Segmentations have become de rigueur for developing effective, customer-centric marketing strategies. But many segmentations fail—not because of “bad math” or errors made during their development, but because of steps taken before the project even begins, and after the segmentation is (supposedly) complete.
In order for a segmentation to succeed, it needs to have each of the “3 Es”:
- An engaged audience that will be invested in clearly articulating the objectives of the work and the business questions that are trying to be answered.
- A commitment to embedding it deeply into the organization so that it can guide strategies and priorities in a coordinated fashion across business units.
- A realization that it will evolve over time as category dynamics shift or business priorities change.
Before your segmentation effort even gets underway, it is critical to have a clear understanding of the business questions you are trying to solve, and the context in which you need to think about them. This helps to avoid the possibility that you might develop the “wrong” segmentation. A good segmentation framework needs to fit the objectives it is trying to meet. If it doesn’t, then you might find yourself with a framework that is:
- Too attitudinally-driven when your business questions required behavioral insight(or vice versa); or
- Forced to fit a global population when more regional nuance was warranted; or
- Spanning different product categories when separate frameworks would have provided more relevant insights.
Building the “right” segmentation for your business objectives is a prerequisite for your initiative to have any chance of success in the future, but that alone isn’t enough to ensure that it leads to concrete business results.
Even segmentations that are properly designed and executed can fail. Once the work is complete, the segmentation team cannot merely present findings to key stakeholders – that is just the first step in embedding it. There needs to be a cross-functional commitment to absorbing the new information, and allowing it to guide strategies and priorities in all parts of the organization. Too often, segmentations are seen as just a “marketing initiative,” and other teams (product, retail, sales, etc.) carry on with business as usual. This approach is a kiss of death for any segmentation effort, as it inhibits the organization’s ability to be customer-centric in a comprehensive, coordinated way.
We’ve seen a leading financial services provider spend hundreds of thousand dollars on a segmentation, but the business team wasn’t involved in the planning phase, and didn’t understand how a segmentation could add value beyond their existing framework. As a result, the segmentation gathered dust on a shelf for a few years, and they ended up paying for another, similar segmentation.
The segmentation needs to be embedded into all key functional areas, and become deeply-engrained into how they think and act. The most successful segmentations involve all of these business partners from the start of the project, and gain organizational buy-in by ensuring everyone is aligned around which segments to target, and what new segment-based strategies to pursue. Organizations dedicated to becoming fully customer-centric may even restructure to have teams responsible for creating a personalized brand experience for a target segment (product managers become segment managers, i.e.).
Evolved Over Time
Even if you have a highly-engaged team and took the time to properly embed the segmentation within your organization, you may still find that over time your segmentation just doesn’t work as well as it used to.
A good segmentation should last up to 5 years before it loses its ability to provide useful and meaningful insight, however, rapid paradigm shifts can accelerate this timeline. The introduction of the iPhone is a great example: In the pre-iPhone mobile phone landscape, the spectrum of motivations that consumers could conceivably have for using their mobile phones was quite narrow. The iPhone disrupted this worldview considerably, unleashing a wider range of usage scenarios and motivations, and upending the dominant position that service carriers had enjoyed. This paradigm shift isn’t unique to consumer technology: a host of other industries are susceptible to rapid changes due to factors like product innovation, new competitors, regulatory changes, and more. Long-term success depends on recognizing when these shifts have occurred, and then growing and evolving your segmentation over time with your brand and your category.
Segmentation can be a tremendously powerful tool, but it’s very easy for things to go wrong if not executed properly. To avoid falling into the common pitfalls listed above, think of your segmentation effort as a foundational strategic initiative, rather than yet another market research project. Thinking about it from that perspective should help to make it clear why it requires significant time and energy before the “project” begins, after it’s completed, and on an ongoing basis. Good luck!