Market segmentation can be one of the best investments a company makes, as it sets the strategic foundation for approaching the market. In recent years, advances in analytics and computing power have made doing segmentation easier and more efficient. This is both good news and bad.
The good news. Segmentation has become democratized. In years past, you were often forced to go to a mega firm or boutique consulting outfit. Demand far exceeded supply, leading to astronomical prices. Today, things are different. Regardless of which analytic approach is chosen, the mechanics of segmentation are well-known. As a result, in the market research space many firms offer segmentation. The process has become much more efficient.
The bad news. Despite this efficiency, the unfortunate reality is that many a segmentation is delivered dead on arrival—providing more value as a bookend than strategic business lever. For years, the hit-or-miss nature of segmentation has been written off as assumed risk. Even when companies routinely paid seven figures for segmentation, they were not assured quality results. Carcasses of failed segmentation efforts litter the halls of Corporate America.
Management guru Peter Drucker once said efficiency is doing things right, whereas effectiveness is doing the right thing. In the case of segmentation, the discipline has certainly gained efficiency. However, as many enterprises can attest, the same cannot be said regarding effectiveness. While the mechanics of segmentation have become easier and more accessible, the quality has not seemed to improve much.
When it comes to segmentation, what do we mean by effectiveness? Going back to Drucker, it’s about doing the right thing. In other words, there must be a plan for what the segmentation is and how it will be used. This, in turn, enables better decision-making. As a segmentation project is carried out, from the very outset through delivery and usage, there are countless decision points. All these decisions feed into whether or not the resulting segmentation proves valuable to the business. Too often, many of these decisions are glossed over, assumptions are cast into stone, and a segmentation “solution” emerges that is far from the best business solution.
So how do we get more effective segmentation solutions? Good question! In our next post, we’ll identify three keys to unlocking segmentation effectiveness.