A lot of time and money is wasted on segmentation studies. Here’s why, and what to do about it.
By Rich Schreuer
Last November I partnered with a banking client for a conference presentation on a segmentation study we conducted to help guide his organization towards greater customer-centricity. The study provided market insight to help transition from a product-based to a customer-centric organization by identifying need, attitude, and behavior-based segments. The results helped them develop value propositions customized for each segment, which addressed products, messaging and customer experiences.
The study was a great success. It’s used by our client in many ways, and was “actionable” in every sense of the word. But rather than dwelling on our very great success, it got me thinking about why segmentation studies are often not acted upon. In my 25 years of market research experience, I have found that segmentation studies are often found “interesting” but not “actionable.” And it’s often not a function of the quality of research. Poorly executed studies are never actionable. But even well executed studies may not be actionable. (And, by the way, when a client finds a study “interesting,” for me, that’s code for “I don’t want to hurt your feelings, but you failed.”)
Back to the conference presentation…at the start of our talk I asked the audience how many had worked on well-executed segmentation studies (either as a supplier or a client) that were ultimately deemed “not useful.” I knew the situation was bad, but I was shocked when about four-fifths of the audience raised their hand. So, here are a number of things we at CMB have learned over years about how to make segmentation actionable. Note they don’t have anything to do with the mechanics of execution.
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It’s the process, stupid (apologies to James Carville)
While any good market research firm can write a decent questionnaire, structure a sound sample, and use state-of-the art analysis techniques, it’s the process that usually determines the project’s fate. Simply soliciting client input, executing the study and presenting results is not enough. The study will be a success if the process involves making information-users partners by capturing their definition of success, upcoming decisions and hypotheses, and then including these partners in selection the final segmentation solution.
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Articulate and agree on business decisions
Our experience shows that while, many research consumers are good at listing information needs, few actually identify the decisions they intend to make with this information. Most seem to believe that if they have enough information they will find insights to help make as yet undetermined decisions. This problem is especially acute in segmentation studies, because different types of decisions (product development vs. messaging vs. targeting) require different type questions and measurement techniques.
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Many options, but no silver bullet
Over many years and many studies I have never had an engagement where one segmentation solution worked equally well for all decisions. For example, solutions that are stronger for targeting will typically be weaker for messaging. At CMB, our process involves examining and rejecting up to 50 solutions, and then presenting four or five really good ones to our client. This is where management art blends with science. By understanding competing decisions at the start, we make rational tradeoffs to select the best solution.
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Real work begins when the study ends
A segmentation study is typically treated as a discrete project with a beginning and end date. If the final presentation is well-received the supplier and client may have celebratory drinks or dinner, if not the supplier quietly slinks off to the airport. But the reality is that no matter how positive the initial reaction, segmentation studies can die on the vine if planning for implementation doesn’t occur before the final presentation. In successful segmentation engagements, the final presentation is not “the end,” but rather “the end of the beginning.” Segmentation often requires managers to think differently about the market, and this can’t occur without a process to support and reinforce this way of thinking. We typically use a set of cross-functional workshops in which participants work with the information and participate in exercises to develop plans with input and support from the group
If you can internalize and act on these principles you’ll never have to slink back to airport after a final presentation.
Rich is Senior VP and Chief Methodologist at CMB, he also knows the secrets of raising chickens, and the lost art of ski ballet.
You didn’t think we’d give away all our secrets did you? Join us this Wednesday the 27th at noon to learn more secrets to successful segmentation.
We're looking forward to the New Year—new projects, new insights, and new ideas. But before we ring in 2013, let's take a look back at some of our favorite blogs from 2012:
Kristen Garvey talks brand loyalty, and why some brands have that certain something:
Creating a Brand Ritual Takes more than Points and Rewards
Andrew Wilson makes the case for Customer Experience research:
Is the Voice of the Customer the Death Knell of Innovation?
Diego Jimenez takes a delicious look at the importance of good questionnaire design:
One Sweet Approach to Questionnaire Design
A double header by Jeff McKenna, a practical look at Big Data:
How Target Knows You're Pregnant: A Predictive Analysis Perspective and "Big Data," Expert Systems, and the Future of the Market Researcher
Brant Cruz explains needs-state segmentation, and why people only seem to order tomato juice at 40,000 feet:
Why Boozers Become Juicers on Planes: Adventures in Segmentation
Thank you for a wonderful year. And, if you've got topics you'd like us to tackle in 2013, let us know in the comments!
Don't let your segmentation study languish on the shelf. CMB's Brant Cruz, shares the five C's of great segmentation socializers. Learn how to get your segmentation embraced and used by your organization:
Brant Cruz is our resident segmentation guru and the Vice President of CMB’s eCommerce and Retail Practice. Read more of Brant’s thoughts on segmentation here.
All seasoned business travelers have their share of funny or painful airline stories, and I’m no exception. But a particularly memorable incident on a recent flight to SFO got me thinking, and it’s the genesis for this blog.
Long story short, I was sitting by the window and celebrating the open middle seat next to me when a 6’8” 350 lb. man shuffled down the aisle and plopped into it. Our conversation went exactly like this:
Giant: “I know, I know, I’m a giant. Sorry.”
Brant: “I have to admit, I was chanting ‘not him, not him’ from the moment you walked on. Sorry.”
From there the conversation (between my snores) was amiable. And then, somewhere over the Great Plains, my new friend spilled cranberry juice all over his seat-back table, and himself. Have you ever seen a man that size try to clean himself in an area that small? Not pretty.
My mind ran with this incident, and I immediately started thinking about the seemingly ridiculous (to me anyway) amount of cranberry and tomato juice that is consumed on airplanes. The data below is completely fictitious, but I bet it is directionally accurate.
Now, what does this have to do with market research? Not much… but I’ll reach.
To me, the chart above segues nicely into a discussion of the differences between Market Segmentation, and Needs-State (AKA “Occasion-Based”) Segmentation.
Market Segmentation groups people or businesses into mutually exclusive and collectively exhaustive (MECE) groups. It is limited by the realities that people and businesses are complex, don’t always think or behave the same way all the time, and because of this any segmentation scheme is forced to be an over-simplification of reality. However, despite these limitations, great market segmentation can provide businesses with a common lexicon to use to describe the audiences it serves, prioritization of who to invest in, and the foundation for understanding what to say and where to say it in marketing at a brand level. Market Segmentation is great for setting strategy. If I’m a cranberry juice company, I’m going to go after segments that drink a lot of juice (kids, active women in their 40s, health/energy motivated people, etc.) But it is far less useful in some important areas … namely in identifying the best places to reach our core segments, what improvements to make, and how to grow our business beyond the core. This is where Needs-State Segmentation comes into play.
Needs-State Segmentation groups together occasions (e.g., shopping trip types, travel trip types, usage occasions and information gathering moments) based on common needs, rather than grouping people or businesses. While the Needs-States are mutually exclusive, each person/business can experience multiple needs states as they interact with the category. Needs-State Segmentation has two major orientations: purchase decision occasions, and usage occasions. A segmentation focused on purchase decision occasions will break down all of the critical moments in the purchase funnel where the process of buying is impacted (from seeing a commercial on T.V. to chatting with a friend / WOM). This type of segmentation will dramatically improve a company’s ROI on their integrated marketing plans by highlighting the most important occasions to hit and what to communicate in them. In contrast, a segmentation focused on usage occasions will lay out all of the moments when actual product usage occurs and what distinct needs must be fulfilled in each. This is the bread and butter of innovation for both short-term improvements within an existing line of products and for longer-term high growth innovation where a new niche in the market is identified (like when Red Bull figured out that it could target the mid-night clubbing need state rather than the afternoon-pick-me-up occasion).
Market Segmentation and Needs-State Segmentation complement each other. I can only assume that cross-country flights are a unique need state, where multiple segments swerve from their typical behaviors and begin pining for bright red liquids. The question here is do the bright red liquid companies know this? And if they do, do they understand the need state deeply enough to take full advantage of it?
Posted by Brant Cruz and Lori Wahl, Brant is resident segmentation guru and the Vice President of CMB’s eCommerce and Retail Practice. Read more of Brant’s thoughts on segmentation here.
Lori is a former CPG marketer turned researcher, who now runs her own strategic qualitative research consultancy, BIGinsightz. Lori is an expert in strategic market research, having built three best-in-class insight processes for her former company that drive product, branding and selling strategies. You can reach her at BIGinsightz@gmail.com
I’m always looking for some angle that allows me to marry my love of sports with some at least tangentially-related topic from marketing research. This one I think is actually pretty good. Tebow is a media lodestone right now, and segmentation… well, that’s about my favorite topic (outside of sports and food).
Without further ado…
There is no shortage of skeptics when it comes to either segmentation, or Tebow. Segmentation studies (not mine) are notorious for providing “interesting” but ultimately useless information. Similarly, Tebow has been dissected and criticized by a myriad of experts, including draft gurus Mel Kiper Junior and Todd McShay.
Neither segmentation nor Tebow are about perfection, but about increasing your odds of winning. Given each individual is unique, the only “perfect” segmentation scheme would have one segment per member of the population. So given perfection is impossible, segmentation becomes an exercise in finding a scheme that dramatically increases your chances of “winning” with individuals through differentiated treatment of the groups (e.g., better products and/or marketing messaging and/or targeting). Similarly, Tebow is far from anyone’s epitome of NFL QB perfection. He’s too short, too stocky, and has lousy mechanics. But he’s a proven winner at the NCAA level, and Denver is 6-21 in Kyle Orton’s last 27 starts.
Both Segmentation and Tebow are about leadership and both can change cultures. Strategic segmentation (when done well) can change organizational cultures by defining which segment(s) a business will “live for.” Better understanding your most important segments of customers and prospects helps define what their North Star is, and can result in dramatic changes to everything from product offerings to how your company is organized. It provides a foundational roadmap for where a business needs to go and why. Similarly, Tebow’s greatest strength is his leadership. His quiet and humble confidence is infectious, as witnessed by how universally (with the notable exception of Brandon Lloyd) both sides of the ball rallied around him before and during last Sunday’s game. In the matter of a week, the Broncos went from a team mired in failure to one with a lot of hope. (Yes, I know, we can thank the Dolphins for that too… but cut me some slack here).
Segmentation and Tebow will both take time and dedication to succeed. Segmentation is foundational, and therefore should not be rushed. It takes time to create the instrument that will allow you to uncover and profile the most actionable segments, and time and effort analyze and evaluate the data too. Similarly, Tebow is a work in progress. For 50+ minutes on Sunday, Tebow looked like he had no business playing QB in the NFL. He was woefully inaccurate, and he was uncomfortable reading the defense. It’s possible that his mechanics will never improve, but Tebow will never stop trying to get better.
Segmentation and Tebow are both partially defined by faith and abstinence. Unlike some market research studies where the results can be very clear and prescriptive (e.g., the most profitable product configuration and price from a conjoint-based study, or choosing the right product positioning from a monadic concept test), segmentation is usually the beginning of a journey rather than the end. Action either requires more research on the most important segments, or some leap of faith to decide to (for instance) create new messaging based on their motivational profile. It also requires abstinence in that segmentation is almost always about who you don’t (proactively) focus on as who you do focus on. No company can be all things to all people (or businesses), and the decision to walk away from some audiences is hard. Like Tim (who credits his faith for the strength to resist temptations that have kept others in his position from reaching their potential)—it’s important to focus on your goal, and avoid distractions that might sidetrack you along the way.
In a nutshell, both strategic segmentation and Tim Tebow are potential sea-changing initiatives that can have major impacts on the organizations that undertake them. Risk free? Absolutely not. But with the right time, effort and coaching they can both pay off big time.
Posted by Brant Cruz. Brant is CMB’s self-proclaimed Segmentation Prophet. And, he’ll be rooting hard for Tebow to succeed (except when he plays either of Brant’s fantasy football teams or his beloved Chicago Bears).
In this month’s “John’s Corner,” John and Megan discuss the evolution of segmentation.
MM: Market segmentation has been around a long time and new methodologies continue to develop. Why is segmentation so relevant to business?
JM: Segmentation comes from economics; it supplies some of the greatest benefits to businesses available through market research. Its great contribution is enabling major improvements in two critical areas. First it aids effectiveness—identifying and getting products or services to the right people, and second it increases efficiency—less spend per person. That's a very simplified characterization of the classical approach to segmentation.
MM: In the past two decades, a more nuanced view of segmentation has evolved at CMB, can you speak to that?
JM: Segmentation was a dominant research focus for us from day one. Most marketing decisions require segmentation. As we conducted more projects we used our learnings to establish guidelines that would ensure clients received more and more useful outcomes. These best practices that are still used today and include: starting with the end in mind—determining how the segmentation will be used before you begin; allowing for multiple bases—taking a comprehensive, model-based approach— incorporating all potential bases; leveraging existing resources and databases; and above all having an open mind and letting the segments define themselves.
MM: How, and at what point in the process, do you determine what approach to take for segmentation?
JM: About twenty years ago we realized that there were two types of decisions for which segmentation was used. The first was strategic, dealing with decisions about what the business unit was doing, and the second was tactical, focusing on how to carry the strategy out such as targeted messaging. Understanding these options was significant when we scoped projects and determined how to proceed. As our client base grew with multiple divisions we realized that for diversified businesses there was a third set of decisions to address: those at the corporate level above the business units. However, it was not until about 2003 with Microsoft that we had the opportunity to conduct this corporate level segmentation.
MM: So you decided that there are three levels of segmentation: corporate, strategic, and tactical. What made the corporate level so necessary?
JM: Keep in mind that across all of these levels we are looking at decisions. Decisions required at the corporate level are opportunity based and about organizational alignment (e.g., work together) versus more narrow decisions about market communication or product design. For large corporations with multiple divisions you need a broad view to focus synergies across the organization. To segment by divisions in large corporations is to miss the bigger picture and obscure the most fundamental decisions that ensure that the total organization will meet its goals. The corporate level segmentation provides the market focus framework to identify, understand, and capture corporate opportunities.
MM: In an age of big corporations and conglomerates, why don’t we see your three level approach used more broadly?
JM: I think the fundamental reason lies with the education system where segmentation is treated as a homogenous marketing phenomenon, and has failed to recognize management decision making. This myopia is also certainly reinforced by day to day practice. I’m sure most people in market research understand that segmentation projects differ but not sufficiently to make a radical differentiation that informs how projects are scoped and undertaken— which is really the key.
So what do you think, has segmentation evolved? What best fits the corporate culture?
Let’s face it – it’s no secret that segmentation can be a complex issue. There’s no shortage of opinion or collection of best practices to pore over before embarking upon the segmentation process. On one hand, that’s a great thing. It’s always better to have the option of sifting through peer experience (and learn from their mistakes) than it is to start at zero. On the other hand, the sifting process is a lot of work. You’d be surprised how quickly you can find yourself down the rabbit hole.
At CMB, we do our best to make that process easier for our clients. When we talk about segmentation, we draw on 27 years of experience to inform a distinct opinion. You see that in our 5 “C’s” of Great Market Segmentation (clout, confidence, collaboration, cognizance, & communication) and, our belief that segmentation should always begin with the end in mind.
Segmentation is anything but static. We learn something new from almost every project. When we’re finished, we do our best to incorporate the key takeaways into how we view segmentation as a methodology and, perhaps, a discipline.
Something we really enjoy is taking the time to share those unique lessons with the larger research community. On Wednesday, Jim Garrity and Ameriprise Financial’s Bob Biancamano will conduct a webinar that reviews a strategic/attitudinal segmentation project. They’ll take you through a grassroots project from soup to nuts. Ever wondered what to do when questions need answers and there is no obvious champion? This is your chance to find out.
As a preview, I’ll leave you with the ideas that guided the research design.
- Start with the End in Mind: Establish your business objectives and how research will be used before you begin
- Allow for Multiple Bases: Take a comprehensive, model-based approach, that incorporates all potential bases
- Have an Open Mind: Let the segments define themselves
- Anticipate Tradeoffs: Each scheme has different strengths
- Leverage Existing Resources: Harness the power of your internal databases
- Evangelize: Demystify the segments to executives and users
How many “C’s” can you spot? What’s the first idea they kept in mind? Experience, consistency, and an open mind. That’s how we “do” segmentation at CMB.
Join Bob Biancamano of Ameriprise Financial and Jim Garrity of Chadwick Martin Bailey as they present B2C Market Segmentation for Intermediated Businesses: The Case of Ameriprise on Wednesday April 27th at noon ET. Register here.
Due to the NFL labor dispute, the NFLPA may request that likely top NFL draft picks refuse their invitations to attend this April’s NFL Draft in NYC, as a show of solidarity with their union brothers-to-be. I’ve got a problem with how both sides have handled these negotiations, but this isn’t a post about labor relations. Rather, I want to comment about one of the first rules of marketing – “Know thy Audience” - and how the NFL Network (NFLN) and/or ESPN can turn this potential challenge to their benefit.
First a disclaimer. All that I am about to say is based on my own die-hard football fan observations and some theories I have about the NFL Draft audience based on anecdotal evidence. I spend a lot of time doing “real” segmentations, but my thoughts about this segment (Draftnicks) isn’t based on any hard data. That being said…
In my opinion, the audience for the NFL Draft is not the mass market that has brought NFL viewership to stratospheric highs in popularity. In general, casual fans who watch their home team on Sunday, but watch something else on Sunday and Monday nights are not flocking to their TV sets. Spouses and significant others of die-hard football fans are not investing hours (never mind an entire weekend) in front of the TV waiting for the commissioner to call a certain name.
Yes, the move to a Thursday night format has drawn in some casual fans. But the core audience for the NFL Draft is those among us who consider the NFL a 365 day a year past time. “Draftnicks” are born for a variety of reasons. Some of us aspire to be NFL GMs the way young girls aspire to be Disney Princesses. Some of us consider this juxtaposition of college and pro football to be a vital part of our part time jobs, whether those jobs are in the realm of fantasy football or understanding who will beat the spread. And others are the true-blue following that every NFL team has. For 31 teams, the draft provides hope that our team may hoist the Lombardi Trophy next year. For (the hated) Packers fans, it is a step to helping them repeat. The fact that it looks like free agency won’t happen until after the draft due to the CBA impasse just makes the draft more exciting.
Why does understanding “who” is watching and “why” they care matter? Because knowing that is what should drive content. This is not the Olympics. The audience for the Olympics has been deeply researched and the results have lead to the massive amount of human interest stories relative to the amount of time watching the events. I believe NFL Draftnicks are a very different audience. I think in general, we view drafted players more like pieces on a chessboard than we do as friends and family. It isn’t that we don’t care about them as people – I think we all hope they are happy and well adjusted. Yes, there have been a few memorable moments in which attending players filled the starring roles (e.g., Brady Quinn’s rapid fall to the bottom of the first round and Tommie Harris showing up dressed like Marsellus Wallace from Pulp Fiction stick out). But the NFL Draft can survive without live player attendance, because we’re more interested in seeing the film. I want to know what they do well and where they need to improve, and how they fit with their new team. That’s why I watch NFLN’s “Path to the Draft” religiously and why I read free and subscription draft content online religiously year round. This becomes even more fun once we know when they were drafted, and by whom.
Okay… enough rambling context. Here are my thoughts for the NFLN and ESPN, free of charge.
- Feature the Fans: Fly one semi-articulate, well-educated (draft and NFL team wise) fan from all 32 teams into NYC to provide live commentary after each of their team’s picks. “Unscripted Television” is hugely popular, and I think NFL fans in general would really warm to seeing other fans share their points of view. I’ve always thought “The War Room” would make for great reality TV (and for me would be even more exciting than a show of the same name featuring a sitting US President and a red button). NFL fans have and will continue to suffer during the labor dispute. If it helps, I’d like to volunteer myself to represent the Chicago Bears. I’d even pay my own way. That’s actually an awesome idea.
- A Creative Co-Promotion: Invite an EA SPORTS developer or two to share their early thoughts on how they will “build” each of the top picks. I’d love to hear about the development process for creating the 210+ lb Patrick Peterson with his 4.34 speed and elite quickness. Julio Jones is a bit of a freak too. Beyond their physical performance—how do developers account for non-physical factors that affect performance in real-life, like maturity or performance under pressure? Will we be able to tell if Cam Newton’s digital teammates can’t stand him? Millions of NFL fans play Madden, and it’s possible that a promotion like this would drive incremental interest in Madden while it simultaneously drives viewership of the draft.
- More from Experts: For me, I’ve always wanted to see more of the GMs and coaches, and less from the players. I realize that both coaches and GMs are very busy on draft weekend. But perhaps an invite to an in-the-know assistant would suffice. I really would like to know why the team made the pick they did, and how someone knowledgeable sees the player fitting into the team’s scheme. I also love the really smart football minds who analyze this stuff even more thoroughly than Mike Mayock. I loved this article: Why Teams Should Worry About Julio Jones. You need an ESPN Insider subscription to access it, but it gets very math geeky about why Julio’s production isn’t that of a high 1st rounder. I’d love to see Football Outsiders analysis on Day 3 around who they feel may have done the best job at addressing porous run defenses or QB protection issues.
As you can see, I truly think the incoming rookies need the NFL Draft event more than the draft needs them. As I see it, players benefit more from shaking commissioner Goodell’s hand than the other way around. The Draft provides a kick-start for players to win endorsement deals and start building their personal brands. For me personally, I’m hoping that someone at the networks sees this, and we get an even more interesting draft format this year.
Posted by Brant Cruz. Brant is a VP and segmentation guru at CMB. He is eagerly awaiting a call from the Chicago Bears and is keeping his fingers crossed for an exciting 2011 NFL Draft.
Happy St. Patrick’s Day…
We have a lot of great events coming up here at CMB that you might be interested in. In addition to April 27th's webinar with Ameriprise Financial on BtoC segmentation, we will be speaking at Social Media and Community 2.0 Strategies right here in Boston next month. In May we are heading to the windy city for The Technology Driven Market Research Event where CMB’s Jeff McKenna will be speaking. And that’s just the beginning! We hope to see you at one of the many events coming up…
Social Media and Community 2.0 Strategies
April 4-6, Boston
The Other Side of Social Media: How Small Businesses are Getting Social
Join CMB and Constant Contact to understand the social media landscape for small businesses. Learn how social media is impacting consumer decisions to buy and recommend and what small businesses are doing about it.
In May CMB’s Jeff McKenna will be speaking at the Technology Driven Market Research Event in Chicago. Jeff will be discussing the latest tools and technology (available at little or no cost) that add tremendous value by turning data into a visual story.
If you’re interested in attending any of these conferences let us know, we may be able to get you a discounted price.
Posted by Kristen Garvey. Kristen is CMB’s VP of Marketing and is as Irish as they come with the maiden name of Moriarty. For the record she still doesn’t like corned beef and cabbage.
There are several “Best Practices” for segmentation, but one of the most important and best places to start is with the end in mind by determining how the segmentation will be used before you begin. Taking this approach ensures that one of your largest research investments won’t sit on the shelf and will have findings that can be used to support specific business decisions.
It’s ironic that segmentation studies are one of the largest research investments a company can make, yet they are among the most likely to sit on a shelf when they’re done. It’s because if you don’t ask the right questions in the beginning you will end up with findings that people either can’t or won’t use. To make sure this isn’t the case with your next segmentation, start by outlining the business decisions the segmentation will be supporting. For example:
- What are the best segments to focus on? Determining segments not to focus on is just as important as identifying the criteria that makes a segment attractive (e.g., profitability, risk, ability to reach them).
- How to best align marketing and sales strategies with target segments. This leads to tailored communications and messaging to specific segments that resonate when goals, attitudes, and motivations are taken into account.
- What new product or service concepts need further development? Product refinement and/or development can also vary by segment in order to reach the greatest potential with your target audience.
Starting with the end in mind is also a way to get senior management and cross-functional agreement on how the segmentation will be used in the organization. You can then identify what information is needed to answer these questions or make these decisions which leads to actionable results.
Learn More: Check our recent webinar, Challenges and Opportunities for Insurance Carriers in the Face of Healthcare Reform. Amy Modini and Mark Carr discuss the benefits of using segmentation to better understand the changing healthcare market.
Posted by Amy Modini. Amy is an Account Director for CMB’s Financial Services, Healthcare and Insurance Practice and enjoys spending time at the beach and trying to keep up with her 14 month old son.