Nonprofit organizations can and should adopt best practices borrowed from the for-profit sector when doing so will help them run a more efficient and productive organization. In fact, nonprofits should take seriously any business or operational practices that can reduce costs and further stretch the operating budget. One such practice is market segmentation.
Market segmentation is the discipline of dividing one’s potential target audience or market into segments, or groups, in order to design marketing 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, as targeted campaigns reach the segments most likely to convert. will generate, on average, a much higher conversion rate for every dollar spent.
Managers of businesses and nonprofit 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 do 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, scope and location. It’s important to start your segmentation efforts by realistically measuring your business area. You can indicate your business area in a variety of ways, including using major city or metropolitan area names, zip code listings, 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. This is usually best done at the household level. Start by calculating the total number of households, then subtract the total count of any households that meet the obvious disqualification criteria. For example, if your organization manufactures eco-friendly 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 it’s time to build a model of all your current or recent stakeholders (ie 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. Divide your stakeholders into segments 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 an average age of 45-50 and who have a median household income of $50,000 to $75,000. Maybe call this Segment A. Another segment might have an average age of 45-50 years old with an average income of $75,000 to $90,000. Suppose you call this segment B, etc. (Note 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 that of all households within the business area. For example, if 15% of your stakeholders are in segment A, but only 5% of the general population in your business area is in this segment, you can say that segment A has a rating of 300 (15% / 5 % x 100 = 300). Another way of saying this is that households belonging to Segment A 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. Tagline a campaign to target your best segments:
Isolate those segments that have high index scores relative to households in your business area. These are your best segments. Chances are there are thousands or millions of potential prospects who are in your best segments but who you are not currently doing business with. You must locate these homes and reach them with targeted marketing. You can purchase targeted mailing lists or online, newspaper, or television campaigns 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 segments. Tailor the positioning statements, benefit statements, visual images, 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 investment by helping you focus your marketing dollars on those households that are 3-5 times or more likely to respond to your campaigns.