When it comes to segmentation and marketers the news is bad and worse, according to Sri Sridharan, Forrester‘s chief expert on the subject. One, it’s expensive and, two, segmentation models have short shelf lives. They can take up to a year to create. We asked Sridharan to go into depth on the complexities of segmentation best practices.
What is your definition of segmentation?
It depends on the heritage of a company. It can be a data exercise examining existing customer data within a CRM system, for instance, as opposed to data from market research. So there are two main approaches: customer versus consumer segmentation. Consumer packaged goods companies traditionally rely on marketing research for segmentation. Financial services and telecoms have a lot of customer data…from call centers. The two approaches can also be linked with third-party data.
Have new technologies aided or hindered segmentation?
Segmentation is not a new concept. Every company evolved segments from clusters of customers. The problem is, nobody is willing to throw away old studies. They came up with eight customer segments years ago and have stuck with them. Now, how do they enhance those with new data streams [like mobile, social, website data] that give them the opportunity to collect new information?
Where can technology make the biggest impact?
Marketers need to look at how they can use new technologies to make what they already have run faster, work better, and become more actionable. If you have an eight-segment scheme, it’s absolutely useless if a customer comes to your website and you don’t acknowledge that he’s a repeat visitor and that he belongs to one of these segments.
That seems pretty basic. Are there still a lot of companies that don’t do this?
Many companies have just scratched the surface. They’re still stuck at demographic base segmentation that is not predictive of any customer behavior. They have to work with what they already have. Nobody is going to start with a clean slate at this point. But what they need to do is to make incremental changes.
What one thing can all marketers do to improve their segmentation analyses?
Determine the objective of your segmentation activities. Segmentation can serve many purposes: branding strategy, customer lifetime value, target marketing opportunities. Depending on the objective, it’s not necessarily the sole territory of the marketing department. Your objective may start as a marketing need and then have to involve operations or product development.
