July 14, 2014

Which type of Segmentation do you need? What is it for?

By Paul Laughlin

Segmentation is one of those customer insight and marketing terms that divides opinion.

Leaders have their favourite approaches. Boards can be ardent fans of the need for segmentation, or complete unbelievers in what is perceived as marketing “spin“.

One of the reasons for this appears to be, the mixed fortunes of implementing segmentations. Some companies extol real benefits and the focus that has come as a result, whilst others bemoan wasted spend with consultants and agencies.

The case for more than one segmentation

My own experience is that an appropriate segmentation can add real value and enable a clearer understanding. It can help a business to focus on appropriate target audiences. But a few misconceptions need to be addressed.

The chief misconception I would cite is, the belief that any company or market only needs one segmentation. One of the guiding factors for selecting the most appropriate segmentation approach is the purpose for which that model will be used.

A segmentation to guide market participation strategy, is a very different challenge, to one for new proposition development, or to target different customer treatments. For this reason, it can be beneficial for a company to have more than one way of segmenting it’s customers (even if one is considered primary when seeking to embed into the culture of the organisation). One analogy for this is the benefit of having a Rubik’s cube set of segmentations for decision making.

Which type of Segmentation do you need? What is it for? It's a misconception that a company or market only needs one segmentation. Share on X

Which segmentation approach is suitable, or in favour?

Once the challenge of identifying the purpose of the segmentation is overcome, using incisive questioning, a CI leader needs to select the most appropriate tool for the job.

Here there does appear to be a degree of fashion influencing choices over the years. Many years ago, simple demographic segmentations were popular and can still perform a useful function. At the height of influence from market research teams, attitudinal segmentations were favoured and are still more viable than many believe. Since the success of Dunn Humby and others, behavioural segmentations took centre stage.

Directors, particularly finance directors can favour value-based segmentation and operations directors can favour a simpler life-stage or needs-based segmentation.

The potential of hybrid segmentations

All these segmentations have had their day, and most still have their advocates. So, it’s not surprising to find more organisations these days with hybrid segmentations (combinations of the above options).

Popular combinations for hybrids appear to be value+life-stage  or behavioural/trigger+value-based segmentations. Having once achieved developing a rich attitudinal segmentation, from substantial quant research and then producing predictive models to overlay this onto a data warehouse for targeting – I regret how often attitudinal segmentations are dismissed nowadays. If you have the behavioural data to model such an overlay, it can be a rich & insightful approach.

However, my guidance to customer insight leaders is, to be aware of as many potential approaches as possible. Then focus your efforts on being clear as to the purpose of any potential segmentation. At the end of the day, it is not a ‘universal truth‘ about customers, it is just a modelling approach to achieve a specific purpose.

Which segmentation approach is working for you?

Since originally writing the above blog post back in 2014, we have published a number of other posts on the topic of segmentation. So, you might also want to read:

I have also since read more about the Bain inspired “jobs to be done” approach to consumer segmentation. That is also worth of a blog post for more nuanced consideration. So, expect one in future.

But what about you? If you are a data, analytics or research leader who has successfully implemented a consumer or market segmentation – which approach worked for you? Please share your experience & advice in the comments box below. We’ll see how much this topic divides (segments) opinion!