strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
(originally published by Booz & Company)


The Promise of “Self-segmentation”

Rather than putting consumers in arbitrary “buckets” for targeting, marketers should join them online in communities of passion and interest.

Before making large investments in advertising and other marketing, companies seek to identify and segment potential customers. Such knowledge is vital in evaluating market opportunities and differentiating messages, product offerings, media strategies, and even pricing. Today, a community-based approach to segmentation — which is both less expensive and more effective than the traditional methodologies based on customer relationship management (CRM) systems — is becoming possible as consumers flock to the Web.

Ever since the rise of the mainframe, companies have relied on CRM systems for segmentation. These systems slice and dice market and customer data, placing customers and prospects into different “buckets” based on demographic, behavioral, attitudinal, and other insights. Such segmentation enables companies to tailor product development and marketing.

CRM has had many stellar successes. Credit card leader Capital One, for example, can immediately access the profile of a customer who calls, cross-reference it with information derived from other customers, and then route the call to a company representative, complete with guidance on how to meet requests or stem defection. With such successes, it’s no wonder that current CRM spending totals US$14 billion annually, with projected growth to $22 billion by 2012, according to AMR Research.

But CRM-based segmentation comes at a cost. Data has to be collected, behavior analyzed, and segments identified before offerings can be created and messages communicated. Implementation can be complex, involving building multiple bridges to islands of information. Ongoing data collection, plus the resources required for sophisticated analysis, can put CRM out of the reach of small and midsized companies.

As a result, the CRM report card is mixed. An AMR survey of 190 IT executives in 2007 found that 29 percent of CRM projects fail. Forrester Research reported that fewer than half of 94 businesses surveyed were fully satisfied with their CRM implementations. And gauging the return on investment from CRM is so difficult that only an estimated 20 to 30 percent of firms that use the technology have even tried.

A better alternative is now available: The rise in social networks and online communities, combined with the new era of the Web-empowered consumer, makes it possible for companies to reap the benefits of segmentation without many of its costs or complications.

Online, consumers are increasingly segmenting themselves into communities, based on common characteristics, passions, interests, or needs. Such “self-segmentation” is likely to be much more accurate and reflective of consumers’ attributes than CRM data, since no one knows consumers — with their Rubik’s Cube complexity of demographic, psychological, and other variables — better than they know themselves. Rather than confronting the difficulty of placing consumers into such ill-defined buckets as “traditionalists” or “achievers,” companies can bind themselves to consumer communities of interest — or “tribes,” as marketing guru Seth Godin calls them. Unlike arbitrary CRM buckets, such self-selected communities not only reflect consumers’ true interests but, more important, also involve their connection to others with the same passions. This opens the door to fostering brand ambassadors, enabling customer collaboration, and facilitating word-of-mouth cross-fertilization.

How to Leverage Self-segmentation
Consumers have long interlinked themselves within communities, groups, clubs, leagues, and associations. Such communities represent a valuable launchpad for word-of-mouth efforts, since trust and credibility are among the ties that bind. But until the Internet reached a global tipping point, it was impossible to cost-effectively identify, reach, or scale such communities. Now even a simple search can identify groups united by interest in topics as obscure as competitive pumpkin tossing.

That identification presents numerous opportunities. First, relevant communities represent self-selected groups who share one or more interests, substantially reducing the costs, time, and toil required to identify — and segment — qualified prospects out of large markets. Additionally, participation in passion- or interest-based communities provides a better guide to potential purchasing behavior than such attributes as place of residence or political leanings.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.