer base. Look at the the percentage of consumers who give the product or service a rating of 6 or 7 on a 10 point scale. Next, compare those scores to the percentage of people who rate it a 1 or a 2. The higher the percentages on both ends, the higher the polarization effect on the brand. Finally, another way is to calculate the standard deviation of the customer base overall ratings. A higher standard deviation indicates a greater polarization.
What to do once you discover there is polarization
There are two choices a business can make when brand polarization occurs. One is to spend the time and money to win back those that don’t like the brand. This usually involves developing a series of campaigns, both online through social media and offline through print media, to defuse the negative complaints and win back those unhappy consumers. A second approach would embrace one segment of customers to the exclusion of the others and by doing so maximize the opportunities with that one segment – increasing profits in the process.
Extreme segmentation
Let’s take a look at how some businesses have utilized this second strategy effectively.
The first example comes from the business methodology of Spirit Airlines. Unlike other airlines who place their focus on enhancing customer service, Spirit airlines is solely focused on providing travel for passengers who care about low fares. This is so intrinsic to their core beliefs that they reflect it in their ticker symbol, SAVE.
Therefore, Spirit airlines charges for everything to the dismay of many air travelers. In fact, fully one third of its ticket revenues come from fees. For example, Spirit charges $60 per year for their Fare Club with an automatic re-enrollment whether you fly or not. Also, they will charge a $100 for a carry-on bag unless you prepaid the lower fee online. No exceptions!
Although this example may appear extreme and contrary to what a successful airline should do, Spirit is highly successful in attracting the price conscious consumer who is alright with these conditions – as long as the fare is the lowest possible cost. So Spirit airlines is a polarizing business, while at the same time successful because it serves the price conscious consumer first and foremost.
In another example of extreme segmentation, the Harvard Business Review recently highlighted the success of an alcoholic cider company in the UK. This long established company determined that it would focus its marketing towards working class consumers to the exclusion of young professionals.
Thus, in 2009, the company launched ad campaigns that featured images of working class drinkers hoisting a glass of the cider as a reward for a hard day on the job. Almost immediately, young professionals began to view the product negatively and pulled away from it. However, the appeal among traditional cider drinkers intensified as polarization increased. The results were a market share increase by 23%, beating sales in the overall cider market by 6%.
Although these examples showed how whole businesses polarized their complete offerings, it’s possible to simply polarize specific products or services. At times, this is best done by establishing a separate, wholly owned subsidiary that focuses on those segments. This avoids brand confusion in the market place.
As these examples have shown, there are times when polarization can provide strong opportunities for increasing market share and profits. Understanding the potential begins with analyzing not only the existing customer base, but also looking at the overall target market. This is only the tip of the vast amount of strategies that members of the Bay Area Mastermind are exposed to on a monthly basis. Having a committed group of like-minded business owners in one room to discuss these types of strategies is invaluable. You are invited to “Test Drive” a meeting today and see what new strategies you could introduce to your business.