Are you prepared for change?
A major blind spot of most segmentation schemes is that they do not anticipate major shifts in the general population—not migration between segments, but fundamental market changes that introduce new segments and diminish others. Traditional segmentation assumes that the environment is stable and that marketing can concern itself with getting and keeping more customers in good segments. But think of how quickly markets can change: MP3 players and Napster-style file sharing to the iPod + iTunes + iPhone juggernaut; SUVs being the hot auto category to the Prius being a runaway hit.
How do you address these issues? One answer is to redo, or at least recalibrate, segmentation regularly. But not only is this expensive—especially since the original study may have run into seven figures—it counters the notion of segmentation as a stable, reliable way to categorize customers and prospects.
Perhaps we need to think less about an all-encompassing segmentation scheme and more about building a culture that uses segmentation in smaller doses and around specific business challenges. For example, a typical marketing project is to build a logistic regression model that predicts response as a way to score our customers. But what if we could get a better model by simultaneously segmenting our customers? We can—by using latent class regression, which enables us to discover "latent," or hidden, segments in our data. When combined with regression, we get a model that builds segments and a better predictive model at the same time.
This is one example of how we can move segmentation closer to the business problem and end up with a better solution. Even if you have an enterprise segmentation that is creating value for your company, you can use today's technologies to benefit—cost-effectively—by incorporating additional segmentation into other analytical tools.
David King is chief executive officer of Fulcrum, a provider of advanced analytics, technology and program solutions for marketing. He can be reached at (888) 245-9450, or visit www.fulcrm.com
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