Market Segmentation for Non-Profits in 7 Steps

Non-profits can and should adopt best practices borrowed from the for-profit sector when doing so can help them run a more efficient, more productive organization. In fact, any business or operating practice that can reduce costs and stretch the operating budget further should be taken seriously by non-profits. One such practice is that of market segmentation.

Market segmentation is the discipline of dividing one’s potential target audience or market into segments – or groups – for the purposes of devising marketing outreach efforts that hyper-target each segment.

The result of a well-designed and executed market segmentation effort can lead to much greater return on investment (ROI) for the organization’s marketing dollars, since campaigns targeted to reach the most-likely-to-convert segments will elicit, on average, a much higher conversion rate for each dollar spent.

Managers of non-profit enterprises and organizations may wonder whether their market segmentation efforts should differ in any way from the segmentation efforts of for-profit enterprises. Here is how to conduct market segmentation for non-profits in 7 steps:

1. Identify your trade area:

Depending upon whether your organization is local, regional, national, or global in focus, your trade area will vary in size, span and location. It is important to start your segmentation efforts by gauging your trade area realistically. You can denote your trade area in a number of ways, including using city or major metro area names, lists of zip codes, states/provinces, or even custom-drawn polygon shapes around each of your brick-and-mortar locations.

2. Determine if there are any disqualifiers for your target market:

Next, it is time to calculate the total market size within your trade area. This is usually best done at the household level. Start by calculating the total number of households, then subtracting out the total count of any households that meet any obvious disqualifying criteria. For example, if your organization makes environmentally-friendly home insulation kits made for older homes, you may want to subtract from your target market size all homes that were built within the past 10 years.

3. Find out what descriptive information you can about your existing stakeholders/customers and separate it into categories:

Now it is time to build of model of all of your current or recent stakeholders (i.e., customers). The best way to do this is to append relevant data to each one. You can leverage any number of methods to do this, including appending demographic information (like marital status or income) or by leveraging pre-existing market segmentation systems that take into account psychographic and other factors.

4. Divide your stakeholders into segments based upon these categories:

At this point, it is important for you to put your stakeholders into segments based upon different combinations of the categories you created in step 3. For example, one segment might include all households with a median household age of 45 to 50 and who have a median household income of $50,000 to $75,000. Perhaps you will call this one Segment A. Another segment might be median age of 45 to 50 with a median income of $75,000 to $90,000. Suppose you call this one Segment B, etc. (Note that if you had decided to leverage a pre-existing segmentation system, your stakeholders will already be conveniently divided into segments.)

5. Determine which segments index highest relative to that of the general population in your trade area:

Now, compare the percentage of households in each of your stakeholder segments with those of all households within the trade area. For example, if 15% of your stakeholders fall into Segment A but just 5% of the general population in your trade area fall into this segment, you can say that Segment A indexes at 300 (15% / 5% x 100 = 300). Another way to say this is that households belonging to Segment A are three times more likely to become your customer than is any household chosen at random from within your trade area. This is valuable information to have! Now it is time to apply what you have learned to your marketing and advertising campaigns.

6. Devise a campaign to target your best segments:

Isolate those segments that have high index scores relative to the households in your trade area. These are your best segments. Chances are that there are thousands or millions of prospective stakeholders belonging to your best segments but with whom you are not currently doing business. You need to locate these households and reach out to them with targeted marketing. You can purchase targeted mailing lists or devise TV, radio, newspaper or online campaigns 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, be sure that the ads and other marketing materials that you create reflect the motivations, interests and habits of your best segments. Tailor the positioning statements, benefits statements, visual imagery, and language that you use in your campaigns to specifically “talk to” the households belonging your best segments.

An intelligently-executed market segmentation effort is sure to bring your non-profit a much higher return on your marketing investment by helping you to focus your marketing dollars on those households that are 3-5 times or more likely to respond to your campaigns.

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