Average Isn’t Good Enough: Segment or Die!

shutterstock-141454243I’ve noticed a lot of chatter in publications and whitepapers recently about something I think about a lot: segmentation. Take this recent paper by McKinsey, which looks at shifts in media industries, for example. It observed, among of other things, that “averages hide incredible diversity in consumer behavior, making micro- segmentation necessary.”

I couldn’t agree more. I’ve long hated the use of average-based metrics to measure digital marking effectiveness or to understand consumer behaviour. They’re at best sub-optimal, but at worst they are completely misleading. Typical digital behaviour is too diverse and skewed in different directions to make such metrics useful. 

Let’s assume that I’m a digital marketing executive in an ecommerce business and I’m measured by the overall conversion ratio. Currently, this is 4.1 percent. I decide to run a significant acquisition campaign to attract new visitors to the site. Many dollars later, the conversion ratio dropped to 3.2 percent and I got fired.

How did that happen?

Let’s look at this in a bit more detail by doing some basic segmentation. What we have are two groups of distinct visitors, those who are new to the site and those who been there before. Their behaviours are different and importantly, their propensities to buy are very different. First time visitors are far less likely to convert than repeat visitors and purely because of the change of mix in the traffic, it looked like I hadn’t done a good job.

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Now, this example is slightly exaggerated, but we need to understand that segmentation is absolutely key to understanding both performance and execution. As Forrester put it recently:

Effective targeting, personalization, and campaign management depends on associating interactions to individuals or segments.

So the question, then, is what to segment and how?

Classical marketing segmentations tend to have been built on data such as demographics, product usage, and channel usage derived from transactional systems. Alternatively, needs-based segmentation approaches would be based on attitudinal data, gathered via survey research.

All of these are available to the digital (or omni-channel) marketer, plus rich behavioural data by the bucket load. We’ve never had it so good! The challenge is managing and being able to exploit all that data and for that we need the old trio: people, process and technology.

  • People who understand and are passionate about consumer behaviour.
  • People who can recognise interesting and useful patterns in the data.
  • Processes that can translate insights into actions in a meaningful time.
  • Technology that enables the people and the processes to discover and act.

All of the above comes from organizations taking a strategic approach to segmentation and micro-targeting. McKinsey called out five key imperatives for executives operating in the digital world today:

  • Stay close to users by investing in customer insight.
  • Build an edge with deep analytic skills.
  • Make your business models more robust to reflect consumer diversity.
  • Ensure investments are clearly aligned with consumer shifts.
  • Place a premium on and reward superb execution skills.

Clearly, average just isn’t good enough. In business today, you absolutely must segment or die!

Title image courtesy of Shutterstock.

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