Customer Segmentation: So much analysis, so few results


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I was speaking with a client yesterday at breakfast about the customer segmentation initiative in his organization. The analysis was proceeding smoothly. There was significant momentum for that initiative both in the “rank and file” and in senior management as well. Everyone was looking for this initiative to be the “secret sauce” to take the company to a new level.

But my client is likely to fail.

As I thought about other customer segmentation projects that we have worked on over the past 10 years, I realized that while the customer segmentation analysis may have been successful in virtually every instance, the actual customer segmentation initiative has succeeded in fewer than 50% of those companies.

You see, with few exceptions, most companies do not want insightful analytics; rather, what they want is to grow their business. The analysis is only as valuable as how it is used to change customer behavior and grow revenue/profit.

So a customer segmentation analysis may be deemed successful if it identifies clear and distinct segments who behave and think differently from each other. However, for the customer segmentation initiative to be successful, that segmentation must be used by the organization with specific actions that will add value – clear, identifiable customer value.

That is where segmentation projects frequently fail. I have another client where over the past four years we have built segmentation analyses two times. I think the work that we have done defining those segments in a way that is both plausible and actionable is some of the best work we have done. But as of today, I call both projects failures. Because no one did anything with the results.

There is a wide range of reasons why organizations are resistant to implementing customer segmentation initiatives. These three reasons represent some of the greatest barriers to driving customer and company value out of customer segmentation:

1. Mismatch between Metrics and Desired Behaviors – A conflict between metrics and segmentation often leads to an early flameout for the initiative. The problem is you see, “people will do first as they are compensated, second as they are measured, and third exactly what they used to.”

If the company metrics are quarterly-based, or even worse, monthly-based, employees will be unlikely to spend time on initiatives that can yield higher returns in the long term but may impact the cost line in the short period. Since segmentation increases marketing costs (creating different offers, creative, etc. for each segment), and the returns may not come for several months down the road — you can see the problem.

2. Conflicting Priorities – Conflicting priorities are something that every marketing organization struggles with, and segmentation is often the victim. When a segmentation initiative is introduced it may be the top priority. However, over time, other projects become more important in the short term. If you have enough short term projects falling one right after another, segmentation runs the risk of falling off the list entirely. Since segmentation at the beginning is an unknown, and workloads are already high, the project is often delayed in order to “make the numbers, now.”

3. No repeatable process – most companies can execute any email program on a one-off basis. After all, they have been trained by management to deliver email programs almost at a moment’s notice, often to a fault. But the problem starts in the follow-up to the campaign — measurement — and extends to be a lack of process to repeat the same type of program as the normal course of business.

If the marketing department does not have a consistent process for evaluating marketing programs on a regular basis and they do not measure the segmented effort, then the effort as a whole is doomed to fail. After all, if you do not determine that a program is successful, why should you repeat it.

In addition, segmented marketing programs are much more work the first time around. The only way they get easier is if you plan for multiple versions and then slot the work into its time slot. (Even then, segmentation is more work than blast programs, but less than if you have no process). When a marketing department is either overwhelmed or just basically reactionary, any approach but the simplest goes by the wayside in the name of experiency.

And there goes segmentation…down the drain.

Customer segmentation clearly has its challenges, but it also has its own rewards. As the company begins to understand the differing needs of different segments, and tailors products, services and experience to match those needs, customers will respond with increased loyalty, share of wallet and customer value. The reward to the marketing department is not only the sense of a job well done, but the rewards that come with direct, measurable, trackable revenue driven by their initiatives.

So if you are starting a customer segmentation initiative, or find yourself in the midst of one right now, you should take a few minutes and examine these three factors to see if they apply in your organization. More often than not they will.

What will you do about it?

Republished with author's permission from original post.

Mark Price
Mark Price is the managing partner and founder of LiftPoint Consulting (, a consulting firm that specializes in customer analysis and relationship marketing. He is responsible for leading client engagements, e-commerce and database marketing, and talent acquisition. Mark is also a RetailWire Brain Trust Panelist, a blogger at and a monthly contributor to the blog of the Minnesota Chapter of the American Marketing Association.


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