When it comes to beverages, owning a specific drinking occasion is critical. And a detailed customer segmentation strategy will accelerate innovation and growth. The Gatorade brand was built on the premise of replacing what an athlete’s body needs during and after exercising. Gatorade’s sports marketing has been a cornerstone of the brand. The brand owns that occasion for many consumers, with a dominant 72% share of the US retail sports drink market. Coke’s Powerade is a distant second at 16%. Sports drink category growth is projected at 3 to 5%.
Gatorade has long since expanded into new drinking occasions, new marketing approaches, new product forms and new targets. High demand for a lower-calorie Gatorade was reported to help boost PepsiCo’s North American business by 6%. With COVID-19, Gatorade has been recommended by some as part of a COVID batting lineup that also includes time-honored classics like chicken soup.
Customer Segmentation Strategy for Innovation
With large-market beverages, getting to a more detailed customer segmentation strategy is important to identify success platforms for new product and brand success.
This is a historical case study, so we anticipate that while the fundamentals remain true, the market has evolved over time. Prior work had identified the two most important dimensions in segmenting active consumers as:
- performance
- nutrition
Given the brand’s history, there was much more PepsiCo knowledge around performance and hydration. The area of “nourishment” was identified for further exploration. Specific products like gels presented opportunities (though seemingly too small).
Insight to Action was selected by the PepsiCo innovation team to develop an insightful customer segmentation strategy that included both consumer segments and drinking occasions or “need states.” Both the Gatorade and Propel brands leveraged this customer segmentation fact base to drive new product innovation.
Drinking/Consumption Occasion Customer Segmentation Strategy
A robust and detailed consumption occasion need state understanding was a critical outcome. The team defined need states as “why people use the product or do a task in the moment.” Within the course of a day, week or month, a consumer will have multiple consumption occasions or need states. The definition includes how, when and where the consumer chooses to use the product or do the task. As with all segmentation, there are both emotional and functional drivers for choice in the occasion.
The consumption occasion’s intended use was for the innovation and portfolio strategy.
We also needed to deliver an understanding of how these need states varied by the ongoing consumer segments. The consumer segments are typically used for positioning.
Customer Segmentation Strategy: Intentional Sample to Fish Where the Fish Are
The focus of this work was active consumers between the ages of 13-59. Active consumers were defined as those who play sports, exercise, or engage in an activity that requires physical exertion two days a week or more often. On this basis, and using additional criteria that Gatorade has developed, we found approximately 60% of consumers qualified.
While it’s certainly true that the other 40% of “Inactive” consumers have beverage needs, the reality is that those consumers are not the focus of Gatorade’s innovation efforts. Given the brand’s equity and heritage, the inactive consumers are left for other brands to focus on. Gatorade chose to fish were the fish were.
The intentional sample was carefully defined with micro-quotas by age and ethnicity. Gender balance was 54% male, 46% female. Other balancing variables included population density, regionality and household income.
Diving Deeper Focusing on Relevant Occasions
The next step in the customer segmentation strategy was to focus on a relevant occasion. The overall definition of an occasion for the consumer was one where the consumer:
“Recently consumed a food or beverage in support of your performance, energy, health or wellness goals – excluding foods or beverages consumed purely for enjoyment.”
Within these occasions, approximately:
- 15% were before sports/exercise
- 15% were during sports/exercise
- 40% were after sports/exercise
- 30% were unrelated to sports/exercise
Meal occasions were also intentionally excluded, consumers were asked to think of a non-meal occasion. Again, this was to yield the most actionable insights.
Macro Need States from Customer Segmentation Strategy
From this, six macro need states emerged:
- boost energy
- basic quench (hydration)
- sports/exercise performance improvement
- weight management
- preventative nutrition
- treating the body right
For each we understood the frequency, amount of dollar and unit volume, the defining characteristics, the situation, the activities, the solution or products used, and the consumer segments.
With Gatorade’s historical focus on sports/exercise, it should come as no surprise that the brand had strength in the sports/exercise improvement need state.
For innovation purposes, a deeper level of need states were required beyond the initial six macro need states. We also created and profiled 19 Micro Need states.
Customer Segmentation Strategy Application Exceeded Expectations
The application exceeded expectations, serving multiple purposes.
The innovation team moved forward to use the work in defining five drill sites or SGOAs (Strategic Growth Opportunity Areas) for mid- and long-range innovation. These drill sites were “sweet spot” intersections of consumer segments and need states.
The second application was that one of the sponsoring executives brought it forward for use in broader corporate PepsiCo portfolio strategy, where it was extremely helpful.
Customer segmentation is a core specialty of Insight to Action. For more case studies and resources, visit the customer segmentation resources page or contact us to learn more.
