You’ve identified that your business could benefit from a customer segmentation, congratulations on taking the first step to more effective marketing campaigns and better resource allocation!

However, it is all too easy to become quickly overwhelmed by the range of segmentation offers appearing in your search results.

It is vitally important to remember that not all segmentations are created equally – in this video we’ll take a look at how to spot an agency that goes beyond the standard offering.

A segmentation is an investment in your business strategy: finding an agency that offers real segmentation expertise can be the difference between a convincing but mediocre segmentation and one capable of delivering actionable insight.

If you’re thinking of appointing a customer segmentation agency,  start by considering these three key areas:

1. Methodology
2. Variables Selection
3. Segment Communication

Methodology

Technique has a massive impact on segmentation outcomes: ask what technique the agency uses, and why, and watch out for bland, generic responses. Pure qualitative data e.g. from focus groups, cannot deliver a meaningful segmentation.

In quantitative research,  you may come across K-means, an example of a traditional and still commonly used clustering technique. However, this approach has major flaws including having to be told how many segments to produce, guessing the right number of segments, producing different results from the same dataset, outputting one big lumpy segment and a load of fuzzy, too-similar segments, and no built-in error-checking mechanism.

At Clusters, our unique segmentation methodology, HuPa, overcomes all these flaws. We ran a lab test to compare Clusters methodology vs K-means using identical datasets where the segments were obvious to the naked eye: where K-Means achieved 62% accuracy, with over a third of customers in the wrong segment, Clusters achieved 96% accuracy.

For a more detailed insight into our approach to customer segmentation, check out our guide: Customer Segmentation: How to Segment Your Audience

Variables Selection

Clustering can create segments from any data you put into it: this does not mean the output segments will be meaningful in any way. For a segmentation to produce meaningful segments it is critical that your agency fully understands your business objectives and market characteristics in order to select the right input variables.

Clusters have a clear, strongly-held and experience-based viewpoint on the data that delivers the most actionable segments useful for strategic decision-making.

Segment Communication

How segments are communicated to your organisation can be key to how well the segmentation insights are adopted across your organisation.

Segmentation generates a large amount of data, but the most important questions that segmentation answers are “who do we need target, and how?” and “who should we avoid?”. Once you have your targeting strategy, Clusters will help you to understand each priority segment as a real person: how to interest and engage them, and how to convince them to buy and use your products and services.

Conclusion

There is more to effective segmentation than just these three areas, but a reputable and experienced segmentation agency will ensure they get all three right.

Unfortunately, many agencies deliver great creative outputs and workshops, but at the expense of analytical rigour, potentially leaving you with a superficially convincing, but wrong (or bland) set of segments.

By examining the agency’s priorities at the start, you stand a better chance of getting a segmentation that’s both vivid and rigorous.

If you have any questions about our approach to segmentation and how it can help your business, please get in contact with us here.