“An intelligent being cannot treat every object it sees as a unique entity unlike anything else in the universe.  It has to put objects in categories so that it may apply its hard-won knowledge about similar objects encountered in the past, to the object at hand.”
Steven Pinker, How the Mind Works, 1997

There is no one-size-fits-all approach to marketing, especially in an age where consumers interact with your brand on so many different devices, across channels and in different locations and times. You’ve got to identify different segments and guide your messaging to what will resonate best.

Suppose you were selling life insurance.  Your prospect pool could be made up of young newly married people starting a savings plan, middle-aged couples protecting loved ones from disaster, or elderly individuals ensuring loved ones aren’t left with a financial burden.  There could be many more segments.

From a high level, market segmentation is dividing a larger target market into subsets of consumers who have common needs, and then marketing to these specific segments. Your messaging is informed by the common needs or desires of each segment, communicated across channels and devices.

To be successful at market segmentation, you must address the following criteria:

  1.  It should be adopted across the company – “traditional” marketing shouldn’t be the only department to use the segmentation, it should be adopted/implemented across the organization, specifically the sales team.
  2. It should be understandable – To get the buy-in mentioned in the previous bullet, your segmentation must be intuitive, easily understood and interpreted so that strategies can be developed, people can be trained, broad communication by executives across the company will be consistent, etc.
  3. It should be granular “enough” – Either not granular enough to provide direction for differentiated strategies, or too granular so that no one will build that many different strategies.
  4. It should be propagated to the entire marketplace – If you can’t code everyone that you consider to be in your market as being in one of your segments with confidence, you can’t execute a strategy against it.
  5. It should become part of the management and measurement systems to make it easy to use and measure – Without people being accountable and measured against it, it is just a story.
  6. It should be constructed with a high level of confidence in the segment assignments.

So how do you go about creating your segments?  One analytical tool is called Clustering or Cluster Analysis, and the correct application of this tool can go a long way to solving many of the issues listed above. Cluster analysis is a series of techniques that identifies groups of customers who are similar to each other and dissimilar from others and puts them into a group.  The number of groups varies according to the application and the data.

Using a comprehensive customer and prospect file, analysts are able to create clusters of like-minded individuals, and then create profiles of the different clusters showing key identifying characteristics and behaviors.

Remember back to our life insurance example.  The analytics team can identify statistically the actual segments that make up your population and enable you to market to them as individuals.  While many are familiar with an analytics team’s ability to build propensity models, they might not understand that building propensity models for individual segments (or clusters) can improve the performance and action ability of said models.

Plainly put, when you segment your audience, and cater your marketing to the clusters of people most likely to respond, you sell more insurance, or more cars, or bank accounts… you get the idea.