Most everyone in corporate life is familiar with shelfware. It’s the unfortunate end product of much industrious effort by ‘bioware’ (employees, managers and consultants). What begins as a well-meaning exercise to create a new mission statement, business plan or internal reorganization winds up as shelfware – hefty binders chock full of cogent arguments and clever presentation, which immediately upon distribution are consigned to office shelves to collect dust, never to be consulted or used. Certain engineering studies are rumoured to have revealed that the eradication of shelfware could result in a twelve-percent reduction in the structural requirements of new office buildings.
A regrettable side-effect of shelfware is that it tends to tarnish the reputation of the important strategic exercises that it traps in its trademark three-ring binders. Things that are worth doing end up not being done. Why? Because people remember how previous exercises ended up literally being shelved.
Shelfware & customer segmentation
One of the latest conquests of shelfware is in the realm of customer segmentation.
For many organizations, customer segmentation can be transformational. It changes how they interact with their customers, their product development and their core business operations. As such, it can (and should) have a profound impact on a business’s financial performance, how it markets and sells its products, and customer service and satisfaction
Unfortunately, many businesses fail to realize the benefits of customer segmentation, since the results of their initiatives reside in conceptually and statistically elegant solutions that sit in binders on a shelf – shelfware.
To realize the potential return on investment in segmentation, companies need to avoid two critical pitfalls: having valuable segmentation studies become shelfware; and becoming discouraged from undertaking such studies because of the fear of this happening.
The best way to avoid the shelfware problem is to understand why the segmentation study is being done in the first place, and to be prepared to make the changes necessary to realize the benefits.
Customer segmentation has the potential to drive change, both internally and externally. Internally, its introduction should produce fresh approaches in product management, pricing, channel management, and the role of the sales force. The results should manifest themselves in improved financial performance, from both reduced costs (for example, in servicing customers’ needs) and increased revenue. Externally, customers should notice improvements in how they interact with the business that more closely fits their needs and behaviours.
A classic segmentation shelfware story
One of our clients engaged us after their segmentation exercise stalled. This client had decided to adopt a more targeted marketing approach, and so embarked on an exercise to segment its customer base. They hired a marketing expert, who led them through a series of workshops to identify and categorize the different types of customers and their attitudes and motivations.
The result, it must be said, was a very insightful categorization based on the needs and attitudes of their customers: small-to-medium sized business. However, that was where the work stopped.
The problem was that, at the very beginning, our client hadn’t been clear why the exercise was being undertaken. Target marketing sounds wonderful, but what changes would this approach require and what benefits would it offer? Since the motivation for the segmentation exercise wasn’t clear, the benefits weren’t obvious.
There was another major problem: the segmentation couldn’t identify individual customers, in either the database or the market. Since the segmentation provided no insight into differences between the buying behaviours of customers, it couldn’t be used to make marketing decisions.
So much for target marketing. When we met this client two years after they developed the segments, they were still trying to find a way to capitalize on this work.
Analysis versus implementation
In our experience, organizations, like our client, that inadvertently develop segmentation shelfware, do so because they focus too much of their effort on the analysis and too little on implementation .They try to jump-start their segmentation effort by applying corporate high voltage to content, developing the most sophisticated segmentation scheme possible.
It’s easy to see how it happens. Everyone wants to cram as much into the segmentation project as they can. As a result, the segments become an end in themselves. What’s more, the very reason for segmenting – that is, the business problem to be solved – becomes lost, if indeed it was ever identified. Project activities become defined solely in terms of data collection and analysis. The project is judged a success if the segments fit the data. Everyone congratulates themselves, despite looming failure.
If you’re lucky, at this point in your evolving segmentation nightmare, someone makes a valiant attempt to use the segments to change products, pricing and offerings. (Often, in reality, no one bothers with the struggle; everyone moves on to the next project.) But inevitably, whoever does so runs into internal resistance, and eventually realizes that implementation is impossible. It becomes clear that the business’s processes, systems and organizational skills are geared to the old way of doing things, and that the fresh insights generated by the segments can’t be used.
Recognize that segmentation drives change
So how can this scenario be avoided? It starts with a basic understanding that segmentation drives change.
“The segmentation must be engrained into the business processes,” explains Mike Paynter, VP Customer Segmentation at Labatt Breweries of Canada.
Paynter’s advice is to “think through what you want to achieve by doing a customer segmentation and what the results will look like”. In other words, a segmentation project enjoys a much greater chance of success if the changes in people skills, business processes and information technology that will be required to implement its lessons are recognized, anticipated and planned in advance.
If the project’s outcome is a relatively simple, yet insightful, segmentation that solves the business issue it was designed for, there’s an even greater chance of success. Ensuring that challenges in change management have been addressed is critical; it’s important to ask the people who are expected to work with the new segments for their input, and make sure they receive the necessary training. Further, if you’ve defined targets and developed performance metrics, you are well on your way to achieving a significant ROI.
Tracking progress using important and realistic milestones helps to keep the implementation moving forward, monitor the pace of change, identify issues along the way, and, perhaps most importantly, maintain the motivation of the people involved.
One of our clients, Meredith Publishing Group, is a worthy example of a successful exercise.
Five steps to real ROI
Based on our extensive experience with segmentation, we’ve identified five guiding principles for success. Following them will help you avoid the pitfalls of having your segmentation work turn into shelfware:
1. Focus your initiative on solving a specific business issue. Simple tasks encourage simple, elegant solutions that are easier to implement.
2. Articulate the expected ROI and outcomes at the start of the project. Put a stake in the ground in terms of what you expect to get out of the segmentation project. It could be increased revenue growth, reduced costs to serve, or greater market share. But set expectations when you start.
3. Find the right balance between analysis and implementation. Think about how you will implement your customer segments from day one. Ask yourself about changes that will be needed in the organization, processes and information technology to take advantage of the segmentation scheme. Plan those projects early; don’t wait for the segmentation project to finish.
4. Walk before you run. In other words, start simple and evolve the level of sophistication only as it is needed to solve ever more demanding business issues. In particular, if this is your first use of customer segmentation, you should be prepared to trade off sophistication for practicality.
5. Develop a segmentation scorecard to track progress along the way. The scorecard should track performance against both internal measures of success (for example, the progress on related projects, such as implementing systems to track and share customer knowledge) and external measures, such as customer loyalty.
A segmentation success story
A good example of the potential impact that customer segmentation can have on a business is Meredith Publishing Group. A division of Meredith Corporation, Meredith Publishing Group is home to more than 170 special-interest magazine titles, including such well-known consumer publications as Better Homes and Gardens, Ladies’ Home Journal, Country Home, and Traditional Home.
Historically, Meredith organized its advertising sales force by magazine title. While it recognized that some customers were more important to its business than others, the differences weren’t reflected in distinct service levels, or strategic approaches to how account management resources were allocated.
A simple segmentation of Meredith’s customers, using revenue figures and advertising spending, confirmed that there were distinct groups of customers. As a result of this basic exercise in customer segmentation, it became clear that Meredith was over-servicing many customers by dedicating scarce account representatives to them, while under-servicing the more important customers.
Meredith accordingly changed its approach. For one segment, it redoubled its efforts to sell both solutions and advertisements, resulting in double-digit growth. (The Publishing Group also includes Meredith Integrated Marketing, Corporate Solutions and Database Marketing.) For another important, underserved segment, a specialist sales person was hired to present Meredith’s entire portfolio to strategically important customers – a tactic that is still generating new opportunities for Meredith.
By addressing the needs of its customer segments effectively, Meredith made a fundamental shift in how it deployed sales resources, which in turn drove changes in compensation, contact management and products. “The customer segmentation study was critical,” explains Jerry Kaplan, President of Meredith’s Magazine Group. “We were beginning to dabble in segmentation to determine the impact it might have, but the results confirmed that we were headed in the right direction.”
Richard Lee is a partner and leader of Deloitte’s Customer & Channel Strategy group in Toronto. He can be reached at email@example.com. This article was written with the assistance of Rob Lanoue, Andrea Lekushoff and Aliyah Nenshi, all with Deloitte’s consulting practice.