The seven perils of segmentationby
Segmentation has been on the scene for some time - yet it is still easy to fall foul of its challenges. If you want to have successful segmentation, then you will need to avoid the following pitfalls...
There’s nothing new about segmentation – indeed, as a practice it has been utilised by firms for decades. But this familiarity doesn’t necessarily mean that businesses have been getting it right. Indeed, despite its long history, only a limited number of organisations are actually using segmentation to its strategic potential. The reasons for this are numerous. Certainly some confusion surrounds certain aspects of it, and for this reason it’s worth a brief recap.
Segmentation is a tool for dividing markets and customers into groups whose needs differ enough that profitable opportunities can be found and managed. By understanding the value of – and fulfilling the different requirements of – these different segments, customer relationship can be planned and managed more profitably. New businesses can even be founded on the discovery of hidden or emerging segments.
Whilst similar to personalisation, or targeting – and indeed it is sometimes confused with these - it is in fact far more strategic in nature, and is usually applied when working at a planning level, such as deciding what approach to take to market, what offers to make to particular groups and so on.
“The targeting model, where a bank would for instance identify the best prospects for a personal loan, produces good short-term ROI from each marketing campaign, but segmentation is really a strategic tool where there could be greater long-term benefits,” explains Barry Leventhal, director of advanced analytics for Teradata (UK). “Understanding your customer base and what types of people you have and forming a strategy for each segment can be critical to the long-term health of the business.”
“If you do it properly and you actually get the segmentation that describes the market from your businesses’ perspective then you can use the same segmentation in all sorts of nodes,” adds Julian Berry, managing director of Berry Consulting and director of The Customer Partnership. “The brand managers can use it to decide what to offer the different groups; you can look at it from a spend perspective and give the segment that is worth the most money to your business the biggest budget; you can see what channels the particular segments like; and it can inform product development. So it can be fundamental.”
But despite this, Leventhal concedes that the success rate of segmentation projects can be hit and miss. “Many firms are attempting to do segmentation,” he suggests. “But they don’t all get it right. Some struggle.” So where are these firms going wrong?
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Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 20 years, including Internet Works, CXO magazine and Business Management. He joined MyCustomer in 2007.