Segmentations can be an expansive (and expensive) endeavour, with the opportunity to impact the entire organization – from executives to the frontline. Before taking the leap, ensure your organization truly needs segmentation to accomplish its goals and is ready to adopt the outcomes.

What is a market segmentation?

At its core, a market segmentation is an analytical process that divides the market into approachable groups based on identified similarities (e.g. needs or attitudes). The type of information you segment may vary based on your needs, with the traditional use case for market segmentations focused on marketing and product development. In essence, this helps you close the gap from a general understanding of consumers and provide an opportunity to engage more directly with consumers in ways (channels, messaging or new offerings) that are most relevant to them. Today, the use for market segmentation is evolving, with brands seeking to not only understand the market and consumers, but truly identify untapped opportunity for growth.

Key considerations for market segmentation

Before you dive into a segmentation initiative, it’s vital to determine if that approach is right for your needs.

Here we outline four factors to consider:

Your identified targets

Thoughtfully consider which consumers to segment, as this is a critical component to a successful market segmentation. If the organization is unsure of the right consumer group to target, it can lead to a broad approach that results in segments that are not a strong fit for the brand and miss niche consumers. Going too narrow, however, can create tunnel vision and many missed opportunities for growing the customer base. If your team is unable to articulate what the market is, consider an alternate approach to segmentation that first defines the “who” of your category.

Skillset and tools available for segmentation activation

Teams must be empowered with the right knowledge and resources to act on insights. Having an internal stakeholder group that is bought-in on the market segmentation’s value is a critical step in success. Additionally, having meaningful avenues to act on target segments (marketing platforms, accurate CRM, appended databases, etc.) will ensure teams have clarity on next steps and tangible data to inform actions. If an infrastructure doesn’t exist to enable segment activation, organizations can quickly retire these efforts and return to business as usual – ultimately negating the impact the market segmentation could provide.

Business needs

Market segmentations are best deployed when they can be widely adopted and utilized for several years. If the business is seeking point-in-time direction or anticipating evolving its business goals or strategies, a market segmentation can be overkill. In general, market segmentations are best if an organization is seeking:

• To broaden its customer base and identify key growth targets through new customer acquisition
• Increased retention and engagement strategies to maintain existing customers and increase loyalty
• Greater differentiation strategies among market competitors

Timing

While effective, market segmentations can be a long endeavour. The time investment will pay off as resulting segments and insights will inform strategy for many years to come.

One of the most valuable parts of leveraging segmentation as a part of your research toolkit is the ability to compound other methodologies. For example, Samsung, a world leader in electronics, wanted to gain a better understanding of smartphone users in order for them to design a relevant proposition and targeted marketing campaigns. Together, we leveraged a three-pronged approach including online research communities, focus groups and surveys which resulted in a segmentation based on distinct motivators and habits.

Alternatives to market segmentation

While a market segmentation might be in your future, if you find the criteria above describes you, consider exploring alternatives, such as:

• A&U with simple clustering: By running simple clusters based on attitude and usage surveys, you can gain insight on different consumer types without a full-blown segmentation. This provides insight to inform decision-making when clear targeting or follow up activation may not be required.
• Propensity modelling: Identify individuals with a high propensity to need your offering through assessing resonance of your product’s benefits. This can offer look-alike targeting efforts for new customer acquisition.
• Concept acceptors profiling: Introduce your product or offering to consumers and assess interest to narrow down targeting criteria by profiling those most interested in your value proposition. Amp up the power by appending external data sources to enable targeting for future marketing efforts.
• Behavioural segmentation: Cluster data available in existing data sources, such as an internal database, that could serve as an initial customization strategy. A behavioural segmentation allows for niche groups to emerge and provides avenues for increased personalization beyond demographics, revealing opportunities for product and experience optimization to drive loyalty and retention.

Aligning for success

Market segmentations can be a powerful tool when appropriately deployed within an organization, revealing growth strategies and optimizing investment efforts. If you’re contemplating segmentation, remember that alignment and execution are crucial for success.

Begin with a clear vision of why a segmentation is necessary, alignment from key stakeholders across the business, and how it will be used.  Planning how the organization will operationalize the segments once identified sets up the endeavour to be successful from the onset. Position segmentation within the organization as the start of a journey, not the first and final step.

The work done at the start of the engagement not only helps the quality of the segmentation but the success of socialization and internalization with employees later. A great example of this was when we partnered with a CPG company who had recently undergone internal transformation and needed a segmentation that would comprehend the current brand and product line-up within the marketplace. Together, our insights strategically informed brand positioning, product development, and customer stories.

Be sure to leverage existing knowledge as a springboard so the segmentation provides additional value that extends beyond it. A great way to merge past information and look towards the future is to develop hypotheses about the segmentation to explore during the project. This early on work helps to align all the teams and prepare to activate on the segmentation results.