It’s human nature to ask questions and to search for answers. Marketers may ask questions that look complicated – but they have a clear preference for simple, pragmatic answers.
Marketing questions tend to fall into two categories. There are the ‘more’ questions, such as: “How can we produce more?” “How can we sell more?” And there are the ‘less’ questions. “How do we do it in less time?” “How do we do it with less effort?”
Truly innovative answers to these questions have become milestones in the marketing landscape. Direct marketing and e-mail marketing, for example, are brilliant answers to the question “How to sell more with less effort?” Both methods certainly beat knocking on doors.
And because it’s also human nature to want to keep moving forward, the search is immediately on for another, better answer to the question of “How do we sell more with less effort?” Now this may come as a surprise, but the answer is most definitely not segmentation.
Look at the equation from the “effort” side. If it takes x staff-days of effort to produce a direct marketing promotion for product A, then that’s how much effort it takes. It doesn’t matter whether the target group is everyone or a segment. In fact, the activity of identifying and creating the segment will probably require additional effort.
The aim of segmentation is to find some sort of Pareto distribution: to identify a characteristic that will identify the 20% of the customers that deliver 80% of product A sales. So the typical result of using segmentation on any individual campaign is to slightly increase the total effort for about 20% less result.
Using segmentation is an active decision not to communicate with 80% of the customer base about product A, knowing that this will cost about 20% of the sales of product A. That decision makes sense if we know that we can use that opportunity to promote a second product that will return an even greater sales value. With distinct segments for each promotion, the numbers on effort and results stack up like this:
- 1 segment = >100% effort for 80% result
- 2 segments = >200% effort for 160% result
- 3 segments = >300% effort for 240% result
- 4 segments = >400% effort for 320% result.
With every additional parallel promotion, it becomes increasingly important to keep the segments discrete. Whether that is easy or difficult will depend on the structure of the products and the customer base.