Customer Segmentation: Using Behaviors to drive Data-driven Marketing

The saying “actions speak louder than words” has never been more true than when it comes to segmentation. In trying to understand customers, both words and actions haved a role; when it comes to driving revenue, it is all about the actions.

Are you in danger of confusing attitudes for actions?

Many companies face this problem when it comes to segmentation. They conduct research on consumer attitudes and beliefs, with the goal of “better understanding their customers.” That attitudinal research is then grouped into segments with commonalities in attitudes about the category or just in general. Finally, those groups are described as personas, and the company fills the walls with those picture in an effort to make the company more “customer centric.”

This type of research is valuable when developing mass media creative, identifying opportunities for new products or new markets for the company as a whole. The problem occurs when marketers try to target one specific group for an offer, product or communication. The problem is: Who are the consumers who have those attitudes?

The research company may have provided the company with a “typing tool” — a questionnaire that, when answered, can place a consumer into a specific group. The problem with that approach is that you cannot get enough consumers to take the survey to be able to create a meaningfully sized group. Net of all, companies find that attitudinal segmentation is rarely actionable for database marketing.

The end result is that the attitudinal segmentation gets relegated to the back shelf and seldom referenced again. By the way, did I mention that such segmentation projects can range from $250,000 to over $1 million?

What’s the alternative? To avoid such situations, the best database marketers follow these three specific rules:

1. Measure what you want to change. If the goal is to change behaviors (particularly transactional behavior), then group customers with similar behaviors rather than attitudes together. This approach will let you first identify different behavior patterns and then, importantly, identify customers with those patterns — each and every one of them. Then you can apply the rules of database marketing to drive additional retention, cross-sell and referenceability from them.
2. People are as they act, not as they say. Research has shown that consumers who claim to have the same beliefs (and even same claimed purchase behavior) frequently differ in their purchases when it is measured. Behavior is the one factor that cannot be debated — as Joe Friday said in Dragnet, it is all about “just the facts, ma’am, just the facts.”
3. The more you know, the more you know. Don’t stop with customer purchase behavior with your company; expand your knowledge base by identifying website behavior, email open/click behavior, store credit card behavior and so on. The more you know about a customer from their behavior, the most you will be able to complete the picture of that customer.

Customer segmentation is a critical component of marketing credibility. To learn more about improving your credibility with the CEO, check out my ebook.