3 Questions to Ask When You Are Considering a New or Updated Customer Segmentation
Given long-term impact and considerable investment, there are three questions for your brand to consider when exploring a customer segmentation consulting partner.
A quantitative customer segmentation is often a significant investment of time (e.g., three months) and expense (e.g., $250,000 and up). The customer segmentation outputs are applied in the brand’s innovation and marketing activities for a minimum of two years, and sometimes as many as five years.
| 3 Customer Segmentation Consulting Questions |
|---|
| 1. What’s the Major Goal of the Customer Segmentation for Your Brand? |
| 2. Does Your Team Have Experience in Developing an Actionable Customer Segmentation? |
| 3. How Often Will Your Brand Update its Customer Segmentation? |
Customer Segmentation Consulting Question #1. What’s the Major Goal of the Customer Segmentation for Your Brand?
Customer segmentation can be used across a number of applications and to address several goals. Some example goals that your brand might consider include:
- To identify the most attractive growth opportunity areas for innovation and new product development
- To identify target consumers for a new product offering in an emerging category
- To identify distinct customer target segments for several brands in a portfolio (i.e., not have all the brands in your company’s portfolio target the same customer)
- To identify the most important customers for your brand to drive growth and profitability (e.g., Ulta’s Beauty Enthusiast)
- To understand the need states along with the customer segments that your brand’s marketing and/or product development will target
- To understand the customer’s customers (i.e., to demonstrate value for retailers that work with your brand)
- To explore areas of emerging demand, and where this demand falls within current customer segments
- To understand how well your brand(s) meets customers’ needs compared with competition
- To develop a model of the most profitable customer to use for direct marketing and then use proxy variables to model “look-a-likes”
It’s helpful to take a step back as a leadership team to prioritize the goals rather than selecting them all, as there are trade-offs. It’s also recommended to get leadership team alignment and buy-in to the customer segmentation before starting the work, so when the customer segmentation results are available, the team is eager to work with them and sees the benefit to be gained.
How a customer segmentation consulting firm can help answer this question:
- Work with leadership team to refine and prioritize the goals
- Clarify the impact of changes in the goals on the customer segmentation approach and benefits
- Ensure the customer segmentation goals are realistic based on experience with similar brands
| 3 Customer Segmentation Consulting Questions |
|---|
| 1. What’s the Major Goal of the Customer Segmentation for Your Brand? |
| 2. Does Your Team Have Experience in Developing an Actionable Customer Segmentation? |
| 3. How Often Will Your Brand Update its Customer Segmentation? |
Customer Segmentation Consulting Question #2. Does Your Team Have Experience in Developing an Actionable Customer Segmentation?
Answering this question will likely require revisiting the goal from question #1 and may depend on the primary channel for your brand.
For Brands that Sell Primarily through Retail (Not eCommerce)…
Our experience is that the marketing and insights team members at large consumer products brands don’t have frequent experience with developing an insightful and actionable customer segmentation. This isn’t surprising, given the other demands on their time, and the fact that each brand will typically conduct a quantitative segmentation study every two to five years.
An outside customer segmentation consulting firm is often selected to work with the team.
For these brands, the lion’s share of sales (79%+) is found in retail channels, primarily stores. Large retail brands with stores like Walmart, Best Buy, Home Depot, Target, Kroger and Staples also rank in the top ten for 2021 estimated web sales, deploying an omnichannel strategy.
The marketing teams at brands that sell through these retailers don’t have direct access to customer spending data at an individual customer level that an eCommerce brand has. There is a lot of data, but it doesn’t typically contain the insights that the marketing team seeks to drive new product development, innovation and marketing. And the retail partner may or may not be willing to share this data with the brand team.
For example, scanner data can be purchased (a significant investment) to provide behavioral insight. Depending on the category or the channel mix, the data may be incomplete. For instance, a recent private label study estimated that store brand accounted for 23% of all grocery dollars and 25% of units by adjusting for sales at retailers not included in the point-of-sale dataset. At times, this scanner data is cross-referenced with household panel data to give more insight into the customer segments.
eCommerce Brands…
At $861B, eCommerce was generously estimated at 21% of consumer spending in the US in 2020, up 44% compared with 2019. This estimate excludes categories like restaurants, auto dealers and gasoline stations that are primarily not online.
At direct-to-consumer eCommerce brands, many marketing team members will lay claim to working with customer segmentation. Frequently, the marketing team members work with an analytics team, model, or outsource to agency experts to identify the most valuable customers for retention, loyalty and acquisition. This approach predates eCommerce, for example, with volume direct mail marketers such as credit card companies.
The marketing team’s focus is on applying the segmentation to optimize their individual goal, e.g., subscription sales, without consideration for other goals, e.g., innovation, branding.
How a customer segmentation consulting firm can help answer this question:
- Bolster the management team’s experience level by bringing years of experience with customer segmentation to the engagement
- Share examples of how applying an overarching customer segmentation to innovation and branding allowed greater organizational alignment and success
- Increase actionability by providing practical suggestions that will add to the value, e.g., tailored sales presentations, retailer summit
| 3 Customer Segmentation Consulting Questions |
|---|
| 1. What’s the Major Goal of the Customer Segmentation for Your Brand? |
| 2. Does Your Team Have Experience in Developing an Actionable Customer Segmentation? |
| 3. How Often Will Your Brand Update its Customer Segmentation? |
Customer Segmentation Consulting Question #3. How Often Will Your Brand Update its Customer Segmentation?
With artificial intelligence, continuously updating the customer segmentation may be the right answer for some businesses, particularly those with very short product development cycles. However, this isn’t the reality for innovation and new products leaders at many larger firms, where new products take more than six months to develop. In automotive, for instance, a new car may take two years or more to develop.
Instead of continuously redoing the segmentation, most firms will opt to track the ongoing results among segments that a management team is using for innovation, new products and marketing. And, a well-designed customer segmentation will include emerging trends and demand segments. For example, Silk refreshed its soy milk customer segmentation to focus on broader value-added milks without the need for new research.
How a customer segmentation consulting firm can help answer this question:
- Craft a customer segmentation that is designed to capture emerging demand
- Provide perspective on how often brands in your business are typically updating vs. refreshing their segmentations
Visit our resources page for more examples of customer segmentation, or contact us to explore a customer segmentation for your brand.
