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?