The reality of segmentation

Internet Retailing

2nd Mar 2018

I’ve worked with segmentation a long time. Being amongst a small team of people who brought to Australia the original Yankelovich attitudinal segmentation model that was developed in the 1970s and having worked with varying segmentation models all that time, I know there are a multitude of lessons you learn on the application of theory to practice.

While we all applaud the challenge to the status quo and the advances made through the development of fresh thinking, there are simply some theories that do not work in practice or are too complicated to be operationalised.

Segmentation works on the principle that not every customer is the same. That theory was first espoused at a time when people formed relatively chunky ‘tribes’ due to a need to fit into a group.

Standing out from the crowd

Fast forward 40 years and today, that isn’t quite as easy. Now, we want to stand out as individuals and clustering segments together has become a lot more complex and requires greater amounts of skill to do and use. For retail, the core applications of segmentation have always been in the areas of product development and communication.

In those two areas, the nuances of individual segments indicate critical insight that triggers the development of new products and services that meet needs and desires previously unrealised and helps develop language that appeals to target audiences in a more intimate, emotional and stimulating way. The complication for retail begins once the product and the communication have been developed.

After all, once the product goes on sale, economics dictates that we try to optimise the gross sales and profit. Retail channels cannot deal in segmentation in the field. You can recruit staff to a profile but at the end of the day, customer segments don’t walk through the door, humans do. And they come in all shapes and sizes, in all sorts of moods and all sorts of physiological complications.

I have seen many retail businesses tie themselves up in knots trying to train their staff about a ‘customer profile’ that doesn’t actually exist and really just annoys real customers. While ecommerce can use an infinite set of algorithms to deal with the issue and virtually recreate millions of options on a page view, bricks-and-mortar retailers dealing face-to-face with a sea of human beings do not have that option.

Segmentation works very effectively when in the tight confines of product development and communication. But after that, retail needs to do what retail does best – sell the product to the people who walk through the door. Every day. No matter the conditions or circumstances. In the most productive way possible. That requires human connection and thinking on your feet and that is a million miles away from the sterile, controlled environment of theory. I know. I learned the hard way.

Peter James Ryan is a strategic business consultant with over 25 years of marketing, business consulting and promotional experience. This story was first published on Inside Retail Australia.