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Segmentation Models Are Outdated: How to Update Your Marketing Segmentation Practices
The 2016 US presidential election is perhaps the biggest and most public failure of segmentation models in recent memory. Most models not only predicted Hillary Clinton's victory by a comfortable margin but also ignored the demographic, racial, and geographic segments that predicted a different outcome—and propelled Donald Trump's victory.
Taking that failure as an example, and considering the overall outdated mode of assessment that segmentation models seem to be stuck in, we should admit that segmentation models must evolve.
Especially for businesses, an evolution can result in more effective marketing strategies and more successful marketing performance in our increasingly dynamic marketplace.
Why Segmentation Models Could Use an Update
Since the 1980s, companies have spent a lot of time and effort meticulously segmenting audiences on the basis of demographics and creating personas for marketing teams. However, those methods are increasingly irrelevant, for a few reasons.
- First, there is no longer a competitive advantage to traditional segmentation. Every company is doing basic recency, frequency, monetary (RFM) segmentation using the same combination of behavioral or demographic overlay data.
- Second, potential clients change faster than static models. Many segmentation models that are static by design or updated only a few times a year, at best, don't capture consumers' fast-changing behaviors, especially in high-velocity markets such as technology and retail.
- Third, the models' predictive power doesn't translate to actual return on investment. Traditional segmentation approaches were developed for mass-media buying and are not very effective in an increasingly one-to-one addressable world.
Predicting consumer habits solely by focusing on identifiers such as demographics is misguided. Even formerly successful marketing campaigns based on these techniques are now struggling.
Tesco, for example, famously pioneered combining RFM segmentation with one-to-one targeting at scale in the 1990s through its Clubcard program. The program was aggressively digital for its time, rewarding shoppers for buying healthful food and showing loyalty. But because the model no longer provides a competitive advantage, Tesco's 20 million-member loyalty base is not producing growth today.
Benefits of Switching to Needs-Based Segmentation
Many marketers start with demographic-based segmentation because it's easily available. But America is predicted to be a majority-minority nation by 2040. As multicultural, multigenerational family structures continue to increase and diversify, it will be even more difficult to fit consumers into a single demographic bucket.
Thus, digital behaviors, technology adoption, political affiliation, and social causes are consistently stronger predictors of buying habits than more traditional segments. Shifting marketing efforts to this needs-based segmentation approach therefore provides several advantages:
- A better understanding of real-time changes in target audience needs. Because needs-based segmentation models are more dynamic and flexible, they help teams maximize the messaging's impact.
- Expanded potential messaging and touchpoints. Instead of isolating a buyer into one segment or giving him a handpicked offer that is relevant to only that segment, teams can target a single prospect with multiple needs through messaging that addresses each need in particular.
- Better ad timing. In enhancing a campaign's timing and context by understanding the need-state, teams can account for how that understanding dramatically alters messaging. For example, a morning coffee pit-stop is different from a weekend grocery shopping trip. Consumers engage each activity with particular idiosyncrasies and goals, but efforts that target both equally under the umbrella of "food purchasing" miss that nuance.
- Increased management efficiency. Traditional segmentation across many dimensions with hundreds of micro-segments quickly becomes unwieldy. Using needs-based segmentation reduces complexity and may even lead to cost savings by streamlining operations.
How to Update Your Segmentation Model
Consumers tend to perceive many modern marketing efforts—such as newsletters, promotional emails, or advertisements—as noise to tune out. But marketing teams can hone their strategies and better tailor them to consumers' demands by following these five steps:
- Transition to a scoring system. Scoring your consumers according to the behaviors relevant to the company's brand or category allows marketing teams to build and sequence dynamic consumer journeys targeting precisely the right time and place. Teams can then use these key moments of inflection (or "moments of need") to continue to assess their consumer base even as it evolves.
- Invest in identifying consumer need-states. Through new data sets, tracking methods, and signals in behavior data histories, marketing teams can see where the brand is able to meaningfully engage. What information bits are prospects looking for? What are they trying to compare, find out, or decide? How can teams provide tools to help them overcome those buying hurdles?
- Identify your winning and losing approaches. Using all of the above information, teams should then assess their current marketing communications to gauge how consumers receive them. Such an audit helps you determine which programs and initiatives truly add value for potential customers and are therefore worthwhile investments.
- Redesign efforts along the consumer journey. The more you can position your company as helpful through a consumer's journey, the higher your return. Teams need to develop multiple opportunities along the buyer's journey for prospects to show interest and display engagement—ones that focus on those "moments of need"—because it's not just at the point of purchase that you need to persuade consumers.
- Pay attention to ethical and social boundaries. As you build needs-based and precision messaging, keep in mind the legal, moral, and social boundaries of using targeted data. Stay well within those bounds, because violating a potential buyer's trust is the easiest way to sabotage your marketing efforts. You don't want to make it seem like you're prying into people's lives. Instead, delight consumers with tools, tips, and helpful information at exactly the point they need them.
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Needs-based segmentation offers a deeper understanding of drivers to purchase and provides a more efficient marketing process. Even though your product or service solves a specific set of needs many consumers have in common, generalized efforts spent trying to engage those specific points are less successful than those that continuously create more targeted messages.
Because as the world evolves and consumers continue to diversify, so should your marketing efforts.