What is the Right Granularity for Your Segmentation? 

What is the Right Granularity for Your Segmentation? 

By Danny Shayman

There are two primary reasons that most marketing organizations segment their customers. First, it helps to break down the market into smaller pieces which can be handled as individual puzzles—each with potentially their own strategy, budgets, teams, and messaging.

The second reason is that it keeps the team focused on the mission at hand. Proper segmentation guides every decision made by the marketing team—that includes agencies and tech partners. After all, the way your marketing organization sees the world directly impacts the way it will try to go to market. This is your strategic asset. A company’s segmentation dictates how so many other decisions will be made.

A company cannot afford to misfire in this area.

An example how segmentation granularity varies by team

Because of how important it is to a company, there can sometimes be some internal misalignment in how granular the segmentation should be applied.

Let’s examine segmentation granularity for a consumer electronics store…

Segments for the executive team—including the CMO—to just see their customers in a handful of broad segments as they prefer simplicity over too many details. With so much responsibility on their plates, their segmentation goal is to maintain a base-level understanding of the health of the business for which five or six customer segments might suffice. For example, one of those key segments might be: Home Entertainment.

Sub-segments for the marketing team as they treat each of the big customer segments as a bucket for a group of smaller sub-segments. After all, Home Entertainment has a variety of very different audience sub-segments that require a much different approach and will have a budget allocation that matches the value each of those sub-segments has to the entire business. A few examples of those might be Gaming, Televisions, and Audio.

Sub-sub-segments for the planning team might be warranted because of how they need to develop media plans. Take the Gaming sub-segment of the segment Home Entertainment. The global video game market was $152 billion last year which warrants custom messaging for each type of gaming customer. For example, Sony Playstation owners generally only buy Playstation games. The same applies for Nintendo and Microsoft with regard to their consoles. There are also genres to consider. Advertising for sports, shooter, puzzle, and story games would also dictate different plans.

Sub-sub-sub segments for the media and creative teams as they market individual titles and various promotions scheduled throughout the years. This might sound like too much granularity, take for example the sub-sub-segment of Home Entertainment->Gaming->Sports Games. The upcoming annual “Madden” football game needs to be marketed to football fans as well as gamers. That means different TV commercials and online videos for advertising on YouTube  than for the new NBA basketball video game. Different radio spots and magazine ads. Different keywords for the search team. Different websites and banners for the programmatic display teams. A sub-sub-sub segment might be Home Entertainment->Gaming->Sports Games->Football.

Different granularity needs lead to multiple segmentation models

As you can see from the above example, the question of “How granular should my segments be?” isn’t an easy one because different teams require different granularity.

Certainly, if you’re the CEO, it would be a waste of valuable company time to monitor how every sub-sub-sub segment is performing to the annual goal. By the time you’re done reviewing the weekly performance for every sub-sub-sub segment, it would be Thursday afternoon and you wouldn’t have accomplished anything else.

But, if you’re the media team, you can’t just use the same gaming ads across all of your different channels. “WE SELL VIDEO GAMES” might be a simple and elegant marketing message, but when you’re trying to compete in the crowded gaming market to drive sales of the latest CALL OF DUTY shooter franchise, you need matching creative.

So, how do organizations mitigate this issue? Generally, they each build their own segmentation models. The media team may rely on an industry audience vendor to develop segmentation for them. The executive team might simply just make business segments aligned to their business units and completely miss how they are performing with customers.

Solve misalignment with a flexible granularity segmentation (FGS) model

Although different segmentation models provide a solution to the granularity problem, it creates the new challenge of business misalignment where teams are no longer on the same page about how they see the world (segmentation) and what are the priorities. It’s the “apples and oranges” issue.

The planning team may have budgeted $500k for Sports Games but the media team might be trying to support the biggest new baseball title in years from a popular gaming developer and need half the year’s budget to do so. That leaves much less budget to market the rest of their sports games, but the planning team was simply unaware of the upcoming release because they were working off of last year’s numbers and last year there wasn’t a game to promote.

What is the solution?

A flexible granularity segmentation (FGS) approach. With FGS, all segments roll up or can be expanded to allow for different levels of granularity. With FGS, the executive team can stick with their top-level segments under the same system as the media team’s sub-sub-sub segments. It’s as simple as clicking a plus or minus sign in other systems and completely intuitive to understand.

Keeping one segmentation system for the entire company can even be more complex when you consider how dynamic predictive segmentation is becoming the new normal. As new customer signals enter your data ecosystem, customers are added to or removed from segments based on most current information. So, keeping your dynamic segmentation fresh while also offering varying degrees of granularity might seem like a big challenge.

However, while a flexible granularity segmentation (FGS) system sounds hard, new innovations in artificial intelligence and machine learning are opening up new avenues that are literally changing the way segmentation has been performed for decades.

Do you have a flexible granularity segmentation structure?

Segmentation is supposed to be a unique business asset that guides companies across teams to better align to each other and the customers. While varying needs of granularity can create challenges, having multiple segmentation models floating around the company that won’t ever match up is problematic as well.

A flexible granularity segmentation structure is the best of both worlds. Each team gets the granularity out of the segmentation they need while working under the same model. At any given time, anyone can drill down deeper to lower levels of granularity as they see fit or roll up segments into a higher level of granularity.

Reach out to simMachines today to learn more about how we can help you deliver better alignment across your company’s segmentation practice with a flexible structure.

AI Enabled Customer Segmentation Will Transform Marketing