A client’s perspective on segmentation (part 1): why do it & what to expect
Guest blogger: Jonathan Solomon
We’re delighted to share the first in our series of posts from guest blogger Jonathan Solomon who is an experienced Head of CRM and Insights. Having worked for almost 15 years within the marketing and research teams of Vision Express, Citi Bank and E.ON, Jonathan has a good understanding of how market research can guide business strategy. Here, Jonathan shares his experience with segmentation and discusses the benefits it can bring from a client’s perspective, and what you can expect to get out of a segmentation study.
I first heard of the term segmentation whilst working in the energy industry, which at the time (a decade ago) was starting to see an influx of analysts from the financial sector, bringing with them the knowledge that ‘not all customers are the same’.
At its most basic, segmentation can be used to carve up your customer base into pots of value; who is spending how much, on what and how often (RFV – recency, frequency, value segmentation), with a natural progression to index these pots against each other. For example, let’s say Pot A contains 10% of customers but delivers 30% of profit, whereas Pot D has 30% of customers, but only 10% of profit. This then leads you to an understanding of where you should focus your marketing spend (in this case, trying to get and retain more Pot A customers whilst spending less on Pot D).
It is at this point that the fundamental flaws with solely using RFV segmentation kick in:
- You have the what, and sometimes the who, but no idea why people have spent their money – your data is wholly transactional
- You are only looking internally and have no idea of the full make up of the market or how much or little each segment is buying from your competitors
- Because you don’t have the why, you have no marketing or advertising hooks to use to influence further behaviour
- You don’t have full control; RFV is often created and owned by the IT/IS Department. Instead the customer champions and targeting owners should be the Marketing Department
For me, true segmentation (along with all good research) has to actually talk to people to find out the why – both for customers and for the wider market. This normally takes the form of a large quantitative study (1000-2000 respondents) and a host of attitudinal and socio-demographic questions (the last study I undertook had over 50), potentially with a smattering of qualitative work (mystery shopper, group discussions, diaries). This is an expensive undertaking (upwards of £50k) and as such has to deliver true value to the business.
- To be able to define your customers, your competitors’ customers and the market as a whole into a few manageable chunks
- For these segments to be easily described as people you might know, creating an internal language which all stakeholders can use
- To help explain how customers interact with your brand and the other key competitor brands in the market
- To be able to rank the segments by value (size of segment, value of segment), enabling a view of competitor and market volume and value by segment
- To use the results of the attitudinal questions to understand the common areas of agreement between the segments, along with key differences
- To be able to tailor both marketing and products to fit with these similarities and differences, improving cut through and relevancy
- To trigger behaviour (get new, retain existing, increase spend and frequency of spend, improve satisfaction and NPS/recommendation)
- Ownership of your customers from a data targeting point of view
- It may even lead to your business restructuring itself to fit in with these new found segments (as happened at one of my previous roles where I was one of the segment managers within Marketing)
One way to really ensure that your segmentation lives up to its full potential, and doesn’t end up just gathering dust, is to marry it with your database or CRM. This way, each customer and prospective customer can be tagged with a segment identifier, enabling you to tailor your marketing communications across your entire customer base.
There are several other steps that you can take to prevent your segmentation falling short of the mark. I’ll be discussing these in part two of this blog next time, so check back to find out more.
Find out more about the benefits that segmentation can bring: email us at email@example.com