Segmentation: beyond the math
“What do the Explorers want again? How are they different from the Dreamers?,” the CEO asked the head of retail as they discussed layout for the new stores, referring to the latest customer segmentation. For this round the marketing team had commissioned a segmentation based on a psychographic approach, but the CEO couldn’t care less. All he knew was that he couldn’t remember the segments, why they were different, how they related to the segmentation they had done a year ago (when he had gone to the trouble of learning all the personas in the framework), or what it meant for the business.
This true story (details have been changed to protect the innocent) is all too common. Segmentations can be better—and it’s not the mechanics of the math or the clustering that are the problem. What needs improving is how an organization can pick up a segmentation and apply it. The truth is, segmentation, initiated with good intentions of more deeply understanding the consumer, is often the cause of confusion rather than clarity. The Yankelovich and Meer survey from Harvard Business Review 2006, reported that of the 59% of CEOs who had conducted a major segmentation in the last 2 years, only 14% had derived value from it. They highlighted a trend that continues today—the prevalence of segmentations that are not useful.
Segmentations done well live and breathe in an organization all on their own, and are found to be key in identifying target consumers, defining a market space, and guiding product differentiation decisions. As an innovation firm, over the years we’ve helped several clients try to make sense of the segmentations they’ve commissioned. We’ve helped product development teams use them both as inspiration for new products and services and also refinement of existing offerings. We’ve helped leadership teams use them to make important strategic decisions. After seeing what works, and much more of what doesn’t, we can share how to best maximize the chance that your segmentation will be intuitive for your organization to use and meaningful for key decisions.
1. Decide what you’ll do before you decide how.
While segmentations come cloaked in a patina of science, the truth is that there’s an art to it. For example, I can segment my silverware drawer in bunch of different ways—clustering forks, knives and spoons; or fancy and everyday, or by color, material, etc, etc. The decisions I make about how I’m clustering are key—and dependent on what I am aiming to do. A restaurant will cluster place settings in bundles to facilitate efficiency in setting tables. I, on the other hand, want to be able to just grab a spoon to eat some ice cream, so I segment by utensil type. The same is true with complex market or customer segmentations. The best way to start your segmentation is to understand what you need it to do when it’s finished.
2. Blend, rinse, repeat.
Approaching your research with a blend of qualitative and quantitative is important. You need to not just have numbers around what people are doing, but be able to tease out why. Conversely, you can’t just have paradigm-shifting insights about motivations without an understanding of the size of the phenomenon. So when you’re crafting your segmentation approach, make sure you marry the best of both worlds.
A great segmentation is one designed with different parts of an organization (not just marketing), so that it can be used to for decisions in all contexts as well. Incorporate designers, strategists, managers and operations in early scoping conversations, even if they’re not your main client. A segmentation that can be used by different parts of a company will make your client group more relevant in the long run.
4. Be tangible.
Bringing a segment to life in a real and tangible way is pivotal in delivering a segmentation analysis that will be useful to an organization. Posters and videos are just a start—communicate your segmentation through experiences and exercises so that the results are intuitive and easy to remember.
OfficeMax changed the way they thought about segmentation and ended up changing their whole organization. They formerly segmented the world how they experienced it: into small, medium and large businesses. That was the filter they used to make decisions and design products. Working together with a cross-disciplinary team from different parts of the organization, gravitytank recognized they’d benefit most from a halo segmentation strategy—where by pleasing one “supersegment,” they’d cover the rest of their customers as well. This halo segment was personified in a persona named Eve, so that throughout the company, sales, strategy, design and engineering could ask themselves, what would “Eve” do, what would “Eve” want? When they began to look at consumers differently, OfficeMax changed their business. Sure, they enjoyed triple digit rate of return on the initial investment and sales that significantly exceeded initial forecasts. But it wasn’t just the revenue— it was the scale and speed of the change. Product lines were introduced, a whole private label brand strategy was developed, merchandising and presentation in the retail environment evolved, associates were trained differently, and even recruiting changed.
A great segmentation is unconsciously drawn upon when an engineer is prioritizing features, or when a product designer is choosing materials. It’s at the foundation of where marketing dollars are spent. It’s the source of which products are included in a line or how the customer experience is tailored or how a space is designed. In short, a segmentation can change the entire company. Make yours better, and make an impact.
image credit: gravitytank design