Wednesday, July 20, 2011

Using Market Segmentation in Membership Marketing

Posted by Princess Eva Angelica at 1:28 PM
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.

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