Market Segmentation….benefits & barriers

At the risk of repeating a lot of what has already been said about segmentation I thought I would look at two of the barriers to implementation.

Market segmentation at the basic level helps marketers gain a better understanding of the customers they’re targeting. However, getting it right can take time and requires a long-term commitment from the company. The reason for this is that the more information/data you have about a particular segment the more valuable the information is going to be. The challenge is that useful information is collected from a number of different sources and takes time.

Other than financial institutions, I’m hard pressed to find organizations that make effective use of segmentation. This could be a function of the robust data that financial institutions have about individual customers. With rich data you can segment the customer base using a number of variables that can provide the organization with laser like focus on a particular group of customers.

So if segmentation is so effective why aren’t more companies using it? Well, my experience has been that there are two factors at play. The first one is that the group doing the analysis or data mining is most likely being managed outside of the marketing group. This creates some tension between the two groups in terms of who’s driving the marketing strategy. To reduce this friction point and increase the likelihood of deploying a segmented market approach, the data group should be managed within the marketing function. This will create greater alignment between the two groups.

The second issue is that companies perceive segmentation as being a daunting task that is both costly and complex. Depending on how broadly the scope of a segmentation project is defined it can very well be. The best thing to do is start slow and small. Start with existing customer data and do a basic grouping of customers without appending secondary data. Get a basic understanding of the customer base using simple criteria like household income, age or geography. Once that has been completed you can add other variables to get different views of the customer base and start identifying common needs.

Market segmentation is a powerful tool to maximize your marketing effort and bring focus to an organization. Start slowly and look for small windows of opportunity where you can demonstrate success before jumping in head first….a little trial and error will help long term.

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