Making the Most of Segmentation

Segmentation Research

Segmentation is an essential part of any effective marketing strategy.  It can be used to strengthen communication to different audiences which in turn increases interest in a particular product, brand, or organization. Communication tailored specifically to each segment’s needs, behaviors, attitudes, and / or demographics, therefore driving higher engagement and consideration. Instead of having a single offer that hits only 50% of customers’ needs, for example, a business can address a handful of different segments, with each segment meeting at least 80% of customer needs.

Despite this, a study by Harvard Business Review reports that nearly 85% of 30,000 new product launches fail each year in the US. All too often, even companies with segmentations in place often fail to communicate their offering; this is usually due to ineffective or non-existent implementation. Marketing and sales teams may not be on the same page (often regarding the objectives, approach, and scope). Because of this, the resulting segmentation is not actionable organization-wide; therefore, it is never put into practice.

There are four success criteria that businesses should be aware of before approaching segmentation, in order to prevent failure or neglect: Employee characteristics, company culture, organizational structure, and management / leadership style.

Employee characteristics

An organization should encourage its employees to think objectively. Sometimes segments can differ from the expected; therefore employees who are able to look at the resulting segmentation in an unbiased way will be more willing to accept it. They also should be open minded and willing to think outside the box in order to generate discussion and innovative ideas on how to reach the segments. Persistent and persuasive team members will ensure that the whole process continues to move at a steady pace.

Company culture

An unbending culture that is generally resistant to change can only hinder the efforts of those who initiated the segmentation. A “that’s-not-how-things-are-done-around-here” attitude risks derailing the segmentation strategy. Often, implementing a segmentation strategy requires company-wide changes, so organizations that are flexible, willing, and accustomed to adapting are much more likely to be successful in this regard.

Organizational Structure

Strong marketing departments with healthy budgets are ideal when trying to share segmentation insights throughout the company. As mentioned, the biggest challenge is encouraging marketing and sales to “play nice” . Organizations whose marketing departments are small, under budgeted or not generally involved in cross-departmental decisions will have more difficulty getting such departments on board with the segmentation strategy.

Management / Leadership style

Upper management must show a commitment to the segmentation, and prioritize its strategic implementation. If the executives don’t show interest, their apathy will trickle down until no one sees value in the segmentation. A helpful strategy to ensure senior executives are involved from the beginning is to form a team, consisting of varying roles, positions, backgrounds, and departments, with a higher-up appointed as advocate for motivating supporting staff.

Tips for Successful Segmentation

With the above in mind, there are a few tips that will help ensure a successful segmentation strategy. The entire organization must be on board with the segmentation goals from the beginning. The objectives should be discussed across departments beforehand (whether the ultimate goal is to develop / enhance an existing product, tailor services, advertising / marketing campaigns, etc.).  Segmentation should also be integrated into employees” everyday work. Insights should drive marketing decisions, as well as in other departments such as R&D, product development, sales and customer service. Every time a new change or idea is discussed, the segments should be front of mind. The organization should get to know the segments personally, through visualization and observational research. Focus groups and ethnographies are extremely useful in the segmentation process, as well as segment profiles or infographics that can distributed internally. These approaches help employees to get to know the segments as real people/companies, rather than facts and figures in a PowerPoint report.

It is important to remember that segmentations are not set in stone. Segmentations are built on people and companies, and despite our best efforts to group them as closely as possible, their needs, wants, behaviors, demographics, etc. are subject to change at any given time. After identifying your target audience(s), it is important to monitor this group for changes that could affect how they purchase in the future.

Case study: Hyundai

Hyundai Motor Company’s target market has always been drivers who value gas mileage and discounts. In 2008, during the height of the recession, Hyundai found that their otherwise most prospective buyers were not purchasing cars because they were afraid of losing their jobs and not being able to make the payments as a result. This information led to an extremely successful addition to their warranty program: Hyundai Assurance. The program allowed the buyer to return the vehicle within one year of purchase in the event of a job loss or disability. The promotion ran for 26 months and reportedly increased sales by 8% in 2009 and by 23% in 2010, allowing them to outperform every other mainstream automaker in the US that year.

We can look to Hyundai as an example of a company that has successfully implemented and learned from their segmentation. Businesses with the most successful segmentations have two major things in common: They understand that segmentation requires a complex overhaul of their current business practices, and they are prepared to use the insights in every aspect of decision making.

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