Segmenting retail stores: a guide for FMCG brands

How can brands derive maximum value from their distribution network? Part of the answer lies in point-of-sale segmentation, a strategy that consists of defining groups of customers to adjust your marketing and sales efforts to the potential of each.

Simple in theory, but more complex to implement, especially since every company uses its own sales performance metrics.

In this article, we will go through the fundamentals of segmentation, then see how its principle applies to the world of brands present in retail.

Marketing and Sales Segmentation: Definitions

In marketing, segmentation is the process of dividing a target market into distinct homogeneous subgroups, called segments, based on certain criteria. The objective of segmentation is to better understand the needs, behaviors, and preferences of different customer segments in order to adapt marketing strategies in a more effective and targeted manner.

Segmentation criteria can vary depending on the product or service, the sector of activity, and the company's objectives: demographics, geography, buying behavior, psychographics (values, lifestyles), or even needs.

Once segmentation is complete, companies can develop differentiated marketing strategies for each segment, adapting their message, distribution channels, and promotions to meet the expectations of each group more precisely. This approach optimizes the effectiveness of marketing efforts by offering more personalized and relevant solutions for each customer segment.

More specific, sales segmentation refers to the division of a target clientele based, for example, on purchase volume, purchase frequency, profitability, or even growth potential.

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Point-of-Sale Segmentation in Retail

The principle of segmentation naturally applies to retail chains that develop their territorial coverage by studying the potential of each geographic sector. These are the famous catchment areas.

Thus, the heterogeneous quality of points of sale (purchasing power, population density, age of customers, etc.) pushes brands and networks to opt for targeted rather than unified marketing strategies. For example, the assortment of retail chains varies according to the type of store, and you cannot have as many products listed in the assortment of a local store as in that of a hypermarket.

‍Your brand is then, in turn, faced with the need to segment its network of points of sale to reveal strategic segments and organize its sales force effectively. 

Furthermore, since sales prospecting and network animation are costly, good cost management involves sizing marketing and sales efforts according to the potential of each point of sale.

Grouping Points of Sale by Typology

In general, the first step consists of qualifying targets according to "market" and not commercial criteria. The most widespread criteria for understanding an account are the following: 

• Retail chain;

• Integrated / independent;

• Type of store (local, hyper, etc.) and therefore type of assortment;

• Point of sale turnover; 

• Geographic sector;

• Etc.

These marketing criteria are fundamental, but not sufficient, to the extent that they do not allow the implementation of your brand's commercial strategy.

Point-of-Sale Segmentation and Commercial Strategy

Regardless of the "absolute" characteristics mentioned above, you can therefore organize your segmentation according to criteria and objectives specific to your sales strategy.‍

Example 1: Segmentation Based on Numeric Distribution

Let's take a concrete example. 

You are the sales director of a brand of Breton biscuits. Your products are distributed in 100 stores in the region, and each retailer has agreed to put 4 product references on shelves. This is the minimum mandatory assortment.

At the end of the monthly steering meeting, general management is surprised that turnover is below projections. Have the retailers played along in terms of product listing?

To make sure, you are asked for a report on the numeric distribution rate per store, meaning the number of references on shelf compared to the number planned in the distribution agreement.

‍You then decide to create segments based on the checks carried out by sector managers over the past month.

‍The numbers are as follows:

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The reporting clearly shows a significant disparity between stores, and confirms an issue with compliance to assortments by certain points of sale.

Based on the observed results, you propose an action plan with strategies adapted to each segment.

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Of course, efficient segmentation relies on proven and up-to-date data. In the example above, it is assumed that sector managers carried out their shelf audits across the entire network, using a CRM application designed for retail.

As a reminder, we advise you to visit your storefront (see definition below) every 2 to 2.5 months, with the following priority: 

1. Your most important stores (gold) every month; 

2. Your silver stores, every month and a half; 

3. Your bronze stores every two months. 

So we have just seen that it is entirely possible to create segments based on commercial criteria, and these are as numerous as there are objectives in indirect sales: merchandising, shelf layout, market share, etc.

Let's remember that segments may change over time, as we will see in the following example.

Example 2: Segmentation Based on Brand Adoption Level

You have just signed a new agreement with E.Leclerc stores in the Rhône-Alpes region. Since your brand of Breton biscuits is mostly established in western France, you assume that opening up this geographic area will be more challenging on a marketing level, as the region's inhabitants have never heard of your brand. 

In this particular case, the new segment refers... to the sector! But then, why make it a segment? Because customers who do not know your brand will probably need to be "stimulated" a bit. Indeed, if your Nantes customers intuitively recognize your logo which they regularly see on Télénantes, on FC Nantes buses, or while browsing Facebook, Lyonnais, on the other hand, are completely unfamiliar with it. Your marketing director will confirm it: communicating is repeating. In other words, you must ensure that consumers are exposed to your brand frequently to encourage its adoption.

Activation can therefore be done via in-store events in the most strategic points of sale. It is even possible that you choose to create a sub-segment with the 5 most profitable stores in terms of turnover!

‍Storefront and the 80/20 Rule

As we saw above, the main objective of segmentation is to maximize the value generated on the distribution network. To achieve this, many brands organize their field sales force according to the following rule: 

• 20% of points of sale generate 80% of the value; 

• 80% of points of sale generate 20% of the value.

It's not an exact science - so the percentages may vary - but you get the principle. 

With this in mind, most sales departments identify a priority segment, generally called the storefront, which includes the most strategic stores for the brand. Their importance is linked to their turnover, or to the development challenges they represent. 

Here are some typical examples: 

• Launching a product innovation in your best-performing stores; 

• Selling a special promotional operation to your priority stores;

• Monitoring the opening of a new retail chain with test stores, whose positive results will lead to an extension of distribution to the rest of the network.

‍Conversely, points of sale deemed less strategic can be grouped into secondary segments, and visits to these stores will be spaced further apart in time.‍

Scoring Customers to Define Appropriate Sales Actions

As a result, the principle of segmentation is often accompanied by a scoring strategy, which allows a score to be assigned to each account (= point of sale), reflecting its level of importance or priority in the company's strategy.

Scoring can be established based on many criteria, such as the distribution rate, order frequency, sell-out trends, or history of relations with your company. On significant volumes of data, it is often beneficial to use data mining to identify relationships between data attached to each account and associated performance levels. The patterns detected by this engineering layer thus make it possible to reorient the sales strategy based on real data and not on personal beliefs. And once again, your SFA CRM will be your ally in your analyses. 

Objectives of Distribution Network Segmentation

Each company is thus led to list - and sort by order of importance - the objectives it intends to achieve, with segmentation fully contributing to each of them.

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Impact of Segments on the Sales Organization

The above criteria do not constitute an organizational strategy in themselves, but they can be its foundation. Depending on your development strategy, you could choose different operating methods, such as: 

• Assigning key accounts to a senior sales representative; 

• Assigning active customers to a single sector manager, and concentrating the rest of the sales force on prospecting for new accounts; 

• Entrusting the improvement of numeric distribution to your internal sales reps, and the expansion of the network to an outsourced sales force (or vice versa!);

• Etc.

It is therefore necessary to distinguish between global strategy, which describes the means of achieving marketing and sales objectives, and the organization of marketing and sales functions allowing the implementation of strategic plans.

By taking into account the different elements covered in this guide designed for brands, you should be able to segment your points of sale and thus optimize the value of your distribution network.