Segmentation - business issues

Segmentation is simple to carry out from a market research or analysis viewpoint to enable you to identify different groups within a market or among your customers. However, implementing a segmentation strategy successfully may involve realigning your business in order to meet the demands of different types of customers.

It is therefore essential that your segments can be clearly identified and tracked over time and that your organisation is aligned to delivering products and services to meet these segments. Many market research segmentations fail once the research money has been spent, because the business had not done the implementation planning to deliver a segmentation successfully.

Market research sees segmentation as a fairly conventional statistical technique that divides a market up in order to identify customer groups with different needs and wants.

Typically this works as follows. Firstly produce an attitudinal cluster based segmentation by conducting qualitative research to understand the key dimensions in the market. Then conduct a large general survey (typically 1000+ interviews) containing a large number of attitude statements ("Do you agree or disagree with..."). With these results apply a statistical technique called cluster analysis to find distinct groups for targeting.

At this point, the research has largely finished and the core business and implementation issues become apparent. Who is in each segment? How would I identify people on the database in each segment? How do I do follow up work to better define the product or service proposition? How do I test market to this segment? What is the sales potential? How would my sales team quickly identify customers in each segment? Do I have to re-organise my business to focus on each segment? How do I set segment based sales targets (without sales poaching)? And so on.

Unfortunately, the segments produced by the cluster analysis are difficult to replicate and identify in the real world, coming as they do straight from a statistical technique. At best, you might be able to produce new products for each cluster and mass market the products hoping self-selection will result in the right product with the right person. However, even this approach is difficult to communicate through a sales or distribution channel to show the logic of having two or more products.

The business challenge is therefore identifying and marking customers as members of segments in a way that can be captured on a database, or in an easy way in the field and aligning the business to deliver to each segment appropriately.

Better market research segments

Segmentation normally arises as a technique to be used during strategic analysis. Because the aim of the segmentation is to get something that can be implemented and acted upon, the way in which you look for your segments will have an impact on what you can do with them at the end.

Our preferred route is to use statistical techniques to provide an insight into the market, but to base a segmentation on hard, real questions.

If a segmentation is real, you should be able to find it through qualitative research. This should provide the basis for questions that can be used in a quantitative large-scale study to prove the existence of the segments and to size them, with the aim of finding simple questions to place customers in different groups. This is done by usng cluster analysis to check the intuition gained through the qualitative research and checking these clusters against the simple questions.

These simple questions can then be attached to data gathering exercises, or used to identify customers at the point-of-sale. In this way anyone can place a customer in a particular segment quickly and consequently know what to sell. This also makes incorporating segments into a database far easier.

Implementation is then still a question of good internal communication, getting the right people to implement, providing them with resources and getting your systems and communications right. But at least you know who you are talking about.