Apr
14
2014

Consumer Segmentation: New Data Means New Insight

Data is growing – everyone knows that. Big Data has been a buzz term for years, and whilst many in marketing talk about how much new data is being created, and how the variety of types of data is expanding, more still are wondering, “What do we do with it?”

For marketers in particular, this data is golden for consumer segmentation. Segmentation is a method used to categorise customers into groups that have similar traits. Segments can be based on almost anything – age, gender, email behaviour or spending habits.

Using segmentation allows for a greater level of targeting and consequently more relevant marketing for customers, improving the customers experience with a brand or company.

The What: Selecting Data Sources
The more data a segmentation tool has, the more accurate and detailed it can be. We’re talking over 800 million data input sources, and over 600 variables in order to fully understand UK consumer characteristics and lifestyles. Large volumes of actual data alongside tried and tested models means that information for each consumer can deliver a robust and stable segmentation that generates superior understanding and insight on consumer demographics. The typical data used for this includes key person level variables such as age and financial status; key family variables such as household composition, home ownership and presence of children; property information such as type, value, number of storeys and size of the home people are living in.

This data can be gathered from sources such as the Census, third party data input from specialist companies such as RightMove, open source data, public sector data, the land registry, and tenure data on home ownership and rental properties to name but a few.

Quantitative data alone is not enough however; we aren’t all walking talking ones and zeros after all. What brings this data to life and allows brands to make meaningful connections with people is the qualitative, interpretive data. This needs to be included in order to paint a detailed picture of who target audiences and customers really are.

Creating a robust and stable solution is vitally important, but building an understanding of consumers that sit within each segment is also critical if the data is going to be used to best effect. Segmentation tools should contain a broad and in depth range of interpretative data to help organisations know more about their target audiences and customers. This data can include:

  • Digital Insights based on online activity data helping organisations understand how their target audiences behave online
  • Partnerships with global market research brands giving rich insights into how people live their lives and spend their money

The How: Technology
With such enormous volumes of data, and so many different varieties, any segmentation tool needs to be a very sophisticated tool in order to be able to deal with the data properly. Therefore, new techniques to fully exploit the depth of consumer data available are continuously being explored. Optimising the balance between geo-demographics and individual data delivering a stable and robust segmentation is essential for a detailed and accurate segmentation.  It’s important to fully exploit the valuable information that can be gained from understanding a consumer’s neighbourhood, but combining this with accurate, specific characteristics make the classification tool relevant and reliable.

Clustering is one of the key techniques used. Clustering is a statistical technique that allows finding the natural groupings of data points while looking at multiple dimensions in a set of data. In the case of consumer segmentation, this means looking to find the key socio-economic groups within the UK in terms of their demographics, purchasing power and general attitude and behaviour, define them mathematically and assign every household to one of these groups.

There are many different algorithms that can be used to do this, but K-Means is a great option. It is relatively simple but flexible and runs quickly on the large volumes of data that are typically used. Layering this with a different hierarchical clustering technique called Ward’s Method enables meaningful groups to be created from the types.

The why: Keeping pace with consumers
Accurate marketing is incredibly important. Customers are increasingly expecting, even demanding, that businesses put them at the heart of their marketing and sales structure – rather than the product. In order to do this successfully a well informed, targeted approach is essential. Experian surveyed 2,000 UK consumers and found that 84% of consumers would take their custom elsewhere if an organisation doesn’t get ‘the basics’ right.

Three quarters of consumers (74 per cent) said they would respond positively to a brand that they believe “understood them” and that connected with them on an individual basis. Twenty nine per cent of respondents agreed that they would make additional purchases from a brand that communicated with them on a highly personalised level.

Being able to accurately segment your customers enables organisations to communicate in a personalised, relevant way, delivering the right product or message to the right person. Customers are voting with their feet and it has never been more important to understand your audience.

Aside from ensuring that you are delivering the right service, a thorough segmentation tool could also highlight shifts in behaviour for a population that could have an enormous effect on marketing, and in some cases, business decisions. For example, the latest Census from 2011 has revealed a shift in property trends, with a huge increase in the number of people renting properties, with distinct sub-types.

This could indicate that the UK population is moving towards a more transient pattern of habitation, which could impact marketing enormously in terms of efficient targeting.

What’s clear is that data is essential for modern businesses that want to understand their audiences and ensure that they remain useful for a customer base that demands the highest levels of service, with a distinctly personal relevance. The population has undergone enormous changes over the past few years, with living patterns and consumer habits changing drastically – ignorance to these changes will become obvious in your communications and turn customers off your brand.

Experian’s new Mosaic consumer segmentation is here! Find out more about how Mosaic can help your organisation on our dedicated microsite.

 

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