Developing the right segmentation strategy

Developing the right segmentation strategy

Developing the right segmentation strategy and marketing isn’t getting any easier, we have at our disposal a phenomenal amount of data. We can ignore it or we can use it to make better sense of our customers through improved targeting and having the right segmentation strategy.

1. Think about your needs and don’t stick to a single methodology

The sheer volume of data means gives us plenty of opportunity to slice it up in many interesting and insightful ways.

a. RFV (recency, frequency, value) We have all heard of it but most don’t put it to good use.  There is nothing better than measuring business health, keeping track of retention and attrition, and guiding investment decisions to keep customers profitable. Keep it simple and explain it in a language that is understood at all levels.

b. Behavioural or attitudinal segmentation Or putting it simply understanding what makes your customer tick. A distant qualitative relative of RFV examines customers by what they think of you and what motivates them to interact with you.
c. Pricing or promotion.  The internet has changed people’s shopping behaviour and looking online for a bargain has become acceptable behaviour.   Understanding price and promotional sensitivity will lead to better ROI.

d. Responsiveness to marketing activity. We now know that many channels are responsible for the end click or sale and so most customers will interact with you in varying ways and many channels.  However, understanding which channel is most likely to generate the highest levels of responsiveness will deliver you a better return for your marketing spend.

2.  Behavior between purchases can inform as much as the transactions

For long purchase cycles, luxury items or even a highly competitive market will often mean that understanding customer interaction will be as important if not more important than generating the sale. This can be conducted simply using the evaluation of web analytics or email responses through the customer decision-making process.

3. Keep it simple, and use the building blocks

Get most analysts involved and you could end up with hundreds of sub-segments – this is much too complex so keep to up to 4 or 6 at the most. If you need more then understand how you can chunk them up.

4. Two big dos and don’ts

Don’t ignore your historical promotional activity when running your analysis – you need to know that a particular segment is worth more rather than is more responsive to promotions

Don’t ignore seasonality.  Most products have cycles so it is better to look over a year in its entirety rather than look at extracts of particular seasons.

5. Build momentum by building consensus

a. Get some early wins documented and don’t be afraid to share with your wider team

b. Avoid using the “average customer” – he doesn’t exist and will often be diluted by high and low-spending outliners.  Set your marketing budget by segment

c.Get IT involved early. Be realistic, you might not be able to do it all by yourself and IT can often be a great help – but only if you involve them early and talk to them nicely!

Developing the right segmentation strategy

Understand the effect that a segmented customer base will have on your organisation – it isn’t just about marketing.  Involve all departments in your thinking and your rationale and explain to them what you are hoping to achieve, and how success will be measured. Good segmentation is an excellent way to control and make sense of the plethora of data generated by today’s customers.  Executed well segmentation will increase you’re your understanding of your customer and your ROI.

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