Segmentation Is Dead

Mar 29, 2017


Segmentation has been a tried and true friend of marketers for a long, long time. And over the decades, it has meant a lot of things. For many, segmentation evokes the geo-demographic segmentations sold by data companies. For others, it’s overly-simplistic and largely heuristic personas like “Soccer Moms” or, worse, “Millennials” (as if being born in a particular range of years makes us all alike). The Chinese Zodiac is probably just as useful.

Zealots of personalization now tell us that segmentation is not appropriate for individualizing customer experiences. Treating people like everyone else in the segment they belong to fails to honor the unique facts about the individual that you know and should act on.

Those of us who talk about segmentation risk sounding out-of-touch. There’s nothing hot about it anymore.

It’s starting to feel like segmentation is dead.

Before we discard the concept, however, we should step back and think about what segmentation is: it’s simply the act of dividing a population into groups for the purpose of making business decisions.

When you have millions of people to interact with, you can’t make every decision based on a detailed and personalized consideration of every individual. And, despite segmentation’s bad rap, it is actually in greater use today than ever before. It exists in endless varieties. From the micro-segmentation of traffic arriving at websites, to the attitudinal or behavioral segmentation of a brand’s customers, to the socio-economic segmentation of voters, to the geo-demographic segmentation of media consumers, there is segmentation at work everywhere, and with increasing sophistication.

Segmentation is just plain useful and powerful, when used correctly. As much as we’d like to think otherwise, we’re not all the unique snowflakes we imagine ourselves to be. We actually do exhibit common patterns of behaviors and attitudes, and it is useful to businesses to acknowledge and act on those patterns.
There are three things we at Elicit emphasize about customer segmentation.

First, be clear about the business questions a given segmentation approach is intended to address. All segmentations answer some questions, and no segmentation answers all questions. Maybe you want to stratify your customers by value to your business. Or by affinity for product or channel. Or by engagement with your loyalty program. Or by typical conversion pathway. If you’re clear about the purpose of a segmentation approach, you can use it effectively, and not misuse it in ways it wasn’t designed to be used. (Hint: the personalization gurus are right: individualization requires more than segmentation!)

Second, get comfortable having multiple, simultaneous segmentation approaches. The days of one over-arching segmentation to drive your business are over. You have to be able to overlay and manage a variety of segmentations to enable business decision-making—from media buying, to customer service delivery, to buying and merchandising, to loyalty program management.

Third, develop a customer segment view of your business. That is, one of your segmentation approaches should encompass all of your revenue, and provide a strategic view of your business in customer terms. After all, your total revenue is equal to the sum of the spend of your customers. This customer portfolio view should sit alongside the product, channel, or geographic views of your business. If you can’t quantify business performance in terms of your customers, you have a big blind spot.

It’s time for us to level-up the dialogue about segmentation, rather than relegating it to the dustbin. The next time you hear someone trashing segmentation, just say to them, “Ah, you’re in that group.”