The Secrets to Marketing Segmentation

Visiting a CVS store today is about more than simply buying cold medicine and prescriptions to satisfy a short-term need. Visitors have core values of health and wellness that combine to form their identity and shape their choices at checkout and beyond. These needs and values are the building blocks for effective marketing segments that empower marketers to be more relevant, noted Martin Kihn, research vice president, Gartner for Marketing Leaders, in his session on Mastering Segmentation and Personas in a Digital World at the Gartner Digital Marketing Conference 2016.

In a marketplace where attention is short and relevance is king, clear segments and related personas are key to crafting messages that get noticed. Consumers readily opt-out of any channel with messages irrelevant to their needs or values.

Segments 101

The point of any segmentation activity is to divide large groups of people into smaller groups that improve relevance, and as a result, the effectiveness of marketing. Marketers use three core approaches to build segments: needs, values and clusters. However, it’s best to consolidate the first two approaches and focus on two main segmentation types: needs/values and cluster-based segmentation.

The needs/values-based segmentation approach is the most popular and includes variables related to money such as average order value, customer lifetime value, etc. Needs/values-based segmentation indicates who is and is not likely to buy a product or service.

“It can be tough to find a need in a database though,” noted Mr. Kihn. Wanting to satisfy an ice cream craving is not found in data sets as a binary yes or no value.

The second type of segmentation, cluster-based segments, utilize machine-learning to locate segments. These build clusters based on audience attributes to find structure and patterns within a group.

How many segments are enough?

When it comes to how many segments to target, Gartner clients often ask what number is the right number.  Mr. Kihn polled the audience to gauge audience beliefs around the ideal number of segments: 4-7, 7-8, no more than 12-15, or as many as you need. While the group correctly guessed ‘As many as you need,’ Mr. Kihn made an important distinction. “It’s really about how many you can use that matters,” he remarked. “It’s somewhat of a trick question,” he added, but 7-8 is a good number because that’s a number we humans can hold in our head.”

What about 1:1 marketing?

‘Do we really need to segment anymore?’ was a question widely considered by the audience and voiced by Mr. Kihn.  Machine learning contributes to more personalized experiences and is moving marketing toward more individual experiences. However, pursuing segmentation to the point of having a segment for every data point and person (i.e. one-to-one) quickly loses its utility. Overall, segmentation is here to stay given its value in arming marketers with relevant messaging at scale.

Read the eBook: Download The Big Flip for how to use segments, personas and customer journey maps to better define your customers and create tailor-made experiences that drive revenue and growth.