[Audio Insight] Part 3: Applying Strategic Segmentation to Your Business

ITA Group
ITA Group

Thanks for tuning in to Audio Insights—you’re listening to Applying Strategic Segmentation to Your Business. This is part three in our series on strategic segmentation. In case you missed them, check out part one and part two.

ITA Group customer experience expert Max Kenkel wraps up his interview with Chadwick Martin Bailey (CMB) CEO Jim Garrity, discussing strategic segmentation. In this conversation, Jim shares CMB’s approach to segmentation by looking at habits rather than individuals, shares how brands can take their segmentation study and apply it to their business, and offers examples of how brands leverage a segmentation study.

Listen to the audio above or read the transcript below.


[Transcript]

Max Kenkel (MK): It’s your host, Max Kenkel, and today we're going to continue our conversation with Jim Garrity and part three of our segmentation conversation. We’re talking about how brands can take their segmentation study and apply it to their business. Let’s jump in.

We’ve been talking with Jim Garrity about some of the dos and don’ts of segmentation, best practices, and now, we want to talk about application. Jim, thanks again for being with us.

When it comes to taking your segmentation and acting on it, are you seeing brands utilize segmentation in different ways now than they did two or three years ago? Do you think there’ll be different ways coming out of this two-year period of disruption that people will look to leverage their segmentation differently?

Jim Garrity (JG): Wow—great question. The traditional uses aren’t going away. We’re using it for marketing, messaging, positioning; using it for product development; using it for operational alignment, service support—things of that nature. Those uses aren't going away. But there’s actually a new use we’ve been working on for a little while and it’s becoming more and more valuable—habit loops. It’s really interesting. In this moment, we've been talking about disrupted markets—what habits are going to stick and which ones are going to revert—and we’ve got one approach for segmentation that is not looking at individuals, but rather looking at habits.

Within the habit loop, there’s a couple of different things we look for. There are obviously the motives that the individual brings. But what are the cues that set you off on a track or the nudge to recall that book from a couple of years ago? What are the routines you can recognize then enable when you get that cue or that nudge? What are the awards you get for going through that routine? Habits drive a broad range of consumption behaviors critical for understanding when, how and why people choose your brand; or, how, when and why they choose to ignore your brand. What’s happening here is that our analysis of segment habits—again, we’re not segmenting people here, we’re segmenting specific habits relative to your brand—profiled each of those habits components (the motives, the cues to behavioral routines) and the psychological awards to uncover the triggers of those habits. We want to disrupt habits that we dislike and entrench those habits that are good for your brand, and keep your consumers deeply ingrained in those routines. I think that’s one type of segmentation we’re doing more of, and I expect to be doing a fair bit more of as we talk about the changing habits of consumers in this space today.

MK: Is there a type of brand—or a type of company or industry—where the habit loop concept you described is a better fit than others? Or is that pretty universal in your opinion?

JG: I think it’s pretty universal. If you are selling car insurance, there’s no routine. Customers buy it once. Every couple of years they might think about changing it. When we’re talking about habits, there’s got to be a fair amount of interaction. I think those brands where the interaction between themselves and their consumer is fairly frequent, that’s where you have the opportunity to either entrench positive habits or disrupt negative habits. You want to look at how you can make the cue, the nudge more salient or more frequent. That’s what you’ll be looking for in the cues—for the routines. When this cue happens, then they go into this routine. Alright—how do I make that routine easier? How do I get rid of the roadblocks that stopped my customer from being able to execute their routine? Once they execute, how do I give them that feeling—that psychological award or that functional award, whatever it might be—to reinforce the routine? Those are all the things you're looking to do around that. We’ve done this type of work for a number of different companies. We’ve done it for credit card companies on award redemption. So how do you cue that up? How do you make the award redemption (something people don’t do all that frequently) routine as easy as possible? How do you reward them for doing that? So that's one example.

MK: No, that’s a great example. That’s 101 of our business. Part of running those incentive programs is making sure people tie the behavior you’re trying to get them to do back to the award. To your point, any time you can speed that up (make it easier, make it intuitive, make it more exciting), those are the types of programs we’re trying to bring to the table. Those quick, transactional, short-term, short time between sales [opportunities] mean you can really focus on the habit of that purchase. But in the longer sales cycle, as a brand, you might have to come up with ways to get people to interact with you between purchases so it keeps that brand top of mind. I feel like that’s still something you’d be able to use this type of a study to gather information that would help you do that.

JG: Exactly. I knew I’d have you when I talked about awards because it’s right up your alley. I knew as soon as I hit on that. That is absolutely the connection there for CMB and ITA Group, so you’ve hit it right on the head.

MK: If brands are planning to update their study (which I think we both agree that’s something they’re all going to need to consider here in the next 18 months), how long do you think that’s going to be good for? Are we entering a phase where that needs to be a regular, iterative process to update their segmentation? Or is it still something they can do now, then wait a couple of years before they address it again?

JG: Yeah. Good question; and a question we get when executing a strategic segmentation—something that is going to change the company, or the division or the business line, and set them forward on a pathway. It needs to have a robustness and a constancy to it, so it can't be changing every six months or 12 months. We’ve always focused on producing segmentations. We tell our clients you should be able to go 18–24 months with the segmentation.

Now, the asterisk to that approach is, depending upon the market disruption, if I run a segmentation, two months prior to COVID-19 in some online shopping or in brick-and-mortar shopping environment, that’s not holding any longer. The asterisk I put even before this moment was that the lifetime of your segmentation study depends on how quickly your marketplace is evolving. Some industries, some marketplaces are a little slower moving than others. You can absolutely get three plus years out of a strategic segmentation study. If something happens dramatically in the next six or 12 months, then I’m going to say you probably need to refresh that. Refreshing it doesn't mean you need to throw it out entirely; it just means that you need to go back and collect some basic information that was core to that program and resize those segments. Those segments’ sizes have probably changed a little bit. There might be a new segment as well. If that’s the case, we may need to hypothesize how we need to incorporate that. I’ve given you a really long-winded answer to a very simple question. Your segmentation study should last a couple of years, all things being equal.

MK: It’s good context. If I was in the market to do this, that’s something I would want to consider; keeping in the back of my mind that [your segmentation study] might just need a dusting off. If a brand’s paying attention and using it, they also ought to see when there might be changes within that structure. They can reach back out and say, “We think we’re seeing something different here—maybe we should take a look at it.”

JG: Absolutely. Yeah. Those brands that are using it, they know. They're close to their marketplace, they can feel those changes happening and they know the right time to think about a refresh.

MK: What are some of the better ways or more interesting ways—or dare I even say, exciting ways—that you’ve seen brands leverage a segmentation study?

JG: Yeah. Product development is great. All of our work, unfortunately, is client confidential, so I can’t share too much of the specifics. But, we’ve seen a number of clients building products specifically for segments. A segmentation study is really helpful for them to understand the marketplace. In the marketplace, a product might not be for 100% of their customer base, but to understand that there are one or two segments that would really value this product or this service—and how big are those segments? Therefore, how big is the market for that product? What are the things it needs to do? How do we prioritize the messaging around that product launch? That’s really critical.

We’ve seen clients use segmentations really successfully for operational alignment. We’ve had clients that have looked at segments, customer lifetime value, profitability, cost to serve various segments and say, “You know what? This segment right here, we need to operationally serve them differently than those clients over there because they don’t have the profit, the revenues, the volume (whatever it might be), and they’re fine with getting a call center service as opposed to a dedicated rep.

Obviously, the big one is marketing communications—understanding the personas for each segment and how to speak to each of them. It’s not about creating six wholly different messages but understanding what the cross is in your messaging to various segments. Most of our segmentations end up with somewhere between five and eight segments. That’s typically what our clients think of as the sweet spot for what they can handle, and they’ll prioritize segments within those as their highest priority. They can create a marketing message that is really going to speak to those segments. Then if they want to highlight one over the other, they can ramp up or ramp down this element or that element. It’s great.

MK: If someone does a segmentation study, are there any good secondary pieces of research or follow up studies that you recommend to clients once they’ve done their segmentation? How do they take it then to the next step from an insights perspective?

JG: We do a fair amount of segmentation. The other work that we do is product service development. If a client coming out of a segmentation study looks at one of those segments and thinks there’s an opportunity to serve them or to build them this product, they might ask CMB, “Can you help us ideate on that? Can you help us concept test? Can you run it by the segment to see what features absolutely need to be in there for version 1.0? What is the right pricing? What is the right positioning?”

We also work with critical marketing messaging, which explores how we want to speak to different segments. Those are probably the two biggest types of research and insights engagements that we do that link directly to the segmentation work we would have done previously.

MK: Thank you for joining us today and walking us through the state of segmentation today. Do you have any parting thoughts for any brands out there thinking about a segmentation study?

JG: It’s been a pleasure to be here with you Max to talk about this. As you can see, I’ve got a lot of passion for this work. We, as a company, have been doing it for a long time and really perfected it with our best practices. The one thing that I touched on a little bit, but I think it's worth getting really clear, is that this is the one area of work that we do that is really a combination of art and science.

This gets back to what I said previously: There’s no one right answer, right? All segmentations are equally valid, but they’re not all equally useful. We’ve got to strike the right balance there between the scientific accuracy and validity—making sure it’s replicable—and art.  We take nothing for granted. We build in the background and context. We look at the business decisions. We hit the criteria for success. We understand the capacity of our client to implement various solutions, and we're there with them on the socialization and implementation side of it. That’s the critical elements of this. Doing all that ensures that you wind up with something that your organization will embrace and use for many, many years.

MK: We’ve been talking with Jim Garrity from CMB about segmentation. To learn more about CMB and the work they do, please visit the CMB website. Thanks.