Getting started with customer segmentation

Segmentation in marketing isn’t a new concept. But as big data gets bigger, many marketers are only now realising the benefits of defining customer groups and developing the right engagement strategy.

At CACI, we’ve never been busier, building segmentations for clients across all kinds of sectors – retail, charity, travel, financial services, leisure, and utilities.

If you’re thinking about building or commissioning your own segmentation, there are a number of important factors to consider before going ahead.

How do I choose a segmentation model?

There are several ways segmentation can help your business. Typically, our clients use segmentation to:

• understand their customers better;
• increase customer engagement;
• improve targeting and personalisation;
• inform product development;
• help position products or brands;
• and size their market.

It’s worth noting that some segmentation objectives can work against others.

For example, if your primary goal is to inform product or proposition development, then a needs-based or attitudinal segmentation may be the most relevant. But this type of research-based segmentation can often be challenging to map onto a customer database, making it difficult to be used for direct targeting.

It’s why you need to be clear about exactly why you’re segmenting, including how the data will be used, by whom, and in what context.

Before starting any segmentation exercise, ask yourself these key questions:

1. What are your objectives? Get a clear understanding of how you want the segmentation to help your business to achieve its goals. Remember that a segmentation can’t always do it all.
2. Who will use it and how? It’s vital to recognise each way you want to use the segmentation, to inform how it’s created. For example, consider whether segments need to be coded onto your customer database, or whether your media planners will need to build segment-tailored campaigns.
3. Is your project owner empowered to make decisions? Conflicting objectives or opinions over a segmentation’s purpose, or its application, mean it’s important to have a project owner who’s able to prioritise and make key decisions.
4. What data is available? You can build a segmentation based on all kinds of data – attitudes to purchase, transactional history and email engagement, geography, demographics or lifestyle characteristics. The key is to choose the data that best meets your overall objectives. And remember, anything you don’t use in your segmentation build can still be used to profile your segments once they’re created – giving you a clearer picture of each group.

Begin your segmentation journey on the right foot            

Even before you start making decisions, it’s important to get the right information, and define what success will look like. For example, in our client work, we talk to key stakeholders using the four questions above. And only then do we start to design and build a segmentation.

Here are our three top tips to begin your segmentation journey:

1. Have a core purpose – that’s clearly linked to your overall business objectives. Having a clear view of what you want to achieve is the cornerstone of a successful build.
2. Ask whether segmentation is the best option – a reality check never hurts. We’re big fans of segmentation, but there may be another option which fits your business objectives.
3. Think about what your users need – understanding each way your segmentation will be used. This will inform how the segmentation should be created and what data you’ll need to do it.

Customer segmentation: it’s all in the planning

The key to a truly useful customer segmentation is good planning.

The more data you have at your disposal, the more options you have. And that makes it all the more important to think clearly about what kind of segmentation you really need.

If you’d like to learn more about segmentation, or would like to talk about your own customer strategy needs, get in touch with one of our experts.