A Better Way to Segment

Autumn 2023

There’s an obvious value to the idea of segmentation. Customers have different needs, and delivering one undifferentiated product or service in the same way to all of them is bound to leave some of those needs unsatisfied. But I’m old enough now to have seen many clients go through multiple new customer segmentations, each unveiled with a great fanfare, and most failing to deliver on their promise.

The problem with most customer segmentations is that they work, to a greater or lesser extent, by putting people into boxes based on who they are. That might correlate with what customers are looking for, but it rarely captures the true, shifting, nature of customer needs and expectations.

A new white paper published by Treasure Data reports on surveys with marketers and consumers in the UK, USA, and France which shows I’m not alone in feeling sceptical about segmentation.

60% of marketers believe consumer segmentation is an outdated method of marketing, with 62% considering it totally unfit for purpose

73% now agree it's hard to group consumers into one segment because they're always evolving

Despite this, almost all (96%) marketers still use segmentation - even though its effectiveness is being called so clearly into question

Has the pandemic changed customer behaviour?

A better alternative to segmentation?

One of the interesting findings in the report is that marketers are finding consumers harder to predict, with almost three quarters agreeing that more dynamic consumer behaviour makes them harder to group into a single segment.

Actually, I’d argue this has always been the case, but with more and more choice, as well as more and more pressure on budgets both for marketers and consumers, the post-pandemic landscape makes understanding the needs of every customer more important than ever. Interestingly, it’s UK marketers who are most likely to think that consumer behaviour is more difficult to predict.

So if a traditional segmentation is no longer fit for purpose, what should we do instead? Treasure Data argue that the answer is ‘situationships’, which they define as “momentary mindsets based on an individual’s current mood, needs, priorities and circumstances.”

The idea is that, rather than putting customers into a box based on what we know about them, we should aim to understand how they are feeling in the moment. Interestingly, this is exactly how I encourage people to think about customer personas (which are in some ways the qualitative equivalent of segments). Personas are not fixed, but a fluid set of needs that customers will move between over time and on different occasions.

Some of the main situationships identified by the research in the UK are:

Family Firsts

Family Firsts (48%) are pragmatic shoppers who put the needs of their family first.

Safe Shoppers

Safe Shoppers (29%) want information and reassurance, so will favour credible brands and products with a guarantee.

Infrequent Buyers

Infrequent Buyers (28%) only shop when they have to, and don’t engage much with marketing or advertising. They’re driven by needs, not wants.

Seasonal Spikers

Seasonal Spikers (27%) are shopping for non-essentials for a special occasion. They want inspiration and choice.

Purpose Shoppers

Purpose Shoppers (26%) stick to their shopping list. They’re not interested in different choices, but want support to find the right products and services.

Using situationships

Conclusion

It’s an attractive idea, as you can see, and one that lines up with many of the principles that we’d argue are important in using customer insight to inform the design of your customer experience, but how do you put it into practice?

First of all, you need customers to trust you with their data. The survey reported in this white paper shows that they don’t, with 27% of customers admitting to intentionally providing false data (for example by deliberately ticking the wrong boxes on a form, and over a third choosing not to use their main email address with brands.

Why? Partly trust; they don’t have faith that brands will keep their data secure, and they don’t believe that brands will use their data in their interests. But it’s also partly because there’s no compelling reason to believe that brands will use their data to deliver a better, more personalised, service.

It’s an interesting report, and it raises a very valid concern about the effectiveness of old fashioned customer segmentation. There is no question that persuading customers to trust you with their data, and using that data effectively to deliver more personalised experiences in the moment, is a better way forward. “Situationships” may be a hideous word, but it’s a useful approach.