Making Customer Segmentation Deliver

As the ability to gather sophisticated data grows, here’s a four-step process for making segmentation drive improved performance.

by Corey Yulinsky

http://www.strategy-business.com/article/11401?pg=all

Segmentation is a critical marketing tool for both B2C and B2B businesses. I think this is a very insightful article and highly recommend reading the full text

"Few phrases have as much currency in today’s business-to-consumer (B2C) companies as the customer-centric organization. Although the particulars vary widely, most companies pursuing customer-centricity rely on some form of market segmentation. Segmentation provides insight into customer behavior, habits, and preferences, increasing the odds of success in marketing and experience management campaigns, and driving brand positioning and product development…. 

……This paradox — that companies with the most data about their customers find it most difficult to use it — is likely to become more widespread as the digital transformation continues. Too often, companies develop segmentations that are based on conflicting business objectives, are not broadly understood or shared, or cannot be readily acted upon. Top managers must realize that a segment-based model requires rigorous execution. It will succeed only if it is embedded in the company’s overall strategy, crosses the boundaries of all business units and functional departments, and produces clear and actionable guidance…. 

….We advise companies to take a four-step approach to segmentation: define the objectives of segmentation clearly, design the segmentation around those objectives, prepare a blueprint of the effects of the segmentation across the entire company’s decision processes, and carefully manage the necessary changes that segmentation will demand of the organization. The goal is to ensure that segmentation leads to well-defined processes and actions that improve performance.: 

Define the objectives clearly. The most important question for each company to ask: What is the purpose of segmentation? Understanding the purpose will enable decision makers to determine whether the segmentation effort is strategic, tactical, or bothDesign around the objectives. The key to effective design is working back from the business decisions that need to be made. Once the objectives have been determined, the segmentation research itself must be rigorously designed to reflect them, and to ensure that the results will be insightful (they will tell us things we do not already know about customer behavior and needs), actionable(they will identify levers that will move behavior), and identifiable (they will be able to tag individual customers in the database with reliable segment membership). This implies that multiple dimensions — behaviors, attitudes, demographics, channel use and preferences, and profitability — must be incorporated to develop a full picture.Prepare a blueprint to operationalize the segmentation. Begin to map out the decision processes by considering these questions: How is segmentation going to be used to influence the major value levers in your business? Will it underpin a redesign of the brand and the value proposition or of frontline sales and service? Will it ultimately result in more tailored and dynamic online and direct marketing? How are the business and functional units responsible going to access the information and use it on a day-to-day basis?. Manage the implementation process. Making segmentation deliver is ultimately more of a change management challenge than a technical or marketing challenge, but this point tends to be overlooked.