Is your customer segmentation effort failing?

Recently, I was sitting in a client meeting presenting a customer segmentation analysis. The analysis made sense, the management team could recognize customers within each segment, and the opportunities to improve relationship marketing and grow revenue were clearly apparent. All in all, a very successful meeting.

Yet this initiative was at high risk.

There is no question the marketing team had a solid understanding of the opportunities that come from breaking customers down into groups with similar behavior,  spending and purchase patterns.  Even the subsequent analysis, which created Personas for each segment, was widely accepted. Yet I have been in meetings like this before, and the patterns that lead to failure were clearly present.

You see, while data preparation and analysis represented significant work and complexity — that was not the hard part of the project. Explaining to the marketing team how the analysis was constructed and how much the opportunities were worth — that was not the hard part either. The hard part was yet to come.

When you study customer segmentation initiatives, you realize that close to half do not succeed.  By “do not succeed,”  I mean that the segmentation analysis does not result in a sustained behavior change across Marketing, Sales, Customer Service, etc.   For some reason, the project never seems to catch fire, and eventually, the segmentation analysis turns into another binder sitting on the book shelf, with all its insights and opportunities sitting there gathering dust.  All that work (and all that money) becomes something that is referred to in passing, or if the marketing person feels at risk for spending all that money, is never heard from again.

How many of you have heard of projects that turn out like this?

How do you know that your segmentation effort is in jeopardy?

1. The marketing team is excited, but senior management does not understand why you spent the time or money on the analysis or on a relationship marketing pilot.
2. Sales and marketing metrics do not align. Typically, marketing is responsible for improving customer relationships and retention, while sales is focused on achieving their quarterly, if not monthly, revenue numbers.
3. Marketing is not discussing implementation. In addition, other teams such as Sales and Service, have not been brought along in the process.  Rather, they simply were presented with the final results in a series of implications that they had no hand in helping, nor any buyer necessarily.
4. There is no budget for additional support during implementation. Rather, this initiative is just supposed to be folded into the other marketing efforts with the assumption of no additional resources or budget.
5. Senior management is impatient. They insist that the implementation of a segment-driven relationship marketing program go nationwide immediately, rather than moving through concept and operational pilots.
6. No metrics are put in place. Neither is testing methodology established so determine if a segmented approach drives incremental revenue.

I could go on, but you get the picture. Essentially, when I see marketing operating like a silo, and the team not preparing for implementation during the analysis process, I know that the risk of failure for the implementation of customer segmentation is high.  and if the risk of implementation success is high, the risk of career damage the markers involved is also high. There is no question that at some point the finance team will question the  financial investment in segmentation, and want to see the ROI to support the cost and the effort involved in the analysis.

When segmentation approach is used, I have seen incremental lifts that range from 30% to 60% simply based on refining targeting and tuning communications to fit the needs of specific segments. But none of that  return happens, if the program was never put in place, if sales does not buy-in, and if the senior management does not fund pilot support and measurement efforts.

All that effort, for nothing.

What can you do to head off such a failure?

1. Begin with the end in mind. Kick off the initiative with a discussion of market implementation and make sure that implementation is a topic in every planning meeting you have.
2. Bring senior management along. Give frequent updates to make sure that senior management does not forget the effort or its potential implications.
3. Gain agreement on a concept pilot and then an operational pilot prior to rollout, regardless of the business conditions.
4. Establish a format for metrics and make sure that Finance agrees before you start.
5. Market your findings across the organization like a customer marketing campaign (which, in a way, it actually is).  Cover your office with findings from the presentation, so that anyone coming in cannot fail to recognize the opportunities.

When my client refocused their discussion on a pilot plan and began to market their segmentation findings across the organization, they found that they were able to secure funding and gain agreement on metrics.  A process that appeared doomed for failure was snatched out of the fire, and put on the path to success.

Have you seen segmentation fail in your organization?  what approaches have you seen to improve the likelihood of success?