Segmenting for Success in Today’s Marketplace
It is axiomatic that not all customers are alike. They don’t look alike. They don’t act alike. They don’t have the same feelings about brands. They don’t drive the same amount of value. These differences are why customer segmentation is an essential element of every marketer’s analytic toolbox—at least every marketer who wants to maximize both the effectiveness and the efficiency of his marketing investments.
Segmentation is not a new concept. Companies have been segmenting markets at least as long as the idea of product line extension has been around. They have been segmenting advertising messages as long as they have realized that people develop different connections to their brands and therefore are stimulated to purchase by different motivations. And they have been segmenting customer portfolios as long as information technology has let them see what specific customers look like and what they have been buying, how frequently and through what channels.
The most successful marketers I know are companies that have embraced segmentation and are looking constantly for ways to enhance and evolve their segmentation strategies. They have seen the power in differentiated marketing and have taken advantage of the variability in the investment economics associated with different customer groups. They have allocated their spending toward customers who not only provide the highest value now, but also have the best potential to provide the highest value in the future. And to do this they have allocated spending away from unproductive parts of their customer bases, not unlike an investment banker who limits his losses in nonproducing assets and multiplies his bets on the sure winners.
Today, getting the best returns from segmentation requires businesses to employ multiple segmentations. That’s because in the complex world in which marketers now operate, where markets are fragmented but customers and businesses increasingly are connected, it is vital to know the who, what, how and why of customer behavior. In other words, to build relationships with customers, and not just promote products generally, means understanding customer characteristics, attitudes and behaviors. And no one segmentation scheme can depict all that.