Segmentation is central to marketing strategy but implementing it is fraught with challenges. In this article, Paul Baines, Adina Poenaru and Hugh Wilson explain why managers should reconsider the use of segmentation and how to ensure its successful implementation.
Markets have been segmented and offerings differentiated for as long as suppliers have competed for business1 but some have lost faith in segmentation because of inherent implementation difficulties. In complex environments (e.g. fickle consumers, media/product proliferation), it is difficult to create meaningful segments and achieve marketing effectiveness, usually because of:
1. A lack of understanding of segmentation benefits in each management situation,
2. A lack of resources (e.g. customer databases, information technology, time),
3. Organisational culture issues (i.e. inter-functional communication, managerial enthusiasm and involvement, inflexible culture),
4. Difficulties in controlling the process (e.g. when to revise segments),
5. A lack of quantifiable evidence of business impact.
Consequently, few companies implement segmentation properly2 and, yet, successful implementation is important because performance improvements are only achievable if the process is effectively implemented.3 This means embedding segmentation into the organisation; using segmentation insight in marketing decision making and integrating segmentation schemes within the organisation’s architecture/culture.
Next, five critical success factors for how companies improve their organisation’s performance using segmentation are outlined, based on 25 interviews with segmentation practitioners.