Debbie Oates, Principal Consultant, Analytics, Experian Marketing Services
Changing landscape – changing segmentation approach?
It’s a harsh fact, but many market segmentation projects are unsuccessful. Despite large budgets, in-depth stakeholder planning, well defined surveys and data collection, robust analytics identifying core typologies and rafts of supporting collateral in the form of cool segment names, pen portraits and visioning sessions - they simply fail to make an impact on the organisation’s strategy.
As with any complex project there are a multitude of factors which can influence success, however in this case, there is one major failure reason that we encounter time and time again – the segments are not identifiable outside of the sample on which they have been built.
In times of old, where many brands had little direct to consumer contact then this segment anonymity could be worked round as the majority of planning was to support product/proposition development and placement above the line. However, the world of marketing has significantly shifted - there is growing emphasis on establishing direct to consumer contact through e-commerce, own websites, email subscriber lists or social media integrated with offline channels such as direct communications and stores. Even those businesses who have traditionally struggled with limited, if any, customer transactional data now have many more opportunities to develop tailored consumer insight and targeting programmes. In this new world, where the consumer - not the brand - is king, expectations of customer personalisation and recognition are high. In such a world, segment anonymity can no longer be brushed under the carpet and ignored, market segments must be actionable and inform cross channel decisions. After the significant investment of identifying key market segments, it’s a safe bet that one of the first questions asked will be how to locate and convert more of them – if the segments don’t map wider than the original attitudinal research then you’ve failed at the first hurdle.
So how do you make your segmentation programmes a success? Here are our three steps to segmentation success.
Start at the finish line and work back... it’s quicker in the long run!Before starting any segmentation project, work out how you want to be able to utilise the output to impact your business objectives.
These are some of the key applications that organisations quote:
Market planning: Understand and size key segments of customers and potential customers whose expectations/ needs / behaviours will vary. Identify key segments of the market that are currently under represented, but offer good potential to assess whether there are other ways to engage with these individuals.
Customer value: Understand the current and potential value of segments so the organisation knows where to focus growth and which segments of the population to devote effort and spend. Increase retention of customers in high value groups.
New customer acquisition: Identify good prospects who can be targeted
effectively through media planning, local marketing, and direct communications.
Creative & proposition targeting: Vary the creative or offers by segment to ensure they resonate with consumer needs. Provide consistent messaging across multiple touch points and personalising messages through database / email marketing to increase take up.
Online targeting and personalisation: The ability to recognise segments online is a growing application. Understand the key targets and their online behaviours to drive higher proportions of good segments to site. Once on site, personalise the experience to provide additional relevance to increase conversion.
These applications cover a wide range of objectives; when planning your
segmentation approach, you need to be clear on your priorities – which are the most important? How will your segmentation scheme be deployed and actioned to enable you to meet these objectives and how will you track its success?
Accept that no one segmentation approach is perfect for each scenarioThere are many ways to segment your market and customer base; an optimal segmentation strategy is one founded on a group of segmentation / models each one designed to address a particular business need, yet all being cross referenced and used in combination.
Trade some precision for a segmentation that’s actionableExperian has had much success by adopting a hybrid approach to segmentation. This approach is a trade off. On one side we trade some precision in the original segment definition, whilst on the plus side we ensure that every consumer can be easily allocated to the segments.
We talked about this particular need in a previous paper, ‘Avoid the Segmentation Trap’; a combination of segments and models is required to meet differing business decisions. Relying on one model or segmentation tool is doomed to failure as it strives to be all things to all men. These invariably end up sitting on the shelf giving segmentation and targeting a bad reputation. To avoid that trap, it is wise to strategically plan your
requirements starting with a high level segmentation to give you a common business framework; from there you can define additional requirements that address more specific objectives.
The most common ways businesses tend to segment are:
Demographics – e.g. age / gender / location: this type of segmentation is
ideal for identifying segments within the population, however really it’s pretty basic and doesn’t tend to discriminate across values, needs, or product.
Behaviour – where there is a transactional database then you’ll have granular information on your current customer behaviours on which you can segment. However, this data in isolation gives a very one-sided view of potential as there is no outside value or attitudinal view. In addition, although it’s easy to allocate those customers who you have sufficient
behavioural data for, how do you assign prospects or new customers to a segment?
Needs / Attitudinal – likely to be based on low volume samples of bespoke survey respondents giving in-depth insights across a wide range of attitudinal dimensions. This type of approach has been the main stay of most market segmentations, as an afterthought a few demographic questions are thrown at the end of the survey. However, in reality, with needs driven segments it is unlikely that the demographic profiles alone will prove massively discriminatory meaning there is no way of allocating this back directly to either prospects or customers without asking them the same 100+ questions.
This is achieved by taking a combined view of key metrics across relevant
sources of data from bespoke surveys, customer behaviours, and potentially market panel research to understand metrics within appropriate geodemographic segmentation types. For example one such segmentation is Mosaic which classifies the UK into 67 types based on a wide range of dimensions including demographics, socio-economic, property and location; this can be applied at person, household, or postcode level. Brand specific market segments can then be developed by
applying appropriate weightings to key metrics and clustering to arrive at
a segmentation which differentiates across brand specific needs / attitudes and actual behaviours. All of this is underpinned by geodemographic segmentation(s). Your cool segment names, pen portraits, and rafts of supporting data are now actionable as they can now be pinned to individuals with minimal information and effort.
This approach has multiple benefits that ensure that the segmentation will be an integral part of your business planning:
Consistent Framework: Allows you to recognise your key customer / market groups on and offline. As you test new approaches you can easily link back results against the segments to refine your strategies ensuring your segmentation grows over time rather than becoming an outdated piece of research.
Planning & Development: Links into industry research panels, e.g. TGI and also onto online panels, e.g. Hitwise, so you can track changes and key trends within your key segments without the need for ongoing bespoke research, again allowing the segmentation to develop longer term.
Target Definition: Having identified how your segments differ, you can easily find more who look just like them or personalise communications with the customers you already have across channels.
Test and learn – via email communications, display advertising, your website, offline communications, and at a spatial level to inform events or location planning – can be adopted to ensure you are maximising conversions through relevant messaging.
Measurement & Impact: As the segments are easily assigned across the board it is easy to establish if revised marketing strategies have been successful at bringing on board or retaining the right segments and the impact on the bottom line. This will be key to the adoption of your segmentation framework across the wider business.
If we haven’t managed to convince you about our approach and you’re still sure that you require a needs based segmentation, then there’s still one piece of advice that we have for you. Think about how you will identify your segments at the project planning stage, rather than post development. This includes how you can link marketing data back to your survey – as a bare minimum collect postcodes. This way you can assess whether you can infer segment membership at an individual level with any degree of accuracy. At least then, you will have an answer when someone in your organisation asks how we target ‘New Wave Adopters’ with our new product launch.
If your organisation is pondering a new segmentation scheme, or even how you drive value from your existing one, then pose the question how do you want to action the findings? In a world of increasing consumer to brand relationships, a successful segmentation can no longer just segment; it needs to provide the organisation with a common language
that is actionable and impactful across channels.
About the author:
Principal Consultant – Analytics
Debbie has over 20 years experience in leveraging data and insight to drive effective marketing strategies across both client and agency based roles. Debbie specialises in managing and implementing customer insight, targeting, and planning led projects to deliver increased effectiveness of clients’ acquisition and customer management programmes. Recent posts have been consultancy based, building on client side experience as Customer Insight Manager for Britannia Building Society and Senior
Analyst at Great Universal Stores.