Segmentation Provides the Juiciest Results for Your Marketing

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  • August 29, 2017

A Compromise Between 1-to-1 and 1-for-All Marketing Approaches

Segmentation is taking something and dividing it into separate parts. What is being separated and the method by which it is divided can vary widely depending on the topic. It could be splitting a network of computers into subnetworks; dividing a retail store into clothing, housewares, automotive, and sporting goods; or just physically taking an orange and cutting it into slices. These are all forms of segmentation. When it comes to marketing, though, we are most likely talking about breaking down a pool of prospects into groups of similar characteristics.

For marketers, the benefits of such an activity may seem obvious. However, it is worth considering two extreme alternatives to highlight why one would pursue segmentation in a marketing context.

  • Broad-based assumptions. The first option is to treat your entire prospect base as a single, homogeneous population. Everyone receives the same marketing tactics and is assumed to have the same reactions, product preferences, and usage behaviors. While efficient in terms of marketing production costs, it paints with too broad of a stroke.
  • Individually tailored. The second option is to consider each prospect as completely unique and to tailor the entirety of your marketing to that individual. While this would be a remarkably effective way to drive response, it just simply is not feasible with respect to cost and effort.

Segmentation is a compromise between these two options. It allows for some amount of customization while remaining realistic in terms of a budget and execution.

Is Your Pool of Buyers and Prospects Ripe for Segmenting?

“Is the squeeze going to be worth the juice?” I suggest that you ask yourself this question before initiating such an undertaking. Before spending hours on advanced analytics, creative development, and detailed marketing plans, make sure your line of business is conducive to segmentation.

Segmentation is best suited for a product or service with a large, diverse customer base. Take, for example, a national auto insurance carrier. Everyone who drives is required to have insurance. In that case, every driver in the United States is a potential customer for national insurers.

In contrast, think of a company that manufactures private aircrafts. Potential customers are likely restricted to high-net-worth prospects. If you find yourself with a limited number of prospects, then your product is already intended for a specific segment of the population. Breaking that down any further is unlikely to yield much more improvement to your overall marketing strategy.

Options for Creating Segments

Once you have decided to head down this path, you have several options in terms of creating your segments. These options range from simple to incredibly complex.

  • Simple. On the simple end, divide your prospects by using common demographic or geographic variables, such as income or region.
  • Moderate. Moving a step up into multivariate segmentation, you can employ various decision tree algorithms to split up your prospects. The result of these algorithms is a set of parameters for discretely defined groups within your prospect base.
  • Complex. Other common but complex methods for segmentation are clustering algorithms. These algorithms are the least intuitive in term of understanding how an individual is placed into a segment.

The first two methods involve clearly defined rules that sort everyone into their respective buckets.

Clustering involves using the available data from all of your prospects to plot them on a multidimensional space. The algorithm then groups these data points in a way that minimizes the distance between points within a cluster while maximizing the distance between clusters. When you describe these clusters in terms of their characteristics, you do so by using the averages for that cluster. There is no defined minimum or maximum for any specific attribute.

Once you have developed your clusters, it helps to organize them in order to distinguish one from another. This is not only for your own benefit, but also for buyers if you’re marketing them externally.

Suppose you identify 20 clusters. Are you able to communicate with and market to each one the same? It depends on a number of variables, including your product or service, the sales cycle, your sales and marketing team, and the level of sophistication of your database management and email program capabilities. You would likely prioritize your time and effort by spending the most with the highest potential clusters and then working your way down the list.

Minimize Waste: Manage Segmentation Clusters for Fruitful Time and Effort

Companies collect vast amounts of data and details about their buyers and prospects. But not all of them have learned to leverage it in a way that benefits both them and their buyers. The more personalized and relevant you can be, the more likely you’ll make and maintain a lasting connection. (People know that they’re being marketed to, but it shouldn’t be overt or impersonal, especially from a brand they perceive themselves to have a relationship with.)

Hopefully, you now better appreciate what segmentation is, how it is created, and when would be an appropriate time to use it to enhance your marketing. In a future post, I will discuss what to do with segments, now that you have them, in terms of developing a marketing plan.

In the meantime, we’re here to help you with segmentation and marketing analytics for your next campaign.

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