Nonprofit organizations can and should adopt best practices borrowed from the for-profit sector when doing so helps them run a more efficient and productive organization. In fact, nonprofits should take seriously any business or operational practice that could reduce costs and further stretch the operating budget. One of those practices is that of market segmentation.
Market segmentation is the discipline of dividing one’s potential target market or audience into segments, or groups, in order to design outreach efforts that target each segment.
The result of a well-designed and executed market segmentation effort can lead to a much higher return on investment (ROI) for the organization’s marketing dollars, since campaigns targeted to reach the segments most likely to convert will, on average, generate a much higher conversion rate for every dollar spent.
Managers of nonprofit companies and organizations may wonder if their market segmentation efforts should differ in any way from the segmentation efforts of for-profit companies. Here’s how to perform market segmentation for nonprofits in 7 steps:
1. Identify your business area:
Depending on whether your organization has a local, regional, national, or global focus, your business area will vary in size, extent, and location. It’s important to start your segmentation efforts by measuring your business area realistically. You can indicate your business area in a variety of ways, including using the names of major cities or metropolitan areas, listings of zip codes, states/provinces, or even custom drawn polygon shapes around each of your physical locations.
2. Determine if there are any disqualifiers for your target market:
Next, it’s time to calculate the total market size within your trading area. Usually this is best done at the household level. Start by calculating the total number of homes, then subtract the total count from any homes that meet the obvious disqualification criteria. For example, if your organization makes green home insulation kits made for older homes, you may want to subtract all homes that were built in the last 10 years from your target market size.
3. Find out what descriptive information you can about your existing stakeholders/customers and separate it into categories:
Now is the time to build a model of all your current or recent stakeholders (i.e. customers). The best way to do this is to add relevant data to each one. You can take advantage of any number of methods to do this, including adding demographic information (such as marital status or income) or leveraging pre-existing market segmentation systems that take psychographic and other factors into account.
4. Segment your stakeholders based on these categories:
At this point, it’s important that you place your stakeholders into segments based on different combinations of the categories you created in step 3. For example, a segment might include all households with a median age of 45-50 and who have a median household income of $50,000-$75,000. You might call this Segment A. Another segment might have a median age of 45 to 50 with a median income of $75,000 to $90,000. Suppose you call this segment B, etc. (Keep in mind that if you had decided to take advantage of a pre-existing segmentation system, your stakeholders will already be conveniently segmented.)
5. Determine which segments have a higher rate relative to the general population in your business area:
Now, compare the percentage of households in each of your stakeholder segments to those of all households within the business area. For example, if 15% of your stakeholders belong to segment A, but only 5% of the general population in your business area belongs to this segment, you can say that segment A has an index of 300 (15% / 5% x 100 = 300). Another way of saying this is that Segment A households are three times more likely to become your customer than any randomly chosen household within your business area. This is valuable information to have! Now is the time to apply what you have learned to your marketing and advertising campaigns.
6. Put a tagline on a campaign to target your best segments:
Isolate those segments that have high index scores relative to homes in your business area. These are his best segments. Chances are, there are thousands or millions of potential stakeholders who are in your best segments but with whom you are not currently doing business. You need to locate these homes and reach them with targeted marketing. You can buy targeted mailing lists or campaigns online, in newspapers, or on television with slogans that are designed to reach areas with high concentrations of your best segments.
7. Create messaging and branding campaigns that speak the language of your best segments:
Finally, make sure the ads and other marketing materials you create reflect the motivations, interests, and habits of your best target audiences. Tailor the positioning statements, benefit claims, visual imagery, and language you use in your campaigns to specifically “speak” to the households in your best segments.
A smartly executed market segmentation effort is sure to give your nonprofit a much higher return on its marketing spend by helping you focus your marketing dollars on those households that are 3-5 times or more likely to respond to your campaigns.
