What happens when your market segmentation algorithm goes wrong? What can you do to remedy the situation? Market segmentation is a good thing if done right. It helps companies narrow promotional messages to achieve the greatest impact on target demographics. It allows for the formation of optimal focus groups, which in turn can yield penetrating and highly actionable insights. Lastly, it assists marketing departments to stay on point with brand positioning and compelling calls to action. Learn more about the advantages and pitfalls of market segmentation algorithms for your corporate marketing research program.
However, like any marketing tool, segmentation has its limitations. For instance, a segmentation algorithm, while very useful for big data implementation, can result in some awkward missteps when it comes to qualitative research.
Why Market Segmentation Algorithms?
The basic purpose of market segmentation is easy to grasp. Instead of delivering one extremely broad (and proportionally ineffective) message to all customers, marketers want to divide their company’s consumer base into different groups, or segments, in order to craft and deliver messages tailored to each segment’s specific attributes.
Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle.
Let’s take a simple example: a company that provides online guitar lessons wants to increase revenues through a more effective marketing strategy. To accomplish this objective, the marketing department may endeavor to segment their target demographic into smaller groups, such as beginning guitar players, intermediate players, and advanced guitarists.
Once such segments have been identified, the company can more easily tailor their marketing efforts to achieve the maximum impact. For instance, if they discover that beginners are their biggest customer segment, then they can adjust their marketing mix to focus on converting prospects in that particular group.
Try to describe them with as much detail as you can, based on your knowledge of your product or service. Rope family and friends into visualization exercises (“Describe the typical person who’ll hire me to paint the kitchen floor to look like marble…”) to get different perspectives-the more, the better.
So where do segmentation algorithms come into play? Segmentation algorithms are basically short summaries of the segmentation results that help qualitative recruiters identify which customers belong to which target group. While these algorithms are convenient, and can be useful, recruiters and interviewers who lean on them without sufficient context can often find themselves in an awkward situation.
When Market Segmentation Algorithms Go Wrong
The main problem with segmentation algorithms is simply this: they describe some defining characteristics of a targeted segment without the benefit of a holistic profile. What do we mean by that?
Let’s take our previous example of a company that provides online guitar lessons. They want to perform some qualitative research on a focus group of novice guitarists. Perhaps the segmentation algorithm categorizes “good” candidates as possessing the following attributes:
- Recently purchased a guitar
- Have never played guitar, or have not played in 5 years or more
So far, so good. However, what if the recruiters stumble upon a former professional musician who just purchased a guitar on a whim or a parent who recently bought a guitar for his or her child? While such candidates technically fit the parameters of the algorithm and could provide some qualitative insights, they don’t fit the actual profile of a novice guitar player.
The bottom line: segmentation algorithms can only provide an incomplete picture of ideal candidates for qualitative market research.
How to Resolve Your Market Segmentation Issues
Fortunately, the way to fix a problem such as the one described above is, in principle, straightforward. When the entire marketing team is truly united, whether in-house, outsourced, or a combination of the two, then such issues frequently vanish into the air. For instance, sharing the segmentation profiles with your qualitative recruiters can provide some much-needed context, and complement the segmentation algorithms that they utilize.
At New Perspectives, we collaborate closely with each one of our clients to conduct market research that truly brings customer segments into focus. If you are having issues with your market segmentation algorithms, or need help in any other aspect of market research, reach out to the marketing research professionals at New Perspectives today. We will be happy to assist!