Using Market Segmentation in Membership Marketing

Everyone talks about the importance of market segmentation, but I find that not everyone knows what they mean when they use the term.

Let’s start out by saying that market segmentation is a tool not an end in and of itself. You use market segmentation to help accomplish an objective like improving response rates by targeting messages or providing differentiated value to a certain group of members to enhance retention.

So before jumping into segmentation, the first step is to define what you want to accomplish and then see if the tool of market segmentation will help you achieve your goal.

If you determine that segmenting your market is appropriate, then it is helpful to further define what segmentation will be practical and useful to accomplish your objective.

Here is one way to classify the segmentation options available.

1. Linear Segmentation – This is as simple as splitting your market into two groups. For example, it probably would not be practical to create hundreds of versions of a monthly print magazine, but you might create two versions to serve some natural split in your membership like students and professionals, owners and operators, manufacturers and distributors. You might describe this as a “one to two” segmentation strategy.

2. Group Segmentation – This segmentation splits your market into specific groups or buckets of people. For example, based on state and local issues, you might provide separate marking messages driven by geography to enhance relevance. Or your segmentation might be driven by categories of products previously purchased. You might describe this as a “one to some” segmentation strategy.

3. Granular Segmentation – This type of segmentation results in unlimited options for your market. For example, based on a purchasing history an algorithm can be built to push a shopping cart of specific items that would be customized for each individual – think Amazon book offerings. Each member could receive a unique offering based on their preferences or previous behavior. Many marketers describe this as a “one to one” marketing strategy.

Granular segmentation is obviously more complex than linear segmentation. But that does not mean that one is better than the other. Remember, as with any tool, the key is using the correct tool for the job.

Segmentation can add to incremental costs for marketing or servicing a member. It also takes time to craft and maintain variable messages, services, and fulfillment operations. So before embracing a segmentation model, it is wise to evaluate both the positive effects it could have and the added costs it will create.

What examples do you have of successful segmentation programs? Feel free to share them here.


Scott Oser said...

Hey Tony,

As usual you make some very good points. I don't think there are more than a handful of associations that has a totally homogeneous audience. Therefore some level of segmentation is always necessary. If you do not segment in some way you will be sending everyone the exact same message and many times that is not appropriate and will turn off more members than it will turn on. That has a much longer term impact than your spending a little more money to talk to people with the right message.

I have found that if you are not doing at least some basic segmentation you are not optimizing your marketing efforts. As you point out there is a tipping point where too much segmentation is simply too much segmentation.


Tony Rossell said...

Hi Scott -- I agree with your comments. As you point out, defining the tipping point is important. I also think that segmentation should be a step after you have done the hard work of understanding and defining the commonalities in a market. I have some clients, for example, that serve a diverse market with only one magazine (not versions for each segment). Part of their success is that they deeply understand the motivations and needs of their market and are able to present value that speaks to the whole. Tony

Andrew said...

Excellent article. Segmentation is a key part in any marketer's success