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How segmentation is improving service in the public sector

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21st Nov 2008
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The public sector hasn't embraced segmentation in the same way as the corporate arena, and it has often been criticised for applying a one-size-fits-all approach to service provision. So how is the sector progressing and what does the future hold for segmentation in the field?

Segmentation

By Neil Davey, editor

Segmentation has proven to be a valuable tool for businesses over the years. Enabling them to target the customers who buy most and deliver most profit, it has become a mainstay of modern corporate strategy. For the public sector, with a very different 'customer' base to traditional businesses, the application of segmentation is perhaps not as immediately obvious. Yet it is a discipline whose benefits are becoming increasingly apparent to the public arena.

Mary Tetlow, of Tetlow Associates, has worked as a senior manager and consultant for the British Counsel, the Office for Public Management and as a principal adviser in the Prime Minister's Office of Public Services Reform, and as such is well aware of the criticisms that have been levelled at public organisations. "In the private sector you are trying to win business and maintain the customers that you have got; in the public sector it is a bit different because for example you don't want more people to want their bins emptied," she explains. "But what you are trying to do is offer a service which is appropriate to people's needs.

Photo of Mary Tetlow"The hardest customers to reach in the public sector – and therefore the most expensive customers to reach – are sometimes the ones with the most urgent need."

Mary Tetlow, Tetlow Associates

"In the public sector there is always a risk of coming up with a way of doing things which might suit some people, but doesn't suit others. And some of the bad press that I think the public sector gets is because this one-size-fits-all solution isn't necessarily appropriate."

Public sector managers have of course always had to wrestle with this problem. And efforts to address it have historically had decidedly mixed results. "In many fields, the government wants to favour certain groups against other groups and one specific example is with school catchment areas," says Julian Berry, managing director of Berry Consulting and director of The Customer Partnership.

"They give universities targets in terms of the percentage of students they have that are from so-called 'socially deprived' areas. But rather than just drawing a great big line around a town or city and declaring it a socially deprived area, they should be looking at it at more of a micro level, at postcodes and individual people. Otherwise they are just rewarding universities for attracting people because they happen to come from an area when they may be perfectly affluent. There is a space for a much more accurate and personal segmentation approach than certainly I have seen on the academic front, which is extremely crude."

Whilst all the methodologies that are used in the private sector can apply to the public sector, this need to focus on the least affluent sections of society for some applications (particularly those of the social services for instance) represents the most notable gulf between the two segmentation practices. "Where commercial organisations can choose to simply ignore a section of populace if they wish, the public sector is duty bound to offer its services to everyone, and encourage their uptake," explains Rob Denton, managing director of Navigator Customer Management. "This leads to what has been labelled segmentation inversion. In other words, the private sector concentrates on the customers who buy most and deliver most profit. Public sector organisation focuses on the section of society that is most needy, and therefore least wealthy."

Profound implications

But for the public sector no-one can be ignored – all must be included. And this has profound implications for its service delivery and communication strategy. "The hardest customers to reach in the public sector – and therefore the most expensive customers to reach – are sometimes the ones with the most urgent need," emphasises Tetlow. "For instance, people whose first language is not English, or people who don't get out of their homes, or people who are not skilled in saying what they think. So segmentation is quite important for the public sector because it helps tailor services around specific needs and it helps to identify those customers that might not have their needs met if you simply do the traditional public sector things - offer a service and expect people to take it up."

While it is important, it is not yet prevalent. The public sector has used socio-demographic data to carry out most forms of segmentation for many years. But more sophisticated approaches - studying the relationship people have to the service, different access channels to the service and so on – are still relatively new. However, local authorities are leading the way, with many of them possessing proprietary segmentation packages and very often using them to good effect to help them examine ways of delivering their business in what are quite often complicated communities. And the public sector is now increasingly applying products from the retail sector – an arena which is adept at understanding what is going on in communities down to a granular level.

Photo of Julian Berry"There is a space for a much more accurate and personal segmentation approach than certainly I have seen on the academic front, which is extremely crude."

Julian Berry, Berry Consulting and The Customer Partnership

As such, best practice and case study examples of public sector segmentation are emerging. "For the past few years we've worked with a learning provider, looking at their databases of learners and working out core completion dates and identifying what the factors are that might predict and classify those that might leave a course early," says Diana Allen, head of statistics at ORC International. "This considers demographic factors, where they are based, attitudinal aspects, quality of learning, etc. and by using those techniques the provider has been able to work out and identify the groups of learners who might leave early before they abandon the course."

Some local authorities have also started overlaying segmentation data onto the outputs of the surveys they are required to do by the government, such as the Best Value Performance Indicator Survey. By overlaying this information on what can be fairly broad questions such as how satisfied the citizen is with a particular service, the authorities have been able to identify significant differences between communities and then drill down further into these findings to establish what this means. Because local authorities have to serve everybody and can cover large geographical areas, this is proving a valuable way to establish whether services are skewed just to a particular largest group.

Tetlow has also witnessed another local authority use proprietary segmentation products to understand the make up of their community better and enable them to improve access channels to services. The authority discovered that there were three main types of community in their area: relatively affluent people who didn't use a great deal of the services and had issues that would be relatively quick to sort out; young, working people that were not dependent on services, wanted to do everything online and whose relationship with the council was limited to council tax and waste removal; and a third group that were very dependent and needed a lot of face-to-face contact, with all sorts of benefits problems, housing problems and social service problems.

The findings clearly contradicted the view that 'one stop shops' (virtual or otherwise) are the best solution. "They decided to limit setting up face-to-face contact facilities to just the third group and it was oriented towards that group," says Tetlow. "In other words, if you wanted just to renew your parking permit, you didn't go there, you did it online or through some other outlet. But this enabled the authority to tailor the services in a very specific way."

Gaining traction

On the back of success stories such as these, segmentation is gaining traction in the public sector. And Berry sees its application in public communications as being a growth area. "In the communications field, segmentation is really, really important," he suggests. "The way you deliver messages and the type of messages you deliver should be differentiated by different segments. And they don't have to be socio-economic segments either – the government's view of segmentation can be very crude socio-economic segmentation rather than dealing with types, categories and lifestyles of people. But I do think they could do more in the communication field."

A further influential factor is the significant shift of focus onto customer service that has been heralded by the Varney report and the Customer Service Excellence standard. With the spotlight firmly on service in the public sector, segmentation could prove invaluable to meeting these new guidelines.

"If money starts to tighten up – and there is some indication that it might – segmentation and market research helps you to target your resources with the maximum effect."

Richard Abraham, head of public services research, ORC International

A further decisive factor in the public sector's adoption of segmentation will inevitably be the prevailing economic climate. Would a recession encourage greater take-up of the discipline – or would there be retrenchment? Experts seem divided on this. But there is agreement that any decision to put segmentation on ice would dent the public sector's effectiveness and its reputation.

"If money starts to tighten up – and there is some indication that it might – segmentation and market research helps you to target your resources with the maximum effect," explains Richard Abraham, head of public services research at ORC International. "You can actually understand what a particular group needs and how you can help them out and communicate with them effectively, rather than using a broad brush. So we have seen an increase in segmentation and will arguably continue to see it increase more if money gets tighter."

"I'm really worried that if times get tough, things will retrench and go backwards when we actually have to go forward – and using segmentation intelligently is part of going forward," concludes Tetlow. "If times get tough, things like segmentation can seem like a luxury. So that is the pressure pulling against it. But what you have pulling for it is the fact that all of us are used to much more sophisticated marketing from the private sector, and that raises our expectations of public services.

"The bad reputation that some public services quite undeservedly get is often because we've come to expect things to be delivered in a much more personalised way, as very often in the private sector if firms don't do it that way they won't get the business. The same incentive isn't necessarily there in the public sector – but if we don't do it then we risk even more reputational damage."

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