Why every type of customer segmentation is wrong (on its own).

05.10.2017

What image springs to mind when you hear someone mention “The 1960’s”?

JFK?  Vietnam?  Woodstock? The Beatles?  Apollo 11?

All the above are synonymous with that era, but can any of them really be said to define the decade? 

If you think about it, none of these mental associations reflect the day-to-day reality of what it was like to be alive then. In fact, these shorthand mental images reflect only a tiny proportion of the life of an ‘average’ person at that time.

This sums up one of the problems that can derail attempts to create a meaningful segmentation. Any attempt to bound a generation in an archetypal nutshell is destined to be unrealistic. Yet we’re all guilty of doing it – partly because we’re lazy and find it easier to chunk things up, but also because we tend to latch onto the most memorable characteristics and mistake them for being the most common.

Perhaps the media is partly to blame for this. Whether it be Hollywood leading us to believe that the ‘typical’ ancient Roman spent all their time at orgies, to online news sites fostering the polarisation of political debate into rival tribes of ‘them’ and ‘us’, we naturally think in terms of broad generalisations.

 

Nature abhors neatness

The business world is not immune from this very human trait. The corporate world loves nothing more than neatness. Putting customers into convenient boxes makes them suddenly comprehensible and creates the illusion they are therefore more manageable.

But this is a fallacy. Customers are real people and as such are anything but neat or manageable.

The current debate about stereotyping ‘millennials’ is a good example of why crude demographic approaches used by businesses are bound to be ineffective. Putting aside for a moment the fact that there is no agreed definition of what a ‘millennial’ actually is, does it really make sense to summarise a generation based purely on when they happened to be born?

Surely this is gross simplification which any sensible organisation should avoid?

 

We tend to segment according to what it’s most easy to segment by

Traditionally marketers have segmented their customers according to whatever data is most easily available. This varies according to the nature of the business but, typically, is a combination of demographic (who?) and behavioural (what?) variables. A telecoms company, for example, might create customer groupings based on whether the customer is business or a private user, and then break them down according to how much they spend and how they use their phones. Using this approach, it’s then possible to craft relevant news and offers for delivery via a segmented CRM strategy (and further refine this according to the customer’s ‘life stage’).

A brick and mortar retailer, by contrast, might struggle even to know who their individual customers are and thus has to take more of a ‘pen portrait’ approach – using broad, demographic-led summaries to help staff better understand the different types of people who walk through the door.

But just imagine how powerful it would be to know not just who your customers are and what they do but why they behave in the way they do (or indeed why they don’t behave in the ways you’d expect)?

 

The most important segmentation variable of all?

Adding attitude and motivation makes for a far more nuanced segmentation – with the latter being arguably the most powerful thing you can know.

Nearly every organisation is in the business of trying to persuade an audience to behave in a certain way - become a customer, stay a customer, buy more, recommend a friend etc. Until recently knowing how to persuade was difficult; not only would you have to ask everyone ‘why do you do what you do?’ but the answers they gave would be unreliable – even the respondent would not know why they really made the choice they did.

But techniques derived from the emerging field of behavioural science have the potential to be used in creative ways to uncover true attitudes and motivations. For example, an Implicit Association Test (IAT) approach could be used in some digital contexts – whereby the speed of responding to a series of statements or image pairings could uncover fascinating insights into what a customer really feels about your brand or product.

Another technique could be to use the dopamine-inducing ‘knowledge gap’ approach. For example, simply asking a subscriber to a car brand’s email newsletter to make the choice below taps into the same psychology of curiosity that’s been used by street corner news vendors since the 19th century:

“Click here to discover how much discount we’re willing to offer you”

OR

“Click here to see the model we’ve selected for you”

Simply noting which choice was made would tell a car manufacturer a surprising amount about what really motivates the subscriber.

It’s far more meaningful to segment by what we do and why we do it than simply by who we are demographically. But, do you always need to change someone’s motivation in order to change their behaviour?

 

The surprising thing about motivation

If you’ve ever been a member of a gym you’ll know how difficult it is to find the motivation to get started. But, once you get into the habit of showing up somehow your motivation increases – which raises an interesting question: do we need motivation to act or does motivation happen as result of acting?

There’s an intriguing twist here that catches out many marketers: most of our motivation and attitudes happen at an unconscious level – so trying to change them directly through ‘rational’ arguments won’t work.

 

You can’t (easily) change my behaviour by trying to influence the way I think, but you can change the way I think by changing my behaviour.

In other words, we need to stop trying so hard to change someone’s attitude and motivation head-on; instead, we can affect a sea-change by finding creative ways to nudge them to behave in a way that subtly alters their attitude. For example, lecturing someone on the virtues of recycling is hard work and not nearly as effective as simply making it easy (and normal) to visit the recycling bin.

 

Summary: chose the segmentation that makes most sense for you and your audience

There is no ‘right’ way to segment. It all depends on the business you’re in and the audience you are talking to.  Choosing a segmentation solely based ‘who’ without also taking account of what they do and, above all, why they do it is only going to give you a one-dimensional view in a 3D world.

But we need to go further. Understanding the subtle interplay between motivation and behaviour - recognising that each drives the other - is the next exciting chapter in the evolution of segmentation techniques.


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