News Article
May 5, 2012

Efficiency Marketing 101: Segments Versus Sectors

By Clay Nesler

We all remember individual speakers or presentations that stick in our minds for months or years after a conference.  These are the rare moments when new information or insight is provided in a particularly effective or persuasive manner.  One of those presentations for me was Richard Kauffman’s kick-off presentation at the 23rd annual Energy Efficiency Forum last June.  Richard Kauffman, then senior advisor to the U. S. Secretary of Energy and now Chair of Energy and Finance for New York State, talked about what motivates customers to buy energy efficiency.  He said “ I’m concerned that those of us in the energy efficiency business haven’t thought enough about groups of people…that share the same kind of buying motivation, what marketers call market or customer segmentation.”  Kauffman went on to describe the difference between market segments, which describe different buying behaviors, and market sectors, which describe customer categories like commercial office, owner-occupied or the municipal, university, schools and healthcare (or “MUSH”) markets.


Kauffman went on to describe hypothetical market segments that included “make it easy” customers that don’t want technical assistance -- they want someone to present a turn-key solution for them. He suggested another customer segment could be “do-it-yourselfers,” who want transparency over simplicity and are looking for the information to be able to design and contract out their own solutions. Kauffman suggested other potential segments, including “conservatives,” who are risk adverse and a “comfort” segment that doesn’t care about efficiency at all, they want to be more comfortable. He suggested that there are many potential segments and if we understand buyer motivations and develop specific technical/financial solutions for specific segments, we can be more successful in scaling the efficiency industry.

Kauffman’s presentation was a perfect kick-off to the forum, the theme of which was Energy Efficiency in a Different Light. While he stated there might be as many as a dozen different market segments, I was curious to see if we could identify at least four distinct market segments using data from the 2012 Energy Efficiency Indicator survey. Wanting to keep complexity to a minimum, we limited the analysis to the North American sample of 993 energy, facility and real estate executives. Using Kauffman’s hypothesis about “make it easy” and “do-it-yourselfer” segments, we identified specific survey questions that indicated an organization’s desire to contract with third parties for energy efficiency services, financing and expertise, or “sourcers” for short. Conversely, negative answers to these questions indicated organizations that preferred to rely on their own expertise, funding and delivery of energy efficiency services, or “self performers” for short.

We also hypothesized that there were organizations that took a structured, proactive approach to energy efficiency investments. We identified a minimal, but statistically significant set of survey questions that involved creating action plans, tracking energy use, performing energy audits and verifying energy savings and used these questions to define a  “strategic” segment of organizations.  Conversely, we used the absence of these practices to define a more opportunistic or “situational” segment of organizations.


These questions yield a classic two-by-two segmentation that results in four distinct, statistically differentiated segments – Situational Self-Performers, Strategic Self-Performers, Situational Sourcers and Strategic Sourcers. 

Figure 1: Survey participants in each segmentFigure 2: Participants expecting to increase energy investments

Over half of the population are members of the situational self-performer segment. The rarest segment is the strategic sourcers which lines up pretty well with our experience.  Figure 1 shows the percentage of survey participants in each market segment.  While it is interesting that there are four distinct segments, the value of segmentation comes from its ability to predict buying behavior. Figure 2 shows the percent of each segment that expects to increase investments in the next year in energy efficiency and renewable energy.

Figure 3: Average maximum payback allowedFigure 4: Number of improvement measures performed

Figure 3 shows the average maximum payback each segment allows for energy efficiency investments.  In general, the sourcer segment plans greater increases in investment next year and the strategic segment allows longer paybacks


Another interesting characteristic is the number of improvement measures, out of a list of 52, that each segment implemented in the last year. Figure 4 shows a dramatic 250% increase in measures implemented between strategic sourcers and situational self-performers and about a 60% increase over both strategic self-performers and situational sourcers. Clearly, this simple market segmentation can yield important information about buying behavior and investment potential. 

Figure 5: Public sector distribution

As a final test of Kauffman’s hypothesis that market sectors, or classifications, are not segments, we applied the segmentation model to 228 public sector organizations in the survey. Figure 5 shows a similar distribution of survey participants as the general population. These segments in the public sector also show similar buying behavior trends regarding investment plans, payback requirements and improvements implemented, confirming that the MUSH market is better described as a sector, and not a segment. While Richard Kauffman’s background is in finance, it seems he could also have been a successful marketer.  Find out who will make a big impression at this year’s Energy Efficiency Forum by attending in person on June 13th at the National Press Club in Washington, DC. Be sure to request an invitation soon.


May 2012


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