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The Folly of Narrow Segmentation

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There must be an intrinsic attraction for us to seek labels and identify ourselves as part of certain tribes. Otherwise, we wouldn’t willingly complete silly quizzes in our spare time, like Which Avenger character are you? or What kind of dog breed are you?. We don’t believe in horoscopes but we would casually attribute our habits and personalities to our star sign. If we take it one notch further in our professional life, we find out about our Myers & Briggs personality indicator or our leadership style through the tests we take.

Don’t get me wrong, classification and segmentation can be insightful – but when their usage is extended far outside their intended use, they can be very limiting.

This approach creeps into Marketing with the focus on customer segments. Businesses often go into the trouble of creating customer segments – and then focus narrowly on the ‘appropriate’ customer segments. Focusing on specific narrow segments are thought to be better for efficiency and value for money. This practice then creeps into the adopted messaging and ad creatives. Have you ever seen an ice cream ad with a male consumer, for example?

So, let’s explore this.

It’s fun … for practitioners

Analysing profiles and figuring out customer personas is fun for the Insights and Analytics team. It’s one of the things that will bring insights to life – by putting a face, a name, a probable job, and the kind of life that they may lead. Then, using these personas as some kind of benchmark on who to target and those to avoid. These segments are then tagged with catchy names like Affluent Travellers or Vegan Warriors.

It was one of the things I used to do in my previous roles – highlighting the analytical sophistication in zeroing on the right segments. Then came the roadblock when in a presentation to the Executives, one of them asked about the stability of the personas over time and the usefulness of the exercise. I came up with a plausible explanation then, but the question stayed with me.

It’s true. Why should any business limit themselves by finding married couples in their 40s who live in the eastern suburb, with two cars, two kids, and a poodle-hybrid dog? Or zooming in on 30-year-old female shoppers with an income over $100,000 per annum who travel leisurely three times a year – when there are potential customers from all walks of life in the whole market? We have common needs when it comes to many product categories – regardless of whatever segments you purportedly belong to.

Therein lies the issue. A segmentation strategy often focuses on the sophistication of techniques, the tools, or the prowess of the team – but it omits a bigger picture on how it can truly benefit the business and sustain long-term growth.

Segmentation is not one-tool-does-all

When I built my career in a multinational bank a quarter of a century ago, Marketing analytics was very much in its infancy. What was done was very much coloured by Credit and Risk Management techniques and the popularity of Kotlerian strategy. There were strict criteria on who should be offered credit limit increase for their credit cards, or who should be targeted for cross-sells. The criteria would be finely tuned based on their demographics and their past behaviour – creating a nice segment that would be nicely packaged through numerous conditions. The practice might be warranted and valid for Credit and Risk Management – but not necessarily helpful for Marketing.

My experience is not an isolated incidence. Whether one’s background is Credit and Risk Management or Natural Science, there is a strong tendency to isolate an area or segment and deal with a localised sample – rather than targeting the whole population. So, when a smart analytics professional moved from a financial or a research institution into a Marketing department, it’s understandable that there is a strong urge to apply the same familiar approach. This is the key difference. The main aim for Marketing is to grow the business, not merely focused on risk minimisation or dealing with an infected sample of a particular species.

To catch more fish, you need a wider net

Before I joined the Ehrenberg-Bass Institute, I was a firm supporter and practitioner of segmentation and narrow targeting. However, once I see the logic and the empirical support for the importance of reach and penetration, I’ve changed my view. Erwin Ephron once said, “When a brand can reach more of a target by targeting less, the benefits of targeting cannot be large”.

Think about it this way.

You can catch fish by being an angler in your little dinghy – with your state-of-the-art fishing rod, a sophisticated hook and a bait that are perfect for the species that you are after.

However, if you want to be a commercial fisherman, it’s probably better to catch fish with a net. As you earn more, you can buy a bigger boat and a wider net to grab more fish. You will catch some fish that are not the kinds you’re after, but you’ll find some that you want. It’s a similar case with Marketing – yes, you can be really precise on who you are after, but doing so would only limit your growth potential. I’m not saying that you shouldn’t do any targeting. Using the analogy that I use earlier, throwing your nets in a freshwater lake when you want to catch some cods or tunas is really silly. Fish where the fish are. The folly is when you get so overly technical and precise with your segmentation and targeting – like allocating a lot of effort and resources to those who visit your website only or advertising on a small media when you can aim widely.

The next time you’re thinking on who to target for your brand or product, perhaps pause and see whether you’re trying to catch a fish on your dinghy – or whether you’re casting a wide net. It’s not that you should not target a specific segment, but it’s whether you are missing out the whole ocean, because you’re too fixated on a lagoon.

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