Inside Strategic Segmentation Blog Series – Part Two
The Importance of Making Segmentation Immediately Actionable
Written by Chris Diener, Senior Vice President, Analytics
When done well, market segmentation helps businesses gain a deeper understanding of customer buying behavior and inform key decisions across the business – from which products, services or specific features to bring to market to which messaging will resonate. And yet, too often we see that segmentation studies done by companies fall flat.
As editor Gretchen Gavett notes in Harvard Business Review, the success of any segmentation effort depends on it being actionable, and a common pitfall for companies is failing to take the necessary steps to map the output of segmentation research to decision making. “You have to ask yourself why you want to segment and what decisions you’ll make based on the information.”
In part two of our series, we discuss how to make sure your segmentation is immediately actionable.
Blog series at a glance:
- Part 1 – Aligning your segmentation approach with strategic priorities
- Part 2 – The Importance of making segmentation immediately actionable (this post)
- Part 3 – Strawman planning and hypothesis generation to maximize segmentation impact
- Part 4 – The ability to reach the segments differentially or accurately
- Part 5 – Prioritizing action steps within each segment: TURF or Next Best Move
One of the dangers of any segmentation project is the tendency to take a “kitchen sink” approach. In other words, companies compile a long list of customer data they want to gather with no real framework to prioritize what the key inputs really are. This approach not only doesn’t work, it can also quickly erode confidence by teams in applying the segmentation to guide decision-making. Before you know it, the study ends up sitting on a shelf gathering dust, wasting the organization's time and money.
Another common pitfall for brands with segmentation studies is seeking out data that in effect reaffirms their internal beliefs around customer needs (confirmation bias), rather than gathering new objective data. A form of this is believing their current transactional data is sufficient or assuming a cluster analysis replaces the need for deeper segmentation. It doesn’t. Without clear alignment between the analytic approach and decision priorities, the segmentation study will fail to deliver the desired impact or see strong application across the company.
One of our entertainment clients encountered this challenge. They attempted to segment their customers based on existing transactional and behavior data they had collected. While this offered great insights into their current customer behaviors and cross-promotional opportunities, it didn’t give them a strategic point of view on how to better position their portfolio of services or where they should invest to maximize future growth in an increasingly competitive category.
For market segmentation to be impactful, you have to clearly map it to the specific business problems you’re solving for. Doing this well requires a laser-like focus on your strategic priorities, and within each priority area, identifying the specific decisions and actions your segmentation will immediately inform.
The 3 in 3 Rule
A key way to prioritize is a rule-of-thumb I call “3 in 3”. What are the three most important areas of application – where market segmentation will drive immediate value and inform key decisions? Ideally, within the first three months of completing a segmentation study, you want to have at least three areas where you can deliver a measurable impact.
After compiling stakeholder feedback on implementation priorities, you want to apply rigor across the two strategic dimensions below (see diagram) to ensure you capture the right inputs for a successful segmentation study.
First, we identify practical decisions to be immediately informed such as product development choices, feature sets, or value propositions that align with customer motivations and needs (see “Subjective Focus” axis). Then, we look at each of those decisions through the lens of your implementation priorities to see which path or combination will be most effective in reaching your target segments.
Ultimately you want to map each of your subjective insights to a specific implementation path that drives an immediate set of decisions or actions. Applying this framework will also point you towards the appropriate analytic approach to execute the segmentation.
Figure 1
Why This All Matters
In addition to existing customer data, it’s important to seek out and source other objective data and insights to better understand the needs of your most valuable customers and segments. Having the right underlying analytics approach will make the results more actionable and digestible – so that individual business leaders and teams can immediately leverage the data in their implementation plans.
If you successfully implement the “3 in 3” rule, you are well-positioned to multiply the value of the segmentation across your organization and ensure it is successfully applied for years to come. Even if the three decisions made based on study within the first three months are relatively small, these early successes can be shared – building confidence and encouraging broader application by others.
In a very practical way, early successes motivate further application and build consensus, while also providing leaders across the organization the tools they need, socially, politically, and emotionally to invest their time and “clout” into the segmentation.
Immediate application drives overall success.