Wednesday, April 18, 2007
When Segmentation Loses its Meaning
Segmentation seems to be on its way to becoming one of those vendor co-opted words that is fast losing its meaning.As I’ve painfully learned with the word “dashboard”, once a concept catches on it quickly becomes perverted beyond recognition until, on some level, everyone is doing it and all consultants and technology providers are experts in it (think CRM). I suppose this is just another benefit of living in the digital age.Lately, I’ve seen “segmentation” used to describe approaches for:- finding the most likely prospects for an existing product/service set;- developing the most effective ad copy; and- explaining the similarities and differences between competitors in a given market space.Those of you who know me know that I’m not too hung up on definitions. But I am pretty hung up on meaning. To me, “segmentation” is the process of defining naturally occurring groups of homogenous prospects or customers who share a common need-set, determining the relative size of each group (from the perspective of profit potential), prioritizing their attractiveness, and then developing go-to-market plans best suited to appeal to each.First off, this can’t be done without quantitative research of some sort. There are many techniques with different circumstantial strengths. But if someone is talking about segmentation based on “some interviews”, run. Fast.Second, segmentation based on attitudes, beliefs, or perceptions is fine for writing copy or creating positioning statements, but what does it really tell you about the not-so-subtle trade-offs in constructing the real value proposition of the product/service?A focus on feelings may cause you to miss the importance of making your product easier to spot on the shelf, or modifying your distribution-channel structure, or even extending credit to achieve competitive advantage. Incorporating attitudes into segmentation is smart. Basing the entire segmentation on them can be tragically flawed.Finally, segmentation without sizing is irrelevant. Whether you size on revenue or contribution margin (preferred) opportunity, you need segmentation to help you understand the relative opportunity of allocating your resources one way versus another. Good segmentation forces you to make hard decisions because it shows you multiple viable pathways. Great segmentation helps you quantify the risk/reward propositions and leads you to the best choice.How, you may be asking, does this relate to marketing measurement? Segmentation is the basis of all resource allocation. Segment your market properly, and your most meaningful metrics will emerge from your understanding of how to create customer value.Let the marketer beware, though. The sad paradox of segmentation is that declining standards of imagination and process discipline increasingly mean that all segments are created equal.