As retailers continue to move up the marketing maturity model, the use of segmentation becomes more and more integral to their marketing programs. The question becomes less about “Should we segment?” to more about “How should we segment?” or the even more critical “What will we do with those segments?”
Segmentation, in its simplest form, is about separating groups of customers by a specific characteristic, behavior or need into smaller, more targeted groups. The key to effective segmentation is in using data and analytics to identify what those characteristics, behaviors or needs are so that we can more effectively take action on them and in turn, help customers more easily and successfully achieve their goals. But first, retailers need to start with the questions they are looking to answer.
For example, if a retailer has a wide variety of SKUs at vastly different price points, they should be considering how customers are uniquely interacting with those products. Do they have customers who only buy those higher ticket items or other customers who only buy lower ticket items? Are they featuring the same merchandise and messaging to those groups of customers the same or differently? What about customers who have an affinity towards discounting or those who don’t have a problem paying the full price if they can get the newest, hottest must-have item as soon as it hits the market? Having a peak into what makes those different customer segments unique should impact a marketing program and how it is designed.
So how do we know what segments to create that will be valuable to the organization? The first step is identifying what goals and objectives you are trying to achieve. Is growing the customer base through acquisition a key company goal? If so, it might make sense to start by looking at groups of customers by how they were acquired and then grouping those sources into more profitable vs. less profitable segments. Is retaining and growing your customer base the main focus of your organization? – Then identifying who your profitable customers are and grouping them into how they engage or purchase could be a good starting point.
Once you have identified a starting point and are ready to create your segments – there are a few things to consider before moving forward. According to Harvard Business Review, segmentation should include these six characteristics: identifiable, substantial, accessible, stable, differentiable and actionable.
Each segment needs to be clearly defined and large enough to incorporate into your marketing program to the point where it is not cost prohibitive to break out independently. The segments need to be constant and unique in their definitions as well as being easy to work with in terms of reach and accessibility.
However, the key difference-making characteristic is ensuring the segments are actionable. This is the primary reason segmentation can be so valuable. Once a retailer has identified how to reach a segment and take action on it – they can then tie the impact of their marketing efforts to their segmentation and drive true value. It’s how we meet the customers where they are, and start talking to them in a way that makes a difference. When you have that piece established, you are well on your way to making your segments valuable and ultimately working towards achieving those overall goals.