Is a Market Segmentation Right for Your Needs?
With a growing focus on personalization and desire for deeper consumer understanding, market segmentations are getting increased airtime among established organizations and start-ups alike. Because, as much as we want to talk to every individual in a hyper-personalized way, the ability to scale is ever important to drive results and ROI.
However, organizations might embark on a market segmentation when an alternate approach might better serve their needs. To understand if a market segmentation is the right solution for the right time, let’s first explore what it is and what it provides.
What is a market segmentation?
At its core, a market segmentation is an analytical process that divides the market into approachable groups based on identified similarities. The type of information you segment may vary based on your needs, with the traditional use case for market segmentations focused on marketing and product development. In essence, this helps you close the gap from a general understanding of consumers and provide an opportunity to engage more directly with consumers in ways (channels, messaging, or new offerings) that are most relevant to them. Today, the use for market segmentation is evolving, with brands seeking to not only understand the market, but truly identify untapped opportunity for growth.
Segmentations can be an expansive (and expensive) endeavor, with the opportunity to impact the entire organization – from executives to the frontline. Before taking the leap, ensure your organization truly needs segmentation to accomplish its goals and is ready to adopt the outcomes.
To determine if a market segmentation is right for your needs, consider:
- Your Identified Targets
- Thoughtfully consider which consumers to segment, as this is a critical component to a successful market segmentation. If the organization is unsure of the right consumer group to target, it can lead to a broad approach that results in segments that are not a strong fit for the brand. Going too narrow, however, can create tunnel vision and many missed opportunities. If your team is unable to articulate what the market is, consider an alternate approach to segmentation that first defines the “who” of your category.
- Skillset and Tools Available to Internal Teams
- While powerful, teams must be empowered with the right knowledge and resources to act on insights. Having an internal stakeholder group that is bought-in on the market segmentation’s value is a critical step in success. Additionally, having meaningful avenues to act on target segments (marketing platforms, accurate CRM, appended databases, etc.) will ensure teams have clarity on next steps and tangible data to inform actions. If an infrastructure doesn’t exist to enable segment activation, organizations can quickly retire these efforts and return to business as usual – ultimately negating the impact the market segmentation could provide.
- Business Needs
- Market segmentations are best deployed when they can be widely adopted and utilized for several years. If the business is seeking point-in-time direction or anticipate evolving its business goals or strategies, a market segmentation can be overkill. In general, market segmentations are best if an organization is seeking:
- To broaden its customer base and identify key growth targets through new customer acquisition
- Increased retention and engagement strategies to maintain existing customers and increase loyalty
- Greater differentiation strategies among market competitors
- Timing
- While effective, market segmentations can be a long endeavor. If internal teams need to start acting now, consider alternatives to inform their strategies and provide valuable consumer understanding to ensure teams are able to build consumer-centric strategies.
- Market segmentations are best deployed when they can be widely adopted and utilized for several years. If the business is seeking point-in-time direction or anticipate evolving its business goals or strategies, a market segmentation can be overkill. In general, market segmentations are best if an organization is seeking:
Alternative to market segmentation
While a market segmentation might be in your future, if you find the criteria above describe you, consider exploring alternatives, such as:
- Purchasable Segmentation Solutions | Available via broadscale (or industry specific) data sources (such as from Acxiom, Experian, Merkle) to uncover broader groups that could support marketing strategies in the short term.
- A&U with Simple Clustering | A full-blown segmentation may not be necessary, however, you can inform your teams of different consumer types through running simple clusters based on an attitude and usage survey. This provides insight to inform decision-making but lacks the ability for clear targeting or activation efforts.
- Propensity Modeling | Identify individuals with a high propensity to need your offering through assessing resonance of your product’s benefits. This can offer look-alike targeting efforts for new customer acquisition.
- Concept Acceptors Profiling | Introduce your product or offering to consumers and assess interest to narrow down targeting criteria by profiling those most interested in your value proposition. Amp up the power by appending external data sources (e.g., through Acxiom or Experian) to enable targeting for future marketing efforts.
- Behavioral Segmentation | Cluster data available in existing data sources, such as an internal database, that could serve as an initial customization strategy. A behavioral segmentation allows for niche groups to emerge and provides avenues for increased personalization beyond demographics, revealing opportunities for product and experience optimization to drive loyalty and retention.
Market segmentations can be a powerful tool when appropriately deployed within an organization, revealing growth strategies and optimizing investment efforts. If you’re still considering a market segmentation, be sure to explore our piece around How to Design Your Next Segmentation.