McKinsey Calls for a New Approach to Market Segmentation in Energy Efficiency
When McKinsey talks energy efficiency, we tend to listen. The world's most influential management consulting company recently published an article called "Giving U.S. Energy Efficiency a Jolt," wherein authors David Frankel and Humayun Tai argue that energy efficiency goals would be well-served by employing market segmentation strategies like those used in other consumer-facing industries.
The article is aimed primarily at utilities and programs, but we believe that there are some important takeaways for independent home energy contractors as well.
Frankel and Tai divide energy efficiency consumers into the following segments:
Green Advocates: Those "who care about energy-saving behavior as a goal in its own right" fall into this category. They're motivated by environmental factors, and represent about 20% of the total population.
Disengaged Energy Wasters: Another 20% is accounted for by "a group that doesn’t care about saving energy or saving money." They're not interested in the environment, and they're not interested in saving money.
Traditionalist cost-focused energy savers: motivated entirely by cost savings.
Home-Focused selective energy savers: motivated primarily by home improvement, which may involve a cost-savings or technological element.
Nongreen selective energy savers: members of this segment are happy to improve their homes' energy efficiency, as long as they don't have to think about it. "Set it and forget it" options are good for this segment.
(Note: the latter three are said to represent 60% but the report doesn't specify a breakdown.)
Integrated Demographic Segmentation:
The McKinsey article argues for an integrated approach to market segmentation that combines traditional demographic market segmentation -- age, income, gender, geography, etc. -- with segmentation based on these more emotional triggers. You have to consider both, or you may waste money trying to market your services to the "disengaged energy wasters," who aren't going to sign up for an audit no matter what you tell them. Similarly, addressing the "traditionalist cost-focused energy savers" with language about environmental benefits, sustainability, "greening their home," etc., is unlikely to be successful. Your message should be tailored to each audience.
This corresponds very well with traditional marketing wisdom, but our experience is that companies in home performance have a difficult time with segmentation, in part because it requires you to decide who you are NOT marketing to, and many are loathe to make such a choice.
Good News! Separating out the "disengaged energy wasters," we're still left with 80% of homeowners that may be interested in energy efficiency improvements in some regard, whether for technological, environmental, or financial reasons. That's a good-sized segment of the population!
Green is Still Big. Despite the oft heard advice not to market home performance on green values or climate change, McKinsey's research tells us that this segment is big. 20% of the population could drive our industry for years to come.
Marketing Tactics that Are Easily Segmented Win. Of course, it's one thing to make marketing choices based on segmentation, and another to actually execute a program that tailors specific messages to specific audiences. The more cutting edge advertising and marketing tactics that make this targeting easy are the ones that will work the best.
Segmented Marketing Costs Less. The reason that some types of advertising are so expensive is that they reach many more people than you're actually trying to hit. This is why radio, TV and print are not often on our recommended list. Think about the power of Facebook advertising, for example, where you can limit a particular ad to a unique zip code, 25-50 year olds with kids, voted green or democratic, give money to environmental causes and are interested in home improvement.
In future posts, we'll look at how specific marketing tactics can target these specific segments.
All thoughts welcome, feel free to chime in in the comments.