Death of Consumer Segmentation – Ridiculous!

April 15, 2009
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If thinking about segmentation, make sure you talk to someone who has actually done a few different types!

There’s another article on consumer segmentation this week that seems to be getting a lot of buzz on twitter etc. You can read the article here in AdAge CMO Strategy section. Steve Rubel argues about the weakness of segmentation.

I disagreed with this article and will respond briefly here because I think segmentation studies are the most important type of research a company can engage in. If your company does only one piece of research this year, it should be customer segmentation to find out where to spend precious marketing dollars, and where not to.

First, segments don’t have to be static, in fact I believe they should be dynamic. Part of the deliverable/output should be scoring algorithm which can be applied at any time, and this one customer can fall into a different segment if their variables on file change.

Naturally, no segmentation has an indefinite shelf life. And thought should be given to updating segmentation every 3-5 years or when new better data sources become available, or when marketing tools change.

The second argument of belonging to more than on

If thinking about segmentation, make sure you talk to someone who has actually done a few different types!

There’s another article on consumer segmentation this week that seems to be getting a lot of buzz on twitter etc. You can read the article here in AdAge CMO Strategy section. Steve Rubel argues about the weakness of segmentation.

I disagreed with this article and will respond briefly here because I think segmentation studies are the most important type of research a company can engage in. If your company does only one piece of research this year, it should be customer segmentation to find out where to spend precious marketing dollars, and where not to.

First, segments don’t have to be static, in fact I believe they should be dynamic. Part of the deliverable/output should be scoring algorithm which can be applied at any time, and this one customer can fall into a different segment if their variables on file change.

Naturally, no segmentation has an indefinite shelf life. And thought should be given to updating segmentation every 3-5 years or when new better data sources become available, or when marketing tools change.

The second argument of belonging to more than one segment, is also rather weak. It’s almost irrelevant in most cases. If your segmentation schema is good, whether you fall into segment 1 or segment 2, the treatment will and should likely be the same, if those two segments are similar. Again it depends on product category etc. but this really should not be an issue either. Also, segment algorithm I mentioned above should give you a score of likeliness to belong in each segment. Marketers can then decide if extending a message intended for segment 1 customers, to customers who are second most likely to be in segment 1 should also get that message/offer.

Finally, the comment about 1-1 segmentation is a nice idea, but in practicality, we are a long way from implementing that in a meaningful way that would save marketers from wasting dollars.

It takes a bit of background in statistics and the segmentation methods available, as well as experience conducting a few different types of segmentations in different industries before you can discuss this topic intelligently. I’m sure that is not the case in the article. Actually, there are few true segmentation experts in our industry. If you need to do a segmentation, ask your consultant how many they have done, and what types of different methods they are familiar with.

Tom

Link to original postTom H. C. Anderson – Anderson Analytics