Traditional customer segmentation still works...sometimes

In my last job, I spent a lot of time thinking about how traditional customer segmentation was an unsophisticated, dated way to think about markets. Just for clarity, I am defining a "traditional" customer segmentation as a way of dividing up customers by certain (usually) observable characteristics. Think: ages, gender, income level, political party affiliation, dietary restrictions, etc.

The "correct" way I learned to view market segmentation was through needs. That is, you should figure out what needs drive customer purchasing behaviors, and then determine how to cater to / reach these different need groups. As a simple example, say you had 3 customers: an old man, a young woman, and an old woman. If you had to form 2 groups with these characteristics, you might decide either of the 2 options:

• Old man and old woman | young woman
• Old woman and young woman | old man

Imagine that you're a hotel company: how useful would it be to define a brand based on age? Wouldn't it be more useful to know what the customers wanted from a hotel stay?

Under the alternative approach, I would try to understand the needs of these different customers first. In this example, the old man and the young woman are both planning a tropical beach vacation while the old woman is planning a cultural trip to a large city. Now, it's much easier for a hotel company to target a specific group of consumers: those with a specific need. But, without understanding the market needs, you may not have naturally grouped some of these customers together.

This approach makes a ton of sense in practice: think about the application to air travel (business trip versus leisure trip regardless of personal income), restaurants (night out with the kids versus night out with friends), etc. And, while it's still helpful to characterize the customers within / between these need groups (can help with marketing if certain attributes stand out), it becomes a dependent variable.

So how does this relate to wine?

Terry's presentation opened my eyes to the fact that wine marketing is effectively based on traditional segmentation. Yes, certain, distinct needs exist in the wine market, but given the unbelievable variety of products that exist to fulfill almost every need (think about the abundance of wine at different price points / different taste profiles / different "prestige" levels), traditional segmentation is perhaps a significantly more effective exercise than a needs-based approach. 

Terry segmented the market based on observable characteristics: cowboys, middle sisters, loners... and then made the product appeal to the emotions of those segmented groups. The dependent variable here was the needs of the different groups (e.g. what taste profile the wine was designed to reach).

So maybe, traditional segmentation is still alive and well, under certain market conditions. It's something I'll consider more in the future.

Judging a Wine By Its Bottle

Yesterday I was struck by the statistics that Terry offered about the importance of packaging. Namely,

• 64% of people will try a new product because packaging catches their eye
• 41% will continue to purchase a product because they like the package

In fact, I actually hypothesize that these statistics are likely higher for wine (although after a bit of searching, I was unable to find the data to support this).

According to Nielsen, last year 14% of all items in the wine category were new products. While that actually may not seem like a huge percentage of the category, that translates into roughly 3,500 new items. Although after hearing Terry rattle off idea after idea for new wine brands, I'm surprised this number isn't higher. Nevertheless, the importance of winning the consumer purchase decision in what are often incredibly competitive spaces (that grocery store wine aisle is no joke, am I right?), it seems obvious that brands must leverage every tool they can to more effectively market their product.

As we learned earlier, due to tied-house laws, it can be particularly tricky for alcohol brands to advertise their wines, especially on social media. Additionally, I was curious to learn that wine brands' marketing spend is just 8% of that of beer brands - although unsurprising given the overwhelming number of beer ads I see on TV and the notable absence of wine ads. All this to say, wine brands rely heavily on the advertising that happens at the time of the purchase decision - on the shelf.

Back to Nielsen stats again. According to a recent study, only 29% of consumers know which wine brand they plan to buy before entering the store. That means that a whopping 71% of consumers are making their decision standing in the aisle, and packaging is the most effective tool brands can use to win that purchase.

Thus, it seems natural that wine brands would invest heavily in the design process and look to the market for feedback on a variety of options, right? Wrong. According to a survey of FMCG (fast-moving consumer goods) executives about their company's design process, 75% responded that important design decisions are made subjectively - by group consensus (33%), qualitative focus groups (55%), or by the opinion of a senior executive (53%). I was surprised listening to Terry's explanation of her own brand building process how little she mentioned about looking to end-consumers for feedback. It wasn't until the very end of the discussion that we heard about the Wine Sisterhood social media platform that can be leveraged for such informal consumer research, but all throughout I was wondering why this primary research didn't play a more formal role in the design process? It seems like a huge missed opportunity. But then I wonder, what is the life of each of these new brands anyway? (Again, I tried and failed to find any stats on this). Perhaps it doesn't make sense to invest the resources if the brand is only going to be around for 1-2 years. Plus, it doesn't seem that hard to come up with ideas for new brands (again, I refer back to Terry's long list of ideas), so maybe it makes sense after all to throw everything at the wall and see what sticks.

Source: http://www.nielsen.com/us/en/insights/news/2017/how-package-design-attracts-todays-wine-consumer.html