Does Your Segmentation Need A Refresh?
by Elizabeth Horn, Ph.D.
Segmentation initiatives are expensive and exhausting. Done properly, by including stakeholder interviews, qualitative exploration, quantitative segmentation, qualitative persona development, and an activation workshop, segmentations can take months and require the ongoing attention of internal business partners.When the research and the initial activation process is finished, there remains the big job of socializing the segments throughout the organization.
Still, a current, relevant segmentation scheme is important to the ongoing health of an organization's new product development efforts and marketing communications. It is not wise to leverage an outdated segmentation when filling the new product pipeline and crafting the messages to influence buyers.
How does an organization know when it is time to commit the resources to update a segmentation? Below are some key indicators:
- The current segmentation was developed 5+ years ago. Some markets may not change significantly every 2-3 years, but certainly by 5 years, conditions are different. This means it is time to update your organization's view of category consumers.
- Segment sizes (percentage of consumers/decision makers who fall into each segment) change significantly. This can be assessed via typing the segments into a household panel and tracking or via an omnibus survey (sent out to thousands of category customers each year or more often). Big swings in segment sizes indicate that there is migration into other segments and/or that the segments are no longer as differentiated as they once were. Time for a refresh.
- A merger or acquisition has occurred. We recently worked with a company that acquired a smaller company, and was then acquired by a much larger company. Each company had its own segmentation, which was proving to be cumbersome. All stakeholders agreed that a new, combined segmentation was needed so that the strengths of each product line could be synergized. No one wanted to target the same buyers. When a company’s product/service mix changes, it is time to reassess the segmentation.
- Buyers change the way they access/purchase your product. Distribution matters; it can make or break a product. Ping -ponging between in-store and online purchasing (and indeed, using both channels during the purchase journey) has made it tough for companies to keep up. Should investments be made to boost in-store point-of-sale advertising? Or would the marketing dollars be better allocated to digital advertising? Knowing which segments might respond better to specific purchase channels or paths-to-purchase is helpful. The current segmentation might not account for behavioral and attitudinal changes due to shopping new purchase channels.
- Economic upswings and downswings. In a robust economy, the middle class has more buying power and can make the choice to upgrade their lifestyles with more expensive products and services. In an inflationary environment, a disproportionate amount of income goes to necessities, leaving less for discretionary spending. Suddenly, those private label products don’t look too bad. Economic booms or contractions often result in changes in buying behavior and attitudes that are likely not reflected in the current segmentation.
- Supply-chain disruptions are prolonged. As anyone who has waited several weeks or even months for a critical part for a household appliance or HVAC system can attest, supply-chain problems have a unique way of forcing behavioral and attitudinal change. Consumers who have to wait for a replacement coil for their central air conditioning (A/C) system, for example, might be more willing to try A/C window units. Consumers shopping for everything from fresh fruit to pasta to bath tissue, have been making substitutions or switching to other brands. And these changes are potentially permanent. Anytime markets are disrupted by unique, outside forces (COVID, supply chain), it is an opportunity to rethink a segmentation.
- New products, technologies, or competitors emerge. Innovation is a constant force, whether it be a new/improved idea, a new/improved product, or a new company. The internet of things (IoT) is one example. The ability to connect appliances, garage door openers, lighting, climate control, security, and entertainment has created a new, connected-home experience. Suddenly security companies are competing with internet providers and appliance makers. The target customers of an appliance manufacturer may be different than the target of a home security company. Joining categories together or introducing a game-changing innovation can signal that it is time to throw out the old segmentation and start a new one.
The list provided above is not exhaustive. There are many other factors that may encourage organizations to refresh their segmentations. If one or more of these indicators is present, it is time to consider a refresh.
About the Author
Elizabeth Horn, Ph.D. (firstname.lastname@example.org) is Senior Vice President, Advanced Analytics at Decision Analyst. She may be reached at 1-800-262-5974 or 1-817-640-6166.
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