How Good is Your Customer Segmentation? Grade Yourself.
by Danny Shayman
It’s absolutely imperative to get segmentation right because of the cascading business decisions made based on how you divide up your market.
Grade Your Customer Segmentation Practice
Follow simMachines’ quick checklist to see where you stack up. Add up your points and compare against the guide below.
Variable #1 – Data Inputs: Simple or Multi-Dimensional?
There are a huge range of potential data inputs into segmentation models, each meaningfully impacting how the resulting segments can be best leveraged. Are your segments built on weak indicators such as demographics or geographic data only (i.e. persona-based segmentation)? Or do they include location data, behavioral data, or other rich signals?
- Data Inputs score (pick one)
- +1 point for demographics/geographic data only
- +3 points if you layer in stronger signals such as behavioral or location data
- +5 points if you use many different types of rich data inputs
Variable #2 – Genesis: Standard or Custom?
Is the segmentation custom built for the task at hand or do you use “off-the-shelf” segments provided by a vendor? If it is not custom, how close of a proxy is it for the job? Can your competitors use the same segments from the same vendor? What’s your competitive edge?
- Genesis score (pick one)
- +1 point if you use standard vendor segments
- +3 points if you blend standard segments with other data
- +5 points if your segments are custom-built for your business
Variable #3 – Assignment: Fixed vs Dynamic
Are customers assigned to a static segment or can they move between segments? How often is the segment assignment checked? The world is always changing—customers move, get married, change behavior and preferences… Your segmentation can’t be a “set-it-and-forget” once a year exercise.
- Assignment score (pick one)
- +1 point if segment assignment is set annually (or even less often)
- +3 points if segment assignment is refreshed more frequently than annually
- +5 points if segment assignment is dynamic and customers can freely move between segments based on fresh signals
Variable #4 – Goal-Driven: Predictive vs Descriptive
Are the segments tied to historic performance data and thus inherently have a predictability to them? For example, online or offline sales? Or are your segments simply descriptive about the customers and aren’t based around a business objective?
- Goal-Driven score (pick one)
- +1 point if your segments aren’t built around historical performance data
- +3 points if your segmentation methodology has some ties to business goals
- +5 points if your segments are predictive and directly tied to a business metric
Add up your points and compare against the scale below:
20-17 points: Cutting-edge. Congratulations, you’re doing really well and following the leading industry best practices. Your segments are a powerful asset for your business.
16-12 points: Solid. There are some things you could do better, but your segments are probably okay, but you can upgrade a few places to drive better ROI from your program.
11-7 points: Challenged. There are major areas of need within your segmentation program. Things might be okay right now, but you need to get a plan in place to improve.
7-4 points: Deficient. Your segmentation practice is outdated and you could be opening up your business to threats from competitors. It’s time to rethink things.
How did you do?
If you didn’t do well, just know that innovations in artificial intelligence and machine-learning have come on line in the last few years that can help you to modernize your segmentation practice almost overnight.
Ultimately, although you may not know if your segmentation is the problem, you do know if you’re hitting your annual goals or not. Is performance down? Do you know you can do better?
The way a company segments its customers is a direct reflection on how it sees the market. So many data-driven decisions are made based on a company’s segmentation practice that it’s one area that you just have to get right.
simMachines can help. In order to stay relevant and compete effectively in today’s competitive landscape, every customer interaction must be maximized via rich, highly precise insights that inform the right actions and dialogs.