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Opinion: The Importance of Segmentation

For brands to thrive and develop a loyal customer base, they need to carefully segment the market by understanding the different needs, attitudes and behaviours of these customers, writes  Rich Barton, managing director of Red C UK.

 Customers don’t buy because brands tell them to, they buy because they have a need that they must satisfy. They are driven by their own rationale, and not a brands prerogative to sell. As Peter Drucker once rightly pointed out, the aim of marketing is to know and understand the customer so well the product or service fits and sells itself.

But how do we begin to understand the market to this degree? We must segment the market by understanding that people have different needs, behaviours, attitudes and demographics. Once we understand what unites people, we can divide them into approachable groups, a statistical process we call ‘segmentation.’

The outcome of any successful segmentation means that marketing teams can tailor their communications and messaging and optimise media spend. Product teams will be better able to develop new propositions that best meet the needs of key target segments and commercial teams can demonstrate deep knowledge of their market during funding rounds, particularly where a segmentation demonstrates where the next tranche of growth will come from.

The variables used to find these clusters vary from attitudes, behaviours or even demographics but the objective is always the same, to identify and profile clearly delineated sub-groups within a population. This then gives businesses the opportunity to focus resource on target groups that offer the best return on investment.

There is no silver bullet in deciding the best approach for segmentation. You go into it with a blank slate open to what the modelling will produce, and not with pre-defined assumptions on a best approach. That may be a model based on Max Diff analysis, Needs based or Demographics underpinned by needs. It’s a collaboration between the research agency and the client to understand what will work best for the business. You need to set a high bar for a successful segmentation, and validate various segment solutions against four key benchmarks to determine which solution is most suitable:

Be Intuitive: Client teams need to recognise each segment as a real person. They should be able to see themselves and their friends and family members within the pen portraits we deliver.

Differentiating: Each segment needs to be clearly different. They will be statistically different but are those differences logical, do they make sense to non-researchers? This is often the key determinant when deciding whether a 5,6,7 or 8 segment solution is the best option for a client when all are statistically valid.

Easy to Explain: Can each segment be summarised successfully in an elevator pitch. In our outputs we outline the story of each segment in three short paragraphs. The granularity and the pen portraits come later but this short summary is the launch pad for client teams to engage.

Easy to Replicate: This is crucial. Linking to client data bases and to future research projects, the golden questions or behavioural algorithm that drive segmentation membership is the real value of this type of research, aiding longevity and embedding it within business processed. In our most recent segmentation, a study of global high net worth individuals, we were able to develop a simulator that achieved >80% accuracy from just 8xstatements. This was perfect for rolling the segmentation out across the client database.

Once you’ve established the right model for your business, it’s time to put names to the segments. This can be one of the trickiest parts of the process. We are aiming for something pithy, descriptive and memorable that is going to encourage engagement. This works best as a collaborative process and in some cases, clients benefit greatly from a workshop. Within the workshop you introduce the segments and moderate client groups as they distil down each segment to their core attributes and develop the monikers they believe will work best and get traction within their colleagues.

It is essential to get early buy-in amongst wider stakeholders, ensuring the segments become embedded within the business.  There must be clear insight into each segment including what drives and motivates them. Although you’ll recognise them as real people at this point, there is no substitute for bringing these segments to life through qualitative techniques. Using the Golden Questions you can recruit segment members for depths, groups and online communities. This allows clients into the lives of the segment members, enabling them to understand why they think and behave the way they do. The rich media outputs available from Qual sessions including video is also a great way to roll out the segmentation across a business.

If timings and budgets allow, a final stage that adds value is facilitating a real meet up with segment representatives. Speed dating is great way to do this, allowing marketing and product teams to spend 30 minutes with each segment, they meet the people they are building services and communications for. These experiences where client teams spend time away from their normal bubble help to embed the segmentation more widely and promote the narratives that ultimately travel around our client businesses, making our segments live.

So, consider what you’re current marketing plan is and how it’s working for your business. While mass marketing can be a cost-effective method of getting your message or product out there, by using a more strategic approach you stand to gain a more loyal customer base, one which feels valued and understood through your careful brand targeting.

Rich Barton is Managing Director at RED C UK.


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