Six Criteria to Ensure an Actionable and Effective Segmentation
- Posted by Eric Paquette
- On June 30, 2020
You can’t talk about segmentation without hearing about how important it is that the segmentation be actionable. If you were to do a word cloud on the topic of segmentation, “actionable” would be the big word in the middle. For as many times as the word is written and said, it is a little less clear that everyone knows what actionable actually means in the context of segmentation, or how to ensure it is achieved.
When done well, market segmentation can provide foundational market understanding to guide a brand’s strategy and tactics. Segmentation can help to define and inform targeting, positioning, messaging, experience, product, pricing, innovation, distribution, media and communications, loyalty and other elements of the brand strategy. Done poorly, it is one of the more frustrating, time consuming and expensive pieces of work. Worse yet, the missed opportunity can become a significant brand disadvantage because few have the stomach to redo it quickly, meaning the brand is likely to be without it as a framework for strategy decision making for a number of years.
When marketers complain about market segmentation, it is usually because it is not actionable. But what exactly does actionable mean in the context of segmentation, and what are the steps to ensure that any new segmentation will be actionable?
Some focus on a specific statistical technique to develop a segmentation, but this is rarely the key. Like many statistical modeling techniques, there are statistical criteria that can be used to define statistically strong and weak segmentation alternatives. They can also help to guide the appropriate number of segments. But typically, the characteristics that are going to define an actionable and effective segmentation are managerial, not statistical criteria.
Instead of focusing on the statistics, hone in on these characteristics when evaluating alternatives (And this is coming from the statistician in the room).
- Look for a segmentation that provides a clear target – one with disproportionate potential value and growth opportunity for the brand. A good segmentation provides strong financial justification for prioritizing certain segments as targets and deprioritizing others. You also need to consider the brand’s situation in the market when evaluating potential for growth. If a brand has a five share of the market and low awareness, emphasizing the segment where you currently excel is typically the best strategy. But if you have ubiquitous awareness, and a share that is will be hard to grow with a segment, you likely need to identify a second growth target for the brand.
If your segments are not different in terms of what they are worth to your brand, you should look for a better alternative. This guidance should not be mistaken for recommending that measures of value (e.g. revenue, profit, potential) be used to develop the segments themselves. That is typically a bad idea.
- In most situations, it is critical for a segmentation to help identify the “why” that certain segments respond to your brand and represent good targets and others do not. This means that segments need to be clearly different in terms of the needs, attitudes and emotions that drive their behaviors in the category. It is these drivers that will influence the positioning, messaging, product and experience strategies that a brand needs to succeed with their targets.
- While most segmentations help to answer a wide range of brand strategy questions, they usually don’t inform all of them equally well. There is only so much room in a questionnaire. Be sure you design the questionnaire and the segmentation itself to answer the brand strategy questions that are most important to your brand.
Is the brand poorly positioned? If so, be sure that you fully understand segment needs and how they currently perceive your brand and competitors. Do you need to drive enhanced marketing efficiency? Be sure you understand what segments are worth to you and how to find them with marketing communications. Is your focus on CRM and loyalty strategy? Be sure that you can apply the segmentation into those databases. Do you have a new line of products or services coming out? You’d better understand how each segment is going to respond and why. Think through your priorities ahead of time and be sure those priorities get disproportionate real estate in the questionnaire and in the definition of the segments themselves.
- Connect your segmentation to your go to market strategies and tactics. Do you spend a lot of money on advertising? Be sure you can accurately find the segments in communications planning tools and data sources. Is a big part of your marketing focused on CRM, loyalty or other first party data strategies? Ensure that the segments can be projected into the databases that you leverage. Are you a B-to-B marketer with more traditional sales processes and databases? Be sure that you can assign everyone in those databases to the appropriate segment so your sales team can prioritize and customize their approach. A segmentation is interesting and helpful when it provides an understand of who the segments are and why they choose the brands that they do. A segmentation becomes really powerful when you can find your target audiences in the real world.
- Ensure that the survey-based stated behaviors and financial measures align with available sources of real-world behavioral data. There are few things that can torpedo a segmentation more quickly than a lack of credibility and consistency with first party and other category data sources.
- Be sure that the segments are at least somewhat familiar to you and that they represent recognizable groups of people. This doesn’t mean that you need to develop a segmentation that fits with a pre-existing view of the market. At the same time, it should not be hard to wrap your head around who each segment is. Consumer brands ought to be able to recognize friends, family members and co-workers who fit the different segment definitions pretty closely. B-to-B brands ought to be able to recognize customers and prospects. Don’t let the math of the segmentation algorithms drive you into strangely defined segments. This is another recipe for disaster when it comes to socialization and adoption of the segmentation across an organization.
While there are several statistical algorithms or approaches that can be used to develop an actionable segmentation, there are important study design and analytic steps that can help guarantee the outcomes described above. If you are considering a new segmentation (or maybe looking critically at your old one) be sure that your potential segmentation partner can describe to you exactly how they are sure they will arrive at each of these outcomes, short of bumbling around in the dark and hoping that they run into something that works.
It is also important to note that once an actionable segmentation is developed, the work is not done. There are a number of critical steps to ensure that a segmentation is adopted and effectively leveraged by companies and their agencies, but that is the topic for another day. Suffice to say, your job getting the segmentation adopted and leveraged will be made much more difficult if it doesn’t meet the six criteria discussed above.
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