Market Segmentation for Nonprofits in 7 Steps

Nonprofits can and should adopt best practices taken from the for-profit sector when doing so can help them run a more efficient and productive organization. In fact, nonprofits should take seriously any business or operating practice that can lower costs and further stretch the operating budget. One of those practices is market segmentation.

Market segmentation is the discipline of dividing one’s potential target market or audience into segments, or groups, in order to design marketing promotion efforts that are focused on 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 money, as campaigns aimed at reaching the segments most likely to convert they will generate, on average, a much higher conversion rate for every dollar spent.

Managers of companies and nonprofits 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, scope, and location. It’s important to start your targeting efforts by measuring your business area realistically. You can indicate your business area in a number of ways, including using the names of major cities or metropolitan areas, lists of postal codes, states / provinces, or even custom-drawn polygon shapes around each of your physical locations.

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

Next, it is time to calculate the total size of the market within your business area. This is generally best done at the household level. Start by calculating the total number of households and then subtract the total count of households that meet any obvious disqualification criteria. For example, if your organization makes 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 break it down 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 taking advantage of pre-existing market segmentation systems that take psychographic and other factors into account.

4. Divide your stakeholders into segments according to these categories:

At this point, it is important that you segment your stakeholders based on the different combinations of the categories you created in step 3. For example, a segment could include all households with an average age of 45 to 50 and that have a median household income of $ 50,000 to $ 75,000. Perhaps you will call this Segment A. Another segment might have a median age of 45 to 50 years with a median income of $ 75,000 to $ 90,000. Suppose you call this segment B, and so on. (Note that if you had decided to take advantage of a pre-existing targeting system, your stakeholders will already be conveniently segmented.)

5. Determine which segments have the highest rate relative to the general population in your area of ​​commerce:

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 stakeholders are in segment A, but only 5% of the general population of your business area is included in 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 households in 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. Slogan of 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 stakeholders who are in your best segments but are not currently doing business with. You need to locate these homes and communicate with them with targeted marketing. You can buy specific mailing lists or television, 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, make sure that the ads and other marketing materials you create reflect the motivations, interests, and habits of your best segments. Tailor the positioning statements, earnings statements, visual images, and language you use in your campaigns to specifically “speak” to households in your best segments.

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