I’ve recently had the opportunity to work with several large-scale well-known consumer/e-commerce companies with ambitions to evolve to 1to1 customer marketing. In both instances, previous approaches to customer segmentation were developed by top Database Service providers or outside analytics firms, and customer segment personas were hypothesized through internal qualitative efforts.
Both cases showed a consistency of errors. Database Service providers despite having hundreds of appended data elements created largely demographic segments, relying on past purchase history, recency, and frequency that told the organization little in terms of actionable customer needs. The collected data that they offer can improve target market modeling, but can only go so far. Also, internally developed “personas” didn’t tie to customer value or needs. Many common needs existed across personas, violating the basic premise of market segmentation – segment attributes must be mutually exclusive across segments and collectively inclusive within segments. There was also no way to know which “segment” was most important since customer value wasn’t assignable. Personas turned out to be best guesses and in one case created disastrous effects. Their definitions of needs included many that were not actionable.
The ability to define actionable needs segments begins with an understanding of customer value. A decile analysis or similar parsing of the customer base can then lead to diving deeper into your most valuable customers. How are do they differ? What needs and interests drive action? Where can these needs be observed, collected, and acted on through trigger and offline marketing offers?
Needs based segmentation combines qualitative and quantitative analysis. The path is straightforward and it must combine customer needs, identifying internal and third party data, and a formal plan to collect actionable observed behaviors and preferences. Segments must have both mutually exclusive needs and be quantifiable. Done right, it provides a blueprint for the entire marketing plan, new metrics for success, and immediate new marketing opportunities.