The secrets of sensible segmentation

Alan Mitchell (MW September 30) outlined the idea that delivering outstanding value is the key to success for brands. Tesco certainly manages this and a contributing factor is the way it segments its customers. While segmentation has become something of a mantra within marketing in recent years, there are not many success stories.

Having talked up the benefits of “segmenting our customer base” to their organisations, and having stumped up large sums for the latest “needs-based segmentation”, we are now seeing hand-wringing from marketers, because staff in sales or operations or media or agencies are not turning this to the organisation’s advantage and consequently acquisition rates, churn and customer dissatisfaction measures continue to move in the wrong direction.

Why do many companies get it wrong? Often, segmentation begins with some kind of questionnaire-based research using a small sample of customers, the results of which researchers and marketers – optimistically – hope their analytics team can extrapolate on to the whole customer base for the greater good of the organisation. There seems to be a fad for “needs-based segmentation”, the problem being that this type of research is often not particularly actionable and cannot easily or accurately be matched to the customer base that drives the organisation’s behaviours.

It is rare to find marketers or

chief executives who realise that the benefits of segmentation lie in the ability of the organisation to act on that segmentation to the benefit of customers.

Linking customer segmentation into the operational structure of the company is vital. If the segments can’t be used by agencies to improve direct marketing, or by operations to improve service levels, or by media to purchase the appropriate programming, then they are as good as useless.

To segment properly, it is important to start with customer behaviour, rather than “needs”, and to understand how front-line agencies and operators will be able to use it. This requires a level of customer insight and organisational know-how that many otherwise good marketers seem to lack. Great segmentation should drive the entire customer proposition and great companies organise to serve these segments effectively.

Tesco’s half-year results are evidence that doing this well pays off handsomely. Not only does it segment the customer base in many different ways, but it can deploy the insight this yields effectively across the organisation to ensure that the relevant messages are received by the right customers at the right time, with formats, products, promotions and services offered to those most likely to want them – and not offered to those who clearly don’t.

Steve Gray

Managing director

dunnhumby UK & Ireland

London W5

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