Marketers predict that 2016 will be about “overcoming data and technology challenges to connect with real people.” We live in the Age of the Customer, where connecting with consumers in a meaningful way means doing so on their terms, in their language, wherever they are (online, offline, cross-device), in real time. As digital marketers evolve their capabilities toward people-based marketing, segmentation is the first step in identifying and activating addressable, people-based audiences and insights. But can traditional segmentation models really address the needs and behaviors of the modern consumer — increasingly unpredictable, always connected, socially influenced, and decreasingly brand loyal? Is segmentation still relevant in a world of mass-personalization?Over the years, companies have invested in many different segmentation solutions, yet struggled to translate these into an actionable customer strategy. In many cases, it is not so much the process and mechanics of segmentation they didn’t get right, as much as what they decided to do (or not do) with the segmentation outputs. While there is no single “right” answer or approach, it is important to understand the landscape, where companies often go wrong, and why segmentation, when used effectively, can become a strategic asset for driving competitive differentiation and long-term value.
Start with a Vision and Purpose
The necessary first step is to define the purpose of segmentation (strategic, tactical, or both) and design a segmentation approach (through use cases) that supports clearly defined business objectives. Whether you’re a startup, expansion-focused firm looking for new markets, or a well-established brand, a successful segmentation strategy starts with defining the decision processes you are trying to impact and results in an actionable plan for improving customer performance. Below are some considerations to keep in mind when selecting a segmentation approach.
Select the Right Approach for Your Business Objective
Traditional segmentation models often begin with demographic, geographic, or lifestage segments — the most readily available, with “off-the-shelf” solutions from third-party vendors (e.g., Nielsen, Acxiom, etc). These segmentation models are common in financial services and predefine segments based on “static” attributes such as household affluence, age, gender, lifestage, or financial attributes. While demographic segments help identify the market, they don’t really “explain” the market.
To understand why consumers engage or how they perceive your brand, a research-based approach is typically used to supplement the above. Attitudinal or motivational segmentation uses qualitative research methods (surveys, focus groups, interviews) to distill consumer opinion of a product, service, or brand to drive deeper insight into the personal values, motivations, or emotional factors driving a purchase. Where companies often go wrong with attitudinal segmentation is in their failure to make it actionable. The result is a rich set of segment profiles that cannot be operationalized or mapped to a customer universe.
A third approach, behavioral segmentation, can be powerful for individual-level targeting and personalization. Highly data-driven and actionable, this approach focuses on what consumers are doing (usage, response, purchases, social, digital behavior) across the entire customer lifecycle, but does not provide much insight into the rationale behind that behavior.
Depending on their marketing objectives, companies usually need a mix of segmentation approaches in their toolkit. Not everyone is ready for an enterprise segmentation strategy. For those that don’t have the budget, resources, or maturity, here is a fundamental way to think about tackling segmentation. Established brands, less focused on driving brand perception or awareness, should start with a lifecycle or value-based segmentation. These core dimensions provide a solid foundation for a) understanding the health of your customer funnel, b) understanding which customers contribute to long-term value, and c) informing marketing investment decisions. Subsequently, overlaying lifecycle and value with primary research (attitudes, motivations) to inform media buying and other strategic objectives enables a well-rounded segmentation strategy.
Segmentation anchors Customer-Centric Strategy
As the race for consumer attention continues to intensify, segmentation remains a burning topic at the forefront of CMO agendas. Organizations striving to be more customer-centric cannot succeed without an actionable, addressable segmentation capability. Segmentation is a powerful tool for driving cultural change and strategic alignment. More importantly, a successful segmentation strategy is linked to an enterprise customer strategy, closely managed and updated through rigorous analytic execution, and serves as a “unifying language” that transcends functional and organizational boundaries.