Segmentation is a logistical nightmare

Managing problems encountered before, during and after the segmentation activity

Any strategy initiative inevitably is never trouble‐free. Rarely is a segmentation project without its impediments. Generally, there are problems before the project, during the creation of market segments and afterwards when implementing the resulting segmentation (Dibb and Simkin, 2001, 2008, 2009; Dibb et al., 2008). This project was no different.

(a) Infrastructure impediments – before segmentation

Previous experience of strategy and marketing initiatives ensured that this company appreciated the need for a cross‐functional team, the importance of senior involvement, and the benefits of specialist support. As no suitable expert was available internally, an external segmentation consultant was recruited to support the project. Once the project was underway, the recruitment of a specialist marketing manager and other support personnel, helped mitigate another expected difficulty: that corporate pressures meant the solution had to be publicly available within three months of the project starting. This time pressure also steered the company towards the macro‐micro buying proforma‐led process. Although senior managers were generally receptive to the need to rethink the targeting strategy, it was also evident that some line managers were nervous about the changes that the new segmentation scheme might bring.

A significant issue in advance of the segmentation work was the availability of topical, valid and pertinent data. While the company had much industry analysis, it had not undertaken wide‐ranging, probing in‐depth marketing analysis of customers. The decision to harness cross‐functional teams in the series of workshops – including marketing, customer support, sales and key account management personnel, supplemented with external industry observers and pundits – helped to minimise the extent of this problem. The proforma‐led macro‐micro segmentation approach ensured that the necessary customer insights were collected.

(b) Process issues – during segmentation

In the time available for the project, a large‐scale quantitative survey of customers' usage, attitude and purchasing behaviour was not feasible. Instead, managers began their analysis with the company's current customer classification, electing to further disaggregate these groupings, before re‐aggregating newly identified similar subgroups to form more homogenous market segments. The advisers ensured a rigorous process was followed. This included instigating an in‐depth review of the marketing environment and competitive forces, as well as calculating the internal financial value for different customer types.

Data deficiencies had been anticipated from the onset of the project, but it quickly became clear that there were large gaps in information on customers' buying behaviour, some aspects of the marketing environment, and details about competitors' plans for different customer types. These deficiencies had to be swiftly rectified so as to avoid jeopardising the segmentation project. More workshops were staged to gain the views of customer‐facing personnel, competitor analysis was stepped up, and validatory‐marketing research was commissioned in order to confirm the brainstormings of the company's executives when tackling the buying proformas for each existing customer group.

Two unexpected problems were that the segment profiling proved ineffective, while the company's leadership team had problems populating the variables in the DPM without depending almost exclusively on short‐term segment profitability as the measure of attractiveness. Several iterations were needed in order to develop robust segment profile descriptions which were understood and supported by all business functions. This involved many internal workshops and one‐to‐one meetings, putting pressure on the project's pre‐agreed timeline. A broader set of senior managers than expected was needed to specify the DPM variables and to determine the weightings to be used in evaluating segment attractiveness.

The time‐consuming nature of overcoming the impediments in data collection, segment description and targeting decisions reduced the time available to consider the roll‐out of the resulting segments and to anticipate any problems. The project outcome became the presentation of the identified segments, rather than also including an associated set of marketing plans and a roadmap of marketing programme activities.