First a quick review. Segmenting your customers means dividing them into smaller groups that are more alike than the rest of your customers. This process yields critical insights about your best customers and helps you identify other segments that can become best customers over time. With this information, you can customize messaging and provide offers that appeal to smaller, more valuable groups, increasing engagement, retention and ultimately customer value. While customer segmentation has been accepted as a critical marketing tool for over 20 years, more than 50% of these efforts end up in failure – wasting hundreds of thousands of dollars and much of your sponsor’s goodwill. Make sure your customer segmentation initiative is a success by avoiding these five common roadblocks and landmines:
- No strategic goal
Good journeys begin with a clear focus on the destinations. If you do not know the overall business driver behind segmenting your customers, you will not succeed. Many companies start a segmentation project because someone else did it. But what is the strategic need in your company — is it more efficient lead acquisition or reduced attrition of best customers? Do you know who your best customers are (not your highest revenue, but your best)?
- Lack of buy-in from the teams responsible for sales
Ultimately, the “peddle hits the metal” when someone has to sell something to someone else. If the teams that sell to your customers — whether web site development, Sales or telemarketing — will not support a segmentation pilot, then you will not succeed. Segmentation must reach customers to matter, and marketing cannot win this battle alone.
- Lack of an executive sponsor
Eventually, all segmentation efforts face pushback from other departments whose goals and metrics are not the same as those of marketing. The only way to ensure buy-in is to have an executive sponsor who can intercede with Finance, with the Creative team, with e-commerce, to make sure the pilot program can see the light of day. An executive sponsor, in our experience, is critical to your success.
- No ROI/success parameters
Another key factor contributing to segmentation failure is a lack of quantification of potential value. What are your success metrics? Without a forecast of potential upside, supporting groups (and potentially Marketing as well) can get sidetracked meeting their own metrics or senior management special requests. Identifying the potential upside, based on company performance and best practices from similar companies, gets you through the hard times, when everyone else would like to abandon your initiative.
- Inability to link data to individual customers
The most common mistake of all is a focus on an “attitudinal” analysis rather than a behavioral one. This approach is useful to provide insight into customer beliefs and needs, but you can’t use it to target specific customers for database marketing efforts. It simply doesn’t work. Build your segmentation on parameters that you want to change — behaviors, and you will be quickly on the road to success.
Yes, segmentation can be transformative to an entire organization. Viewing your customers as groups, rather than a single “she” or “he”, allows the company to better tailor products, services and communications to your critical customer classifications. Since any customer segmentation effort can easily be derailed, keep these five factors in mind, and success will be on the way.