Tuesday, October 30, 2012

Segmentation and The Joy of X

Just what are trying to figure out with all this data?

"The right abstraction leads to new insight, and new power."

This idea is in the beginning of "The Joy of X" - a guided tour of math from one to infinity.  It is made in the context of explaining that addition is the creative shortcut for counting by anything.

In marketing we are inundated with talk about garnering insights from the data being collected, but rarely do we hear about the abstraction or problem side of things. So, before we go digging around in the dirty data, it might help to define a shortcut marketing is looking for based on two perennial challenges.

  1. Efficient and effective allocation of scarce resources
  2. Aligning solutions and needs to the mutual benefit of consumer and company
Segmentation represents the most powerful level of marketing abstraction that works in both areas. By transcending the peculiarities of individuals, segments scale easily and quickly.  By recognizing differences it eliminates the potential waste of broadcasting.

As a definition, a market segment is a desirable set of homogeneous entities that can be communicated with efficiently.  Notice, I didn't say consumers since we can segment web visits, digital promotion sessions, distribution routes, etc. as well for marketing purposes.   This point is quite important in the digital realm where consumers are and often wish to be anonymous.  In fact, segments offer a basis of recognition when integrating offline behavior and online activity.

The job of segmentation requires a thorough understanding of the business and data realms. Segmentation approaches can be...
  • strategic thru the use of descriptive attributes or tactical based on behavior, or better yet, the combination of the two.
  • focused on a business outcome, e.g. sales or conversion, or discovered based on natural combinations attributes, eg. technology adopters or "pets are my children".
  • static where migration between segments is important or dynamic in cases where group behavior is likely to change rapidly

And there is no reason why there should only be one segmentation scheme.  In fact, most companies view consumers in a set of different lights. Nor do they have to be exhaustive, there are always some outliers - it is okay to ignore them.

So, before trolling in the data exhaust for that single nugget start with understanding what segments might be found and assess whether they're likely to respond to marketing. 

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