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Segmenting Strategically - Building Customer Piece of Mind

Segmenting is the basis for an effective customer attraction or retention strategy. But, it's positioning that gets all the fanfare. Here we will review the need for strategic segmentation and suggest a framework to help all public relations, public affairs, marketing and communications professionals segment smartly to increase the likelihood of attracting and retaining desired customers.

With the World Wide Web comes the ability for us to gather and segment all sorts of customer information prior to, during and often after someone visits our web site. This is indeed cause for celebration. We could refine our definition and understanding of key audiences possibly better, faster and less expensively than ever before. But, just as the new technology enabled us all, it confounded many of us. At the core of this confusion was a tendency for us to obsess over customer demographics collected through the Internet as we would strive to achieve the panacea of 'one-to-one' marketing.

To address this obsession, we need to begin by considering the basis upon on which we segment our audiences before digging deeply into the massive amounts of customer-centered information. This is particularly important because customer-focused businesses are increasingly building structures, reward systems and work processes around key segments. By considering the 'forest' before the 'trees', we can ensure that our time-consuming efforts to 'slice and dice' our audiences are appropriate for our organization, our products/services, our audiences and our budgets.

We need to recognize that there are seven bases upon which we can segment our customers. Each effort to segment is some variation or combination of these:

Profitability - segmenting based on how profitable customers are to our business. This tends to be the preferred method espoused in the current wave of Customer Relationship Management (CRM) and e-loyalty programs. While this method may seem intuitive, it also neglects the fact that today's profitable customers are often not tomorrow's.

Product/Services - segmenting based on which products or services our customers purchase. Many online retailers adopted this method early on because web statistics were limited to answering which products or services were sold. This is probably one of the most easily recognized and accepted segmentation methods for bricks and mortar companies, particularly in the financial sector.

Channel - segmenting based on how customers come to know our business or transact with us. When Barnes & Noble went online they adopted this segmentation strategy. They would provide a noticeably different customer experience (i.e. pricing, services, selection, etc.) solely dependent on whether customers came to them in person, purchased from catalogues or visited them on their web site. One of the early results was an immense duplication of effort and coordination problems between channels.

Revenue - segmenting based on which customers spend more money. This method focuses on the top-line. Of course, this may lead to increased cash flow but it sacrifices long-term profitability.

Profile Characteristic -segmenting based on measurable 'hard' customer qualities. All forms and variations of demographics, psychographics and webographics are examples of applying this strategy. This method does put 'understanding the customer' at the centre of segmenting, but assumes that customers are equal to the sum of discrete pieces of often-conflicting information.

Value Cluster - segmenting based on a collection of values and life experiences. When David Foot's Boom Bust and Echo emerged on the scene, it was often hailed as a new way of understanding and explaining past, present and future customers - one that went beyond piece-meal demographics. He suggested that people born within a common time frame shared more than just age, but also a set of values which emerged from sharing common experiences.

Customer Need - segmenting based on what customers tell us they need. Despite the intuitive nature of this strategy, few companies have the capacity or willingness to adopt this method, which has the highest probability of matching current products/services with appropriate customers.

Of course, the key to successful segmentation is knowing when to use one strategy over another. Below is a chart that summarizes the seven segmentation strategies and suggests some of their pros and cons as well as some of the conditions when it is appropriate to choose one over another.

Seven Segmentation Strategies - When to Slice... When to Dice
Segmentation Strategy	Pros	Cons	When to Use
By profitability	Highest probability of maintaining profitability.	Ignores future profitability opportunities.	When you are under pressure to demonstrate to investors the profitability of products/services.
By product/service	Easy to determine which products to focus marketing dollars on.	Leads to ignoring clients because of emphasis on product/service features; departmental 'fiefdoms' grow around lines of business.	When your customers are not likely to crossover.
By Channel	Easy to distinguish between clients and collect transaction information.	Can be difficult to accurately adopt learning across channels; often leads to duplication of efforts.	When you are determined not to integrate channels.
By Revenue	Highest probability of building cash-flow.	Ignores long-term profitability. What is revenue-making today probably isn't tomorrow.	When your top priority is building cash flow (i.e. growth mode).
By Profile Characteristic	Generally easy to collect information from public sources.	Can become very expensive.	When your business can spend considerable resources and time to keep key information.
By Value Cluster	Approaches customers as complex, often conflicting behaviours and traits.	Draws heavily on huge amounts of information -- much of which is often speculative or out-of-date.	When your business has the capacity to collect and integrate vast amounts of customer information.
By Customer Needs	Highest probability of matching service with customers.	Customers' needs can vary over time.	When you want to demonstrate your understanding of and commitment to building long-term relationships with customers.

Segmenting our customers is one of the most critical activities when developing any marketing, communications or public relations plan. It can have huge implications for your firm's entire operations. By critically examining how and why we segment, we can develop a strategy that ensures we truly have our customers' "piece-of-mind".

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