Customer Segmentation Drives Targeted Growth Strategy

Staking a distinct position in a market with diverse needs helps telecom service provider grow profitably.

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Background:

A regional telecommunications service provider (Client) served approximately 40,000 residential customers. The company was established in the mid-1950s to bring local and long distance telephone service to, what was then, a remote rural outpost. Evolving with the times, the Client had expanded its offerings to include television, high speed internet and wireless telephone service since the late 1990s. Despite this, its image as a provider of basic telephone service persisted in the minds of consumers. Changing these perceptions via consumer communication campaigns was resource intensive. Simultaneously, sensing a growing opportunity in a region that was now experiencing rapid economic development, other national and regional providers with far deeper pockets entered the Client’s market aggressively.

 

The Challenge:

Market growth and intensifying competition put pressure on market share and consequently revenue and profits for Client. In an increasingly diverse market it was important for them to find a brand position or niche that would leverage their strengths and help them compete effectively and decisively.  Also important was developing an understanding of specific needs, expectations, products and solutions sought by groups – or segments – within the consumer base that would help client carve out its distinct position.

 

Our Approach:

The first step in examining this challenge was determining the decision criteria that consumers used when choosing a service provider with which to do business. Five major decision factors were identified going into the design for our research program for Client. These were:

  • Price
  • Desired product features (i.e., speed, bandwidth, channel bundles)
  • Product reliability
  • Bundle configurations
  • Supporting a local provider

Structuring our research around these five factors would allow for the development of segments that could then be targeted specifically.

 

What we did:

Using extensive and in-depth feedback from consumers, segments were created based on the relative importance of selected decision criteria for respondents. Once the segments were established, we were able to estimate the size of each segment and its profile using demographics and other descriptors. Given that a representative sample of the consumer population had been collected, both the segment size and profile were able to be extrapolated to the entire market for better strategy and messaging. Further, the customer experience of each segment was analyzed to determine:

  • The components of the experience (product quality, customer service, technical support, pricing, billing, etc.) that made a significant impact on the segment’s loyalty to their current provider.
  • How each of the components was evaluated for the current provider.
  • Problem experience and resolution, which is frequently correlated with vulnerability and customer defection.
  • Not only the current needs of the market, but how those needs may be evolving (i.e., demand for faster speeds, more bandwidth, and ala carte television programming packages).

 

What we found:

Figure 1 describes each of the segments and their respective needs.

csegdrivestargetedgrowth1

Fig 1: Customer Segments and Profiles

The segments were further analyzed for their growth potential and fit with the capabilities and strengths of the current cohort of providers. Some of the key findings for each segment follow.

We found that the largest segment – the Product Segment – offered the most growth potential, as consumers continued to “cut the cord” on television and demand faster speeds and higher bandwidth internet.  None of the  providers in the market were able to sufficiently meet the needs of this segment, thus presenting an opportunity for all. To tap into this opportunity however, Client would need to make a significant investment. Not only in product design and performance, but also in messaging to change consumer perceptions of client from a local telephone company to a telecommunications provider (or better yet, a technology leader).

The One-Stop-Shop and Support Local segments, while stable, also represented the most Loyal customer base for Client.  Retention through “good enough” product performance and “best-in-class” service and support would be critical.

The Price segment was expected to see the most fluctuation over time.  In weaker economic climates when consumer discretionary spending typically shrinks, this segment is likely to grow.  As the Baby Boomer generation moves into retirement and their discretionary spending capacity reduces, this segment is likely to grow.  On the other hand, as younger members of this segment with limited spending capacity transition to stronger personal finances, they will migrate into one of the other segments.  Regardless, this segment’s loyalty to its current provider will always be stronger during promotional periods.

csegdrivestargetedgrowth2

Figure 2 – Customer Segments – Opportunities & Needs

 

Making Strategic Choices:

Clearly, armed with this deep knowledge of segments, choices had to be made. It would not be cost effective or feasible to be all things to all consumers. Instead, it was necessary to stake out a position where Client could deliver on the unique needs of a chosen segment(s). It was also essential to identify the most attractive segment, the needs of that segment, and what would be required to meet (or exceed) expectations for the segment currently and into the future.

 

The Result:

Client decided that the “Product” segment offered the best opportunity as it was:

  • The largest segment
  • Fastest growing
  • Its needs were not currently being met by any provider in the market

The resulting strategy was multi-pronged with a focus on key demands of the segment:

  • Product design – this segment demands “best-in-class” or market-leading products, which means fast speeds, high bandwidth levels, and competitive television programming packages. The implication for Client is a substantial investment in infrastructure.
  • Product performance – this segment expects its products to work; therefore, reliability is essential and is currently a significant detractor from customer loyalty. With the investment in infrastructure, certain “minimum requirements” must be assured in the current product before enhancing it further.
  • Market messaging – this segment currently perceives Client to be a telephone company which is unable to meet their unique needs. In addition to investing in infrastructure, Client must change its market perception to at least that of a telecommunications provider, if not ideally a technology leader offering first-to-market solutions that meet or exceed expectations on the attributes described above.
Posted in Case Studies, Insights, Telecom.

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