5 Traps When Doing Segmentation in the Digital Age

Oscar Wang

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Breakthrough business growth cannot be achieved without breakthrough customer insight. For many Fortune 500 companies, the first step to uncovering breakthrough insights is creating a segmentation of their addressable customer market. But many people don’t know where to start or find themselves stuck once they’ve started down the path.

What are the traps you need to avoid when conducting a segmentation in the digital world we live? Here are five big lessons we’ve learned:

1. Segmentation is not just an analytical exercise

Customer segmentation is typically the first step toward a cohesive, integrated, brand/marketing/CX strategy. Quantitative research methodology experts and qualitative research experts in the organization are rightfully the most important voice in the process, but not the only ones. It is simply unrealistic to expect the experts to also be the ones dominating the hypothesis generation and solution identification process. A combination of P&L owners, BU/product leaders, CX leaders, brand owners, and importantly, members of the C-suite should all be active participants on the team – from soup (hypothesis generation) to nuts (multiple iterations of solutions and finalization).

2. Segmentation and tying to the customer database must happen simultaneously instead of sequentially

Thanks to the era of digital disruption, both the quality and volume of customer data available is unprecedented. Your segmentation data must tie to the database to allow for immediate activation. The handshake variables must be worked into the solution from the beginning so that database tagging accuracy isn’t compromised. Don’t assume you have to give up strategic longevity for short-term identification. Thrive to find a balance. Be aware that you are looking for variables that are captured in database but also proxy enough for strategic relevance.

Stericycle, a $3.5B B2B company who is on the brink of next big wave of growth and brand transformation, embarked on a segmentation journey with Prophet. Its segmentation was based on a handful of firmographic variables that were also powerful enough to predict interest in service bundles ranging from full service provider vs. one-off solutions that the company could use to grow market share. In the digital age, an identifiable segmentation that is also strategically aspirational is no longer just a “best case scenario”, but a must-do. Jim Buckman, VP Marketing Analytics & Automation at Stericycle said, “We are starting to put segmentation into action, and a big part of this is leveraging data we already have to type customers and prospects into segments. This has enabled us to get segmentation initiatives and action plans moving and avoid spinning our wheels at the starting line.”

3. Omnipresent data sources are your friend

Data is everywhere: Social media, website navigation, e-shopping cart, retail, primary research, brand tracker, syndicated industry studies… The list goes on and on. A data system creates an ocean of sources from which to create the segmentation. Use it to create an integrated segmentation that you can use for the next 5 – 10 years. The key to not getting overwhelmed is to first, conduct a comprehensive audit of all the data sources available. Most companies have created the “pile of data” situation without an architectural strategy. Forming a full picture of all the data available can be an extremely valuable step toward value creation. Second, strategically select the data that could help point to an opportunity (i.e. a solution = value orientation is a gold mine for cross-selling opportunities, so that data is more likely to be able to point to opportunities if used to define segments; vs. website navigation pattern is more likely to be a profiling dimension for already-defined segments).

4. Activation. Activation. Activation.

The real moment of truth of your segmentation strategy comes when you ask, “Does it point to a clear and exciting enough opportunity that is uniquely ownable by our brand/offer/service?”. If you answer yes, then you have only just begun. Take it on the road and try it on for size. Socialize with each BU, test the typing tool with employees, create buzz, tag on to strategic priorities, work it into incentive systems, and see if there is internal recall. Does the name become a way of life for the organization? Activating segmentation takes years to see real results, but it only takes weeks for people to completely forget it ever happened if it isn’t properly championed and communicated throughout the organization. Activation. Activation. Activation.

5. Sponsorship and ownership

Does CXO level sponsorship for this segmentation effort exist? It should. A segmentation without that is a waste of time and money. Ownership shouldn’t be mistaken for monopoly. The best-case scenario is that everybody on the core team and extended team thinks it’s their idea. Do members of the product team think they came up with the hypothesis that led to one of the main segments? Does the CX team believe the segment seems “real” vs. their usability testing results? You want to run a process where everybody thinks it was their idea that led to the final solution. And in fact – IT WAS! This indicates that people will use the result to activate the final segmentation.

Final Thoughts

A great segmentation is a strategic investment, if consistently activated, serves as the core anchor for growth strategy – one everybody wants to take credit for in the organization and drives on. Don’t start a segmentation without CXO sponsorship, a core and extended team loaded with cross-functional talents, and an activation-first-and-for-most mindset.

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