4 Common Segmentation Pitfalls — and More Effective Methods to Try
The coronavirus pandemic has created a lot of uncertainty in a very short period of time. Many companies have decided to cut their marketing budgets as a result. On the one hand, this is a prudent financial decision to protect cash flows. But on the other hand, it sets up the company for a revenue shortfall downstream.
Is there a middle ground that allows you to continue marketing with greater confidence in the ROI you’ll achieve? Yes, and it’s called segmentation.
Segmentation is the only free lunch in the marketing world, the only lever that allows you to spend less to make more. Segmentation is not a new concept to anyone, but when’s the last time you checked to see how effective your segmentation strategy is?
In the era of big data, there are low-cost, fast ways to derive a smart segmentation – one that allows you to deliver the right thing to the right person at the right time, and grow your business in the process.
In this article, we will explore some of the common roadblocks companies come up against when segmenting their audience and customers, and how you can overcome them. Plus, we’ll look at how to activate your segmentation once you’ve developed it.
Pitfalls with Four Common Segmentation Styles
Let’s discuss some typical ways companies segment databases. One important point: Using these four segmentation methods is not bad or wrong, and it’s far better than doing nothing. But we have found even more effective ways to segment your customer and audience lists to supplement and build upon the segmentation you already have to drive revenue growth.
Pitfall 1: Qualitative Personas
Many companies feel like they’ve checked the segmentation box because, one day, the marketing team sat around a conference room and brainstormed some personas based on reasonable assumptions. Or maybe an agency came in to re-do their website and walked them through a personas exercise.
Personas (an interchangeable term with segments, for the purpose of this article) that are derived from brainstorming sessions are a good start. They train your organization to get used to the principles behind segmentation.
But the problem with qualitative personas is they’re not derived using the voice of the customer. They’re derived from the opinions of the management team. That’s not to say they are grossly inaccurate, but rather, there may be some important nuances that are missing. There may be a bit of wishful thinking mixed in, too. Sometimes they become who you want your customers to be, rather than who actually is the best fit.
Pitfall 2: Demographic (or Firmographic) Segments
For consumer businesses, it’s common to look at demographics: age, gender, income, etc. This is great because it can be directly mapped to a media buying plan. The B2B equivalent is firmographics: company industry, size, employee count, and so on.
It sounds great on paper, but let’s consider a specific scenario to see how it works in the real world. There are two prospects. Both are British, male, worth more than $50 million, and 71 years old. Should you sell them the same product or send them the same marketing campaign?
If all you relied on were demographics, the answer would of course be yes. But now let me reveal that these two gentlemen are Ozzy Osbourne and Prince Charles. Still think you should target them the same way?
Pitfall 3: Geographic Segments
Geographic segmentation, like demographic segmentation, is highly actionable: You can launch local marketing campaigns and deploy your sales team against specific zip codes. But it’s incomplete.
It works well on a blunt level — don’t sell ice cream in Alaska in the winter, don’t put beef on the menu in a vegetarian country. But it lacks profound consumer insights that can help you generate ideas to accelerate your company past the competition.
Pitfall 4: Monetary-Based Segments
Many companies maintain a list of A-, B-, and C-level accounts based on how much a customer has spent in the past. There is good business value in doing so — you want to make sure you keep your biggest customers happy. But this form of segmentation doesn’t provide any insights into why your biggest customers spend so much with you.
In fact, it is often the case that these big accounts only picked you because you had the lowest price, not necessarily because they are loyal brand advocates. If your competition lowers the price tomorrow, these big customers may jump ship and migrate over to them.
The Solution to Avoiding These Pitfalls
While some of these segmentation methods can be a nice jumping-off point, there are two other approaches that have been proved to add much greater business value. They are called behavioral and attitudinal, or psychographic, segmentation.
Behavioral segmentation buckets customers based on how they act. What are they doing on your website? What devices are they using? When are they engaging with your brand? Did they start a checkout flow for a subscription?
In the past it was hard to collect this data, but now it is incredibly easy! There are hundreds of software vendors out there that empower you to track the behavior of your audience and customers. And data science is so powerful now, that to build a predictive model (e.g., who is likely to buy/renew/upgrade based on their actions) costs a fraction of what it did even just five years ago.
With our publishing clients, we’ve seen anywhere from a 2-5X increase in online conversion rates when predictive models, based on behavioral segmentation, are deployed to deliver the right offer to the right person at the right time. It’s like free money. You already have the data, why not put it to use in acquisition, retention, and upselling efforts?
As for attitudinal segments, this is hands-down the most powerful segmentation method. It allows you to really understand the emotional reasons behind why someone buys or takes any other action with your business, and it leads to substantial business results. We’ve seen over 10X increase in leads, 70% decrease in customer acquisition costs, and 50% reduction in sales cycle time when attitudinal segments are put into play.
The historical problem with attitudinal segments was they were not very actionable. You could learn from market research that the “highly-technical, analytical mind” was the best target for your publication or membership, but it would be relatively hard to know if someone coming to your website fit that mindset, unless you somehow asked them point-blank.
Now, with advances in natural language processing (NLP), your content can do this sorting for you. Based on the types of content your audience is consuming, you can put them into attitudinal segments. That makes this segmentation method extremely actionable. As content creators, you’re sitting on a veritable gold mine.
In an ideal world you can have a multidimensional segmentation that incorporates variables across demographics, geography, behaviors, and attitudes. That’s where the real magic happens.
How to Activate a Segmentation Once You Have One
All this is intellectually stimulating, but so what? Now that you have robust segments, how do you actually make money on them?
The key is to quantify the value of each of your segments, then build a unique go-to-market strategy for each of your three to five highest-value segments.
Such a plan should include:
- Acquisition efforts. What lead magnets are most relevant? What media channels are most efficient?
- Lead-nurturing efforts. What content is most relevant to the segment? How can you best “show not tell” your value proposition by giving prospects a taste of what you have to offer without being overly “salesy?”
- Conversion. What introductory offer makes the most sense? When is the best time to make that offer?
- Retention. What does the experience need to look like to delight this segment based on their unique needs and wants, both emotionally and tangibly?
- Upsell. What else can you offer the segment that solves a real pain point for them?
You can make some educated guesses, but you won’t know if your go-to-market strategies work unless you pilot them, track KPIs, then decide if you need to course correct or scale. The best thing you can do is get to market quickly with new ideas that make sense for your high-value segments, measure what is working and what is not, then take action.
There’s a lot to think about here, but at the end of the day, it boils down to one simple fact: Segmentation enables you to either make more money with what you’re already investing, or it allows you to get the same results with less investment. It’s truly amazing to have a tool that gives you more return with less risk. How will segmentation take your business to the next level?
Rob Ristagno, Founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Ristagno is passionate about helping others grow near-term revenues by applying data science to uncover and test low-risk, high-reward sales and marketing strategies. Committed to spreading this message, Rob is the author of A Member is Worth a Thousand Visitors and the developer of the Growth Mindset Assessment.