1) Some energy companies in Germany are using innovative psychographic segmentation techniques to differentiate themselves in the increasingly competitive energy market. These techniques group customers based on lifestyle and values rather than just demographics.
2) One example is Sinus-Milieus which clusters people into groups based on shared life aspirations, values and lifestyles. Another is semometrie which evaluates how people rate words to quantify their values.
3) These segmentation models help energy companies understand customer needs better to develop tailored products, services and communications for different target segments. Companies using these innovative approaches are showing improved customer retention and market share gains.
Trend-Setting Market Segmentation - A New Wave In The German Born Energy Market
1. Trend-Setting Market Segmentation - A New Wave In The German
Born Energy Market
By Angelika Gruber, Consultant, Tefen Germany
"Change is the law of life. And those who appear only to the past or existing are certain to
miss the future."* John Fitzgerald Kennedy, 1917-1963
To succeed in today's fiercely cut-throat world of business, classical market seg-mentation
characterized by demographic, socioeconomic along with geographic criteria won't make the grade
any more. A powerful new tool to forge a cutting edge is segmentation based on psychographic
criteria, as demonstrated inside Germany's energy market.
The German energy field is characterized by an attempt in liberalization, that after ten years has
established a fragmented scene regarding multiple small companies along with four loom-ing giants.
Inside their struggle to distinguish themselves in the competition, some of the companies now utilize
innovative customer segmentation techniques - cutting-edge marketing strategies based on defining
customer organizations by signs and lifestyle types. The following describes an array of
psychographical market segmentation tech-niques, followed by their implementation in the energy
sector.
Changing business conditions
Social and technological changes have been challenging the way business is accomplished. In the
past, the consumer wielded little influence over product qualities and variety.
This is changing. We are in an years of individual consumer empowerment, which is even influencing
tool processes.
2. Once, cultural values and consumer behavior was relatively predictable. Recent information imply a
strong individualization, along with rapid changes in how the client acts. Unsaturated markets
converted into mature markets with exchangeable products in which added price and target-group
aligned strategies become increasingly important.
Companies today acknowl-edge that not each offer will suit each customer, nor will each customer be
equally re-sponsive to a given marketing action.
Not only could be the nature of the market changing : by nature businesses, however successful , are
also vulnerable to change in the typical economic environment, including demographic alter ,
urbanization (where applicable), individualization and fragmented global communities. The way to
remain relevant in this rapidly changing world is to track who the customers are, exactly what their
needs and values are generally , and where future possible lies in a world in which indi-viduals have
very different requirements. Each individual becomes a segment of their own in a global market.
For example, the so called "crossbreed customer" buys basic goods at a discount outlet, but eats the
weekend luxury supper at a five-star restaurant. It is important to understand that price is not always
the key purchase criterion. It is weak understanding of the actual desires of consumers that leads
suppliers to focus on price competition.
The need for new market segmentation models
The ultimate objective of an efficient segmentation model is to increase profitability by rec-ognizing
that each identified customer group has different needs, priorities along with economic levers. Armed
with that knowledge, customer service can be modified and resource alloca-tion might be optimized.
Put in any other case , the ultimate goal of segmentation is the pragmatism of superior deployment:
how best to utilize company performance capabilities to meet the requirements and expectations of
the customer population.
3. The final outcome of segmentation for the customer is superior satisfaction. Companies for their part
expect the market industry segmentation model to deliver evidently defined groups of cus-tomers,
special customer insights, and market insight concerning future chances and innovations.
Traditional segment classification focuses on statistical characteristics such as geography (city ,
region, size of place of dwelling ), demographics (age, gender, nationality, income, family status, size
of household), and so forth. This approach is convenient because the data is usually easy to collect,
and is clear-cut along with objective. But it fails to consider into ac-count that consumers do not
behave consistently within just these defined clusters.
Also, because new markets are generally difficult to locate, it is necessary in order to actively cultivate
the market along with explain or model customer behavior.
Traditional sociodemographic requirements are not capable of describing the actual (potential)
customer of today. As an illustration the same data set of "gender-age-income-habitation" would
apply equally in order to Ozzy Osborne and to knight in shining armor Charles.
Examples regarding innovative segmentation models
To accomplish future segmentation requirements, psychographic and behavior-based models be-
come significant. Characteristics such as lifestyle , values, social standing, advertising usage, buying
patterns, brand name preference, product usage design , 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 simply shared aspirations in life, price systems and life-styles.
When individuals share similar life contexts, they are likely to be part of the exact same milieu. The
model separates several milieus and generates a quantitative conclusion by way of a representative
sample of the given population.
Another instance of an innovative segmentation approach is semiometrie, a quantitative tool to
distinguish groups by values and attitudes. This strategy is based on evaluating 210 chosen words
4. such as hero, sufferer , present, and fire with a seven-stage range, from "very agreeable" to "very
disagreeable ", to quantify the person's values.
The four dimensions from the "words/value map" are sociality, vitality, individuality and re-sponsibility.
The identified customer cluster is characterized by 14 price fields, such as familial, interpersonal ,
religious, rational or principal. The data are then statistically evaluated for the specific product or
service , service or brand.
Another psychographic model, produced by the international market research business GfK Group, is
called Euro-Socio-Styles. Its Value Map is dependant on four dimensions: ap-pearance along with
reality, change and stableness. Arranged behind these several dimensions are dif-ferent needs:
visual appeal implies materialism and price orientation, reality stands for qual-ity orientation, change
for vibrant , and stability for protection. GfK identified eight Euro-Socio-Styles: magic world, secure
world , steady world, standing world , authentic world, new world, comfortable tech world and handy
world. Each segment is described with typical features , attitudes and habits.
Consumer market-based segmentation designs can also apply to the larger business mar-ket, using
various selected attributes such as price perception, position in the price chain, buying behavior, its
very own value proposition downstream and so forth.
Building up consumer insight
Developing a trend-setting segmentation model for a specific market generally starts with defining the
relevant number of customers (consumer/business), understanding the framework of the entire value
chain (also downstream) and figuring out value levers and determination mak-ers along this chain.
The second phase is to discern the features describing the group regarding buying criteria - figuring
out the needs behind their getting. This can be conducted through survey , expert interviews,
customer studies and multifunctional customer work spaces in B2B environments.
The third step would be to create different clusters together with comparable attributes and buying
5. requirements and qualify them regarding sufficient size, differentiation relating to the groups, and
feasibil-ity on the part of the business.
Finally, the identified market segments are described as profiles and are given a descrip-tive name.
The actual profiles describe the distinctive attributes, main buying requirements , values, so-
ciodemographics and other qualities of each group. For each from the groups which seems desirable
, an individual value proposition has to be developed.
These psychographic segmentation methods give enterprises effective tools to improve profitability by
way of differentiatiation, positioning and a centered and tailored communication towards relevant
target group. We were holding applied to great effect inside Germany's energy sector, mainly
because it transformed from a blanket monopoly into a liberalized market.
The German energy market before liberalization...
The development towards freedom of choice for your customer is spreading in both the industrial and
private sector. Inside Western Europe the process of liberalization aimed to set the entire energy
market free. The results have been mixed.
The pace of which the different countries within the european union are liberalizing their energy
market differs from one nation to another. Some countries, such as Germany and the United
Kingdom, have completely liberalized their energy sphere while others, such as portugal , are more
tentative.
Before liberalization, a defined supply place was served by a individual energy supplier, usually a
power company , resulting in a monopolistic market framework. Ten years ago, "Grid entry for
everybody" was a vision. Today it's the reality, if not rather the reality that its engineers envi-oned.
The European Union Directive regarding December 1998 eliminated confirmed territorial monopo-lies,
resulting in fresh , oligopolistic energy markets. The actual EU aimed to minimize politics in-tervention
and intensify opposition into grid access along with energy distribution (electricity along with gas) by
6. letting in fresh suppliers, and lowering rates for consumers. In philippines , in addi-tion, energy
manufacturing , transport and distribution had been unbundled, to deliver a transparent as well as
efficient and well-priced energy supply.
... And it is implications ten years after
It failed. The "steps to enhance competition" resulted in anti-competitive awareness. Ten years after
the liberalization push began, the German client is paying more than ever just before for electricity.
Moreover, ten years after the reform, as opposed to true liberalization and opposition over price, 80%
regarding Germany's market remains dominated by four big companies: Eon, RWE, EnBW and
Vattenfall. About eight hundred public utilities and municipal energy providers , some belonging to the
giant several , utilize access to the grids of the big companies to build up and spread their
organization and products into new local geographic areas, which had not necessarily been possible
before liberalization.
Germany's energy market harbors risks for the energy producers and suppliers such as regulator-
induced reduction of energy intake and other changes, feeble market growth, high prices, and
internationalization and consolidation of the market. But it also offers opportunities such as the trend
towards online marketing, modifications in the energy production technologies (decentralized energy
supply, renewable energy), logos , and a rising (though even now low) tendency among consumers to
switch the energy supplier.
The questions for the fresh energy suppliers are how you can win consumers and now you should
long-term success. The answer numerous found lay in psychographic models to identify
differentiation chances , at long last addressing the customer.
When the era of liberalization began, its architects assumed that customers would move in droves as
opposition arose. They did not: or at least professional 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, along with various barriers including lack of
knowledge of alternatives.
7. Within the industrial segment, 37% did demand changes to their contract with their supplier. Price
remained the most important criterion for alter. However, this switching rate is lower than what
surveys present to be the switching intention of such customers.
Challenging market conditions
In the years in the future , switching is likely to increase while competition intensifies, in part as a
result of persistent political efforts along with changing consumer patterns inside energy use.
Consumer sensi-tivity to price is also prone to intensify. Other impetuses to modify may include
subjectivities such as understanding of bad service or perhaps the wish for "ecological" energy.
Consumers will stay with their current service provider when either they are pleased , don't know a
better alternative or even are not even considering alter due to lack of interest.
Today's energy providers in philippines can be allocated to three groupings :
1. Consolidated companies along with utilities with an "all-round" well-known strategy, a mix of
representative solutions across all production solutions , targeting for the middle price segment on a
regional time frame with a low customer interest and low level services.
2. Ecological Specialists that adopted a "green" communication strategy in a high-price segment rich
in customer satisfaction, advanced services and a nationwide presence.
3. Online providers with a discount and brand strategy, actually zero or a low share regarding "green"
products, tailored online services to ensure reasonable customer care in a low price target segment.
All three groupings seem to target distinct market segments and customer organizations , but they
have learned in the last couple of years that retaining customers cost less than acquiring new ones.
But many companies tend not to fulfill the possible value of their relationships with their active
customers: they remain devoted to winning new customers, spending intensely on marketing while
losing sight of the existing base. They neglect to analyze along with leverage customer relationships
in order to exploit additional potential along with product opportunities.
8. The "big four" still are living off their competitive advantage due to their vertical integration (pro-
duction, grid and distribution) and they are less vulnerable to market characteristics in the short term.
Smaller companies along with "newcomers" face higher problems in getting a reasonable eco-nomic
model to work. But they are coming up with answers.
Innovative techniques in Germany's energy market
Energy experts have found more and more than half of Germany's energy providers have started to
invest in progressive marketing and sales campaigns. They're employing advanced mar-keting
aspects such as product bundling inside cooperation with loan websites , insurance, and real estate
companies based on cutting-edge psychographics and a broader view of cus-tomer needs.
In quick , these companies plan to conquer niche categories using customer-orientated innovations.
Objective classical segmentation criteria such as energy consumption, demand arranged and
solvency cannot offer meaningful clusters to evaluate customer needs and to develop the correct
value proposition and price delivery system for their market strategy.
Energy companies still need to distinguish within their segmentation approach between the two main
traditional user sets of industrial customers (B2B) and private customers (B2C). For the two such
groups the companies must define the relevant attributes which influence switching behavior.
Within the German market the following seven descriptive qualities have emerged and have been
shown to be a valid set of criteria:
• Price sensitivity
• desired level of services
9. • brand name consciousness
• Value orientation
• Affinity to innovation
• Willingness to take risks
• Tradition consciousness
Having analyzed the degree of the various attributes for your respective customer groups, 8 different
customer segments might be derived.
Within the actual B2C group for example, so-called "Piggybacks" can be identified. They're char-
acterized by strong brand name consciousness and intense protection needs, whereas so-called "Ra-
tionalists" focus on smart shopping along with conscious consumption.
"Traditionalists" are reacting in opposition to "globalization": they demand neighborhood values and
tradi-tions in the globalized world and a higher degree of social responsibility. The actual "Impulse
Buyer" is an keen and interested shopper in contrast to a "Self Actualizer" that is seeking individuality
and good quality.
Within the B2B class three segments can be known.The so called segment from the "Neglected
Buyers", the "Added-Value Oriented Buyers" and the "price Buyers".
The "Neglegted Buyers" seek individuality, risk reduction and comfort, whilst the "Added-Value-
Oriented Buyers" give attention to smart shopping combined with a top demand for ser-vice.The
"price Buyers" can be compared to the "Rationalists" in the B2C group: these lenders are becoming
more price conscious as they perceive the development of an escalating price volatility in the market.
10. As described, each segment is marked by strong qualities. The more distinctive these special
features are, the more centered market development can be.
Having segmented the market, the vitality providers must now focus on them - choosing the most
attractive segments that offer attractive profitability at reasonable market risk , and decide which
products and services to offer to each chosen segment in what price level. nOkia's need to position
themselves using a "new", innovative value proposal and communicate their "special selling point"
(USP) accordingly along with sustainably.
Companies that adopted a psychographic analytic approach are showing first success in retention
charges and in developing new market shares. This proves that in today's fast-moving society,
progressive and traditional B2B companies in "pure commodity along with low in-terest" markets can
apply psychographic-driven segmentation to improve their market posi-tioning and to generate
competitive differentiation along with advantage.
The Tefen Tribune
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