Our Thinking

Is customer segmentation dead?

Is customer segmentation dead?

Ginni Rometty, the CEO of IBM, announced the death of customer segmentation five years ago saying, "The shift is to go from the segment to the individual.”

Ginni Rometty, the CEO of IBM, announced the death of customer segmentation five years ago saying, "The shift is to go from the segment to the individual.”

She might have been a bit premature for most marketers, but if customer segmentation isn’t dead yet, it’s definitely on life support.

Not even Maxwell Smart would think the old approach of surveying people as they walk out of (or past) your physical store would work in this day and age.

So, what can we salvage from customer segments that still applies in today’s omnichannel world or should we forget about segments altogether?

There are several popular ways to segment customers: life stage, lifestyle, and RFM (recency, frequency, monetary). There’s nothing new about any of this. What’s new is the problem modern marketers are facing as the number of customer touchpoints increases.

Do we need to create customer profiles or segments that accurately reflect face-to-face, ecommerce, social, chatbot, help line, and every other customer touchpoint? And when we are talking to people in all of these different ways, what constitutes a “typical” customer or even a “few typical” customers?

What makes a good customer?

Let’s start by tackling what makes a good customer.

Is someone a good customer because they like coming into your bricks and mortar store or would they provide better value if they only shopped online? What if they do both? How do you monitor their behaviour across all of the touchpoints to categorise them into a segment “box”?

While you’re working that one out, you also need to think about how different generations approach omnichannel shopping. Recent research has shown that while millennials (22-to-37-year-olds) have learned to shop in an omnichannel environment, Gen Z (18-to-21-year-olds) and younger have never known anything else.

According to Zentail, these generations already influence how the older generations shop.

“With a pulse on popular culture and propensity to engage with brands on social platforms, Gen Z are proving to be important influencers of purchasing decisions by older generation family members.

Put another way; parents and grandparents value the input of their in-the-know Gen Z children.”

–  Daniel Sperling-Horowitz, President zentail.com

Crawl… walk… run…

Whether they admit it or not, many organisations are still in the “crawl” or early “walk” phase when it comes to customer segmentation in their marketing efforts. Most of us see the result of this daily in our email inbox when we receive a retailer’s mass massage. Sure, it might have your name on it, but mail merges have been around for decades. For many businesses, real personalisation where the products, offers, and even the pricing is specific to the receiver, are still a distant goal.

In Australia, the two largest supermarkets are the furthest along in terms of personalisation, but even they are only “running”. When will they be able to “fly”?

Still, “running” is the minimum medium-sized retailers should be looking to achieve in the next two years.

To reach this milestone, brands need to put customer-centric thinking at the core of what they do. We call this Conscentric Thinking™.

It means seeing your brand through the eye of its customers. Make it easy for them. Empathise with them. It’s their data that’s letting you run your business efficiently so reward them for that with a seamless experience and relevant communications.

Getting started

If your organisation is still crawling – blasting out the same email to everyone – it’s time to get up and walk, quickly.

If you’re where most marketers are – walking – start with some filtering and running rules on your data. Then get ready to run because mass personalisation is the next stop and scores of your competitors are already there. Finally, if you’re lucky enough to be one of the few who are running already, it’s time to learn how to fly.

From a practical standpoint, the first step is getting your data ducks in a row. Just as 80% of the work in any data analysis is data preparation, expect 80% of the work in becoming customer centric and data-driven to be integrating your data and making it available to meet the needs of your company as a whole.

To do this effectively you need support at the C-suite level and access to data from across the whole business. Start with a “data workshop” with relevant team members from all departments to find out what data already exists within your organisation, and who “owns” it. You’ll probably be surprised at the amount of data, and duplication, that exists.

In short, customer segmentation isn’t dead. Instead, it’s fast transitioning from groups and personas to one-to-one communications. And as IBM’s Rometty said in 2013, advanced AI analysis “spells the death of the ‘average’ customer”. So you better get ready because that day is just around the corner.