Friday, April 24, 2009

Death of Customer Segmentation Has Been Greatly Exaggerated

Customer segmentation dead? If you read Wednesday’s AdAge column by DraftFCB exec VP Michael Fassbinder you might think so. However, Fassbinder’s arguments show a weak understanding of segmentation strategies and the new technologies that can make it go. Customer segmentation is most definitely alive. Let’s get into his arguments to disprove it.

Fassnacht’s first argument against segmentation is that the “static definition of consumer segments is becoming less reliable in our extremely volatile society, especially in today's economic climate.” True. But it’s also the best reason for companies to segment customers, and then devise different strategies for each. As he points out there are more customer segments now than there were a year ago because economic conditions have created more of them and ever-changing cultural conditions create them. He neglects to point out however that segments are opportunities. The more the better. Customer segments by their nature are subsets of the larger customer base, defined by demographics and behavior. They are never static. They never were. If for example, a consumer electronics company sees its customer base falling in high-end purchase activity, and gaining in low-priced products. That is not an argument against segmentation. It’s a signal that operations and marketing need to define that segment and treat differently than it did a year ago.

Second, Fassnacht argues that because consumers are never just part of one segment, they feel, rightfully, that they belong to a multitude of segments. Once again a true statement. Consumers do belong to several segments, sometimes for the same company. Example: A Bank of America customer may belong to the segments of active debit card user, retirement account planner, and second mortgage holder. B of A then knows that this customer is a good candidate for share of wallet efforts and customized card accounts. It is not a good target for mortgage based lines of credit. Maybe from a mass media advertising point of view he’s right. But from an internet marketing and customer retention strategy, the diverse segments even for one customer are a key to growing that customer.

Finally, Fassbinder says consumers are gaining more control of any marketing activity, and therefore want to choose their marketing message anytime and anywhere. This is an excellent point and certainly makes a segmentation strategy more difficult to execute. If that B of A customer loses his job on a Tuesday, marketing relevance for that customer changes immediately. So while this point is well taken it also argues for real-time customer data updates. Real-time updates, and the automated messaging that it enables are necessary to make any segmentation effort effective in the crucible of today’s economy.

Hopefully, Fassbinder’s column puts the customer segmentation argument back on the table. It’s a worthy discussion, but should never lead to the conclusion that it is dead as a strategy, or even tired.

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