Segmentation in FMCG: Foundation, generation, acceleration

We explore what makes a great FMCG segmentation and what it can bring to a business when done well.
17 June 2019
fruit segmentation
Katie Shade

Head of Strategy Insights, Worldpanel Division, UK

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In the age of disruption one business constant is the need for growth and a desire to understand the best ways of achieving it. One trusted tool to facilitate this is a segmentation, used principally to find the right consumers and occasions to stimulate growth. But why is it so important to segment in the right way, and how should it be used effectively in your business to maximise potential opportunities?

Why segment at all?

There are 66 million people in the UK, eating and drinking over 82 billion times annually. Each person and their decisions about what to buy and consume are driven by attitudes, demographics, when and where they are, who they are with, and the needs they are looking to fulfil. In other words, the market is vast and complex, and cannot be tackled all in one go.

A great segmentation brings coherence and focus to this complex world of consumer behaviour. A business can then find crucial new buyers and occasions by distilling them into a manageable, targetable set of segments.

What matters when segmenting?

One fundamental use of a segmentation is prioritising opportunities for growth. The size of each target segment is absolutely crucial in determining where the most lucrative opportunities lie. Next is understanding how to win the identified opportunity, which is determined by the nature of that segment. What kind of products will fit, what kind of messages will resonate, who are you competing with and what price points and channels will be the most sensible?

The size and the nature of the segments are fundamental in determining strategy and execution and are reliant on us finding the “right” splits in the market.

Let’s take people as an example. We often rely on divisions, such as age or affluence level to understand people. But an age group isn’t enough to define who a person is: being in your 30s doesn’t on its own tell us very much about your lifestyle or what’s important to you, and yet these are key to knowing how best to target someone. Equally, many 30-somethings behave in a similar way to some 20- or 40-somethings. So as a group, they are not targetable as one – which means calculating headroom is impossible and targeting will be far less tailored to real drivers.

FMCG product choices are shaped by who you are, how you think, where, when and why you are choosing to buy or consume. By statistically determining what aspects of these are the most discriminatory, we can find the splits that really make sense, and therefore ensure the size and nature of the segments reflect genuine opportunities.

Then what?

A great segmentation is a simple, usable framework made up of deeply nuanced segments. It acts as the backdrop to a huge range of business decisions, and it lives and breathes within a business for months and years to come.

It’s a foundation for strategic planning using the size and growth of segments, and a brand or category’s share within these. It’s a tool for activation and tactics using the depth of understanding within each segment. Ongoing tracking means it can even be used for setting success metrics and course correction, keeping a business agile, responsive and current.

It can also drive the formation of an effectively targeted media strategy with accurately tailored messaging whatever media channel used. The ability to digitally reach each target segment on the most relevant platforms and with the messages that resonate most for that group is more achievable, and expected, than ever.

With its range of applications – from innovation and marketing through to pricing and channel strategy – a great segmentation can bring a common language across teams and functions, helping everyone to see where the biggest returns on investment sit and therefore enable the whole business to plan and progress as one.

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