Market segmentation is fundamental to brand-business building. When creatively and intelligently managed, market segmentation can provide insight into:
- Superior understanding of the customer so the brand-business can provide outstanding competitive advantage;
- Strategic focus that is essential for effective marketing;
- Identifying market priorities that can drive brand-business strategies.
Dollar General applied market segmentation to generate its two-year-old pOpshelf brand-business.
Without altering its brand promise, Dollar General is leveraging market segmentation to expand its footprint with pOpshelf. Dollar General is not alienating its core customer base but has created pOpshelf for a new customer base. And, to prove the relevant differentiation of Dollar General and pOpshelf, in some Dollar General stores there are mini pOpshelf stores inside.
After the pandemic, Dollar General noticed a new market segment. But, this new market segment seemed to have different needs than Dollar Generals’ core shoppers. Dollar General understood this customer as an affluent bargain shopper who is inflation weary. The affluent bargain shopper is a suburban shopper with a couple of children and an income between $50,000 and $125,000.
The affluent bargain shopper is more interested in general merchandise than food. This shopper wants buy basics at a good price (such cleaning products or toothpaste) but also wants to buy fun items as well. A pOpshelf store has that “treasure hunt” vibe that makes shopping interesting. (The treasure hunt experience should never be underestimated: it is also part of what makes TJ Maxx so popular.) Shopping at a pOpshelf store allows affluent bargain shoppers to treat themselves without a sense of guilt, according to Dollar General’s Chief Merchandising Officer. She added, “pOpshelf continues to positively resonate with customers through our fun shopping experience, on-trend merchandise and relevant price points.”
In a Goldman Sachs Retail conference in September 2022, Dollar General described pOpshelf’s shopper as follows, “… it’s a different customer. We’ve gone to school on that customer and made some changes accordingly, but it’s the same basic need of value and convenience for an underserved customer that other retailers can’t get to. So that makes us extremely excited. We serve a different customer and it’s a different occasion.”
Dollar General executives described pOpshelf this way, in its 3rd quarter 2022 Earnings Report, “pOpshelf aims to engage customers by offering a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise, a differentiated in-store experience and exceptional value with the vast majority of our items priced at $5 or less.”
According to CNBC, at a pOpshelf store, many of the items are ones that are available at higher-end markets such as Mrs. Meyers soaps and Amy’s frozen foods. The pOpshelf shelves are filled with a mix of holiday-themed party platters, home goods, crafts, toys, party supplies and seasonal décor with most items priced at $5 or less.
One industry observer wrote that while most of pOpshelf’s shelves are filled with “… decorative accessories and consumables, its home textiles assortment includes towels, kitchen textiles, decorative pillows and throws”. pOpshelf avoids utility items such as sheets. This allows pOpshelf to “make it all about fashion.” All these items are own brand.
According to Dollar General, pOpshelf differs from a Dollar General in that a Dollar General is mainly anchored in small towns or rural areas. Dollar General customers tend to have household incomes of $40,000 or less. And around 20% of items are offered at $1 or less. Executives at Dollar General tell us that they constantly speak to their core customers. These core customers need the $1 price point to survive from paycheck to paycheck.
Because pOpshelf focuses on general merchandise over food and has a $5 or less price range, pOpshelf is not just a retail establishment for a different segment; it is a retail establishment that has higher sales and higher profits.
The purpose of market segmentation is identifying and understanding a brand’s customers. A brand-business may have different customers with different needs. Or, the same customers who have different needs due to different situations or contexts.
At its core, market segmentation is the idea that what people want is a function of who they are, why they need the product or service and how, when and where (context) they use the product or service. So, a market is particular people with a particular need in a particular context. The goal is to profitably satisfy customer needs.
Satisfying customer desires and understanding occasions in which these occur is the key differentiator between marketing and selling. Selling is convincing people to buy what we know how to make. Marketing is providing what we know customers want or what solves their problems. This is how brand-businesses leverage competitive advantage for success. This what Dollar General is doing. And, market segmentation is at the core of its growth.