an inference about an unidentifiable attitude and still find the cus-
tomer. For example, Internet usage could be a proxy, or owner-
ship of a PDA, or both taken together. Both of those variables
would be more actionable because direct information is available
for sale from ISPs or direct marketing companies.
In developing such proxy variables, two critical developments
take place. First, the segmentation takes a step toward being practi-
cal, or being actionable. Second, the team assembled begins to build
a consensus around the market; they share their individual experi-
ences and perspectives, and in doing so not only surface tacit
knowledge that has never been systematically captured, but also
build bridges between different parts of the organization.
Create a frame. Once the team has identified variables that
score high on both meaningfulness and actionability, it per-
forms quantitative analysis to identify which short list of vari-
ables is likely to best predict customer behavior. This refined
short list of variables is then put into a segmentation “frame,”
as shown in Exhibit 1.
In this (disguised) example, taken from work with a client in
the food and beverage sector, the team was able to identify a
number of proxy variables that were both actionable and power-
fully meaningful. The original segmentation, which was not pro-
ducing strong results in terms of penetration or growth, was built
around very broad demographic categories, such as “teenagers”
or “blue collar workers.”
Consistent with the steps outlined above, this team began by
defining the scope of the segmentation around a marketing objec-
tive—selling more snacks in the setting of the workplace. Once
that refined scope was established, the team brainstormed a long
list of variables, which were scored and then tested. One of the
more interesting results here is how powerful relatively simple
demographic variables turned out to be. On the left axis age and
gender were used as proxies for more meaningful attitudinal vari-
ables around health and snacks. However, demographics alone
don’t tell the whole story. The team knew there would be a num-
ber of constraints and drivers around the choice of snack, the
accessibility of it, and the reason or occasion for buying it. After
brainstorming and quantitative testing, we determined that the
nature of the occupation could act as a strong proxy for a number
EXHIBIT 1
Segmentation frame for selling “salty snacks” in the workplace
Labor
intensive
(e.g., factory
Age Gender worker)
Male
18-25
Female
Age and gender are
26-35
Male
Female
proxies for:
• Attitudes about
health and nutrition
• Role of the snack
36+
Male
Female
of purchase drivers––again, a somewhat “obvious” segmentation
variable that turns out to be richer and more predictive in the con-
text of an array of meaningful and actionable variables.
Collapse the cells. In most cases, as in this example, the first
frame will generally be treated as a strong “working hypothesis”
and then tested with all existing data. This is an iterative process
shared by the team that relies on hard customer data. With each
step, the analysis goes into increasing detail. Preliminary quanti-
tative work tests the effectiveness of the frame variables to arrive
at a final frame. Then, key behavioral data within each “cell”
defined by the frame (e.g., brand choice, channel choice, volume
consumed, price paid) are compared to determine which “cells”
will collapse into segments. For most markets it will be impracti-
cal to manage offers to more than eight or 10 segments, and in
practice, you’re likely to find that cells are relatively easy to com-
pare and collapse around real customer behaviors.
Profile the segments. Finally, all available data from the cells
that comprise the segments can be placed into an integrating
framework. This data can and should come from multiple
sources, ranging from existing quantitative and qualitative cus-
tomer research to the experiences and latent knowledge of the
team and the broader organization. The effort may––or may
not––require new primary research. This is obviously an empiri-
cally driven process, but one that incorporates significant
amounts of judgment along the way. The fact that a team of peo-
ple makes those judgments helps ensure the results will be both
rich and practical.
Our preferred “integrating framework” is the Customer
Portrait®, as shown in Exhibit 2. Rooted in cognitive psychology,
it allows us to integrate a variety of data describing customer
behavior in a way that allows us to more effectively interpret and
ultimately influence it. In this way, the Customer Portrait® acts
as bridge to the development of segment-specific marketing
plans. The segmentation approach enables in-depth segment pro-
filing, like this, and the creation of targeted marketing plans. You
can both understand the segments and find them in the market-
place precisely because you’ve designed in the capability to easi-
ly identify them from the beginning of the process.
In the end you will have created a customer segmentation
Standing and Sitting and Stationed in On-the go Up and about
interacting interacting office (e.g., (e.g., nurse, professional
(e.g., retail (e.g., operator, secretary, securities (e.g., executive,
assistant) telemarketer) software engineer) trader ) consulting)
Nature of occupation is a proxy for:
• Nature of formal work breaks and ability
to eat snacks on the job
• Type of meal consumed during the work day
• Physical/emotional need for certain types of snacks
• Availability of snacks onsite, likelihood of "home"
provisioning, availability of alternative sources
EXHIBIT 2
Portrait of a “labor intensive” consumer in a manufacturing job
Purchase and
Usage Environment
• Predominantly men working in suburban
or rural settings
• Find work physically demanding and
repetitive
–They are usually standing or moving
around while on their feet
• Work environment likely to be unpleasant
– Least likely to work in an environment
with heating or air conditioning
• Break room without kitchen is the primary
facility where they can relax, socialize, and
consume snacks
• The most commonly available snacks are
chips, pretzels, and sweets
• Although they purchase most snacks at
work, they are more likely than any other
segment to bring snacks from home
• Least likely to consume snacks outside of
scheduled breaks or mealtimes
• Have to walk the farthest of all segments
to get their snack source
that overcomes the three classic failures. The segments you’ve
identified will exhibit significantly distinctive behavior. You’ll be
able to identify the customers who lie within them. And crucial-
ly, your organization will be well down the path toward agree-
ment about who your top-priority customers are, how to find
them, and what to do with them and for them. This approach
produces more than segmentation, it produces a shared view of
your market, a shared language, and a shared set of goals. If this
seems like common sense, it probably ought to. All customers
are people. Effective marketing is about finding them and under-
standing their behavior. A segmentation that works shouldn’t be
as hard, or as easy, as a complicated statistical model. Your
organization probably already has all the data and experience it
needs to build an effective customer segmentation. All that’s
required is a systematic approach to capturing and systematizing
that knowledge.
The point of all of this, of course, is more than just creating
analytical insight into customers; it’s to generate results for your
business. After developing a segmentation that actually allows
Reprints with permission from the American Marketing Association
Reprinted with permission from MARKETING MANAGEMENT™, January/February 2002.
Copyright 2002 by American Marketing Association. All rights reserved. For reorders, call 651-582-3800.
Desired
Experience
• Want a snack that tastes good during both
meal and non-meal occasions
• More likely during non-meal occasions to
want a snack that provides energy
• More likely during non-meal occasions to
use a snack that to help them cope with their
work environment
• Want a snack that is fun
Product/Service
Beliefs and
Associations
• More likely than other segments to believe
that snacks satisfy physical needs (taste and
refreshment) rather than emotional needs
(personal reward, escape)
• More likely than other segments to enjoy the
taste of chips and pretzels
• More likely than other segments to believe that
"healthy" snacks will improve their work
performance
• Only segment to prefer competitor product over
client product
M
MARKETING MANAGEMENT
Shaping the Profession of Marketing • January/February 2002
Purchase and
Usage Behavior
• Most likely to use vending machines • Medium bag is the package of choice
as their source of snacks • Most likely segment to use a single serving
• Chips and pretzels are their top choice of bag during meal times
snack for both meal and non-meal occasions • More likely to consume a snack in social settings
• Client brands consumed more often during than other segments
non-meal occasions, but at the same rate as
competitor brands during meal occasions
you to find and target customers, you’ll find it’s much easier to
align the entire organization as it goes to market and to grow
your top-line revenues and bottom-line earnings.
Like many clichés, this one turns out to be true––successful
marketing does begin with effective customer segmentation. The
trick is simply using an approach to segmentation that works
both analytically, and also practically, with your customers and
across your organization. ■
About the Authors
Jennifer Barron is a partner at Monitor Group based in Cambridge
and a co-founder of Market2Customer, a Monitor business unit that
focuses on growth-accelerating marketing strategies. She may be
Marketing in
reached at jennifer_barron@monitor.com.
Jim Hollingshead is a partner at Monitor Group, London. He has 10
years of experience in marketing and strategy, having worked with
clients in consumer goods, telecommunications, and several other
Changing Times
industries. He may be reached at jim_hollingshead@monitor.com.
Does Online Privacy Really Matter?
SEGMENTATION THAT WORKS
220610
Legal obstacles to e-commerce
 MakIng SegmentatIon Work
Successful marketing really does begin with effective segmentation.
T oday it’s a cliché to suggest that successful marketing begins
with good customer segmentation. In fact, ever since the late
’60s marketers have sought to first divide consumers into dis-
tinct groups and then tailor products, service offerings, brands,
and channel strategies to suit. Beginning in the world of pack-
aged consumer goods and spreading across virtually all indus-
tries, customer segmentation is now broadly practiced by mar-
keters almost everywhere. And countless approaches to develop-
ing “the right” segmentation, from needs-based cluster analysis
to database mining to the Internet-driven myth of the “segment
of one” are springing up almost everywhere. The trouble is these
approaches rarely work.
Segmentation Pitfalls
There are three fundamental failures associated with most
approaches to segmentation, and if you’re a marketing profes-
sional, chances are you’re familiar with all of them.
Failure No. 1: We can target the customers, but they don’t
buy different things. This is traditionally the classic, and still the
most frequent, reason segmentations fail. Most often this hap-
pens when companies try to segment the markets they’re in
according to simple demographic (or in B2B markets, “firmo-
graphic”) data. This approach is appealing because it makes the
customer groups you identify relatively easy to target.
Segmentation built around gender and income can easily gener-
ate a direct mail list, for example.
The trouble with this approach is that simple
demographics almost never strongly correlate
to actual behaviors in the market. While this
has always been the case, it has become
even more apparent as markets have
grown more competitive over the last
several years. Not all American
men age 35 to 44 making $100,000
per year buy a Mercedes. In fact,
not all of them buy a luxury car.
Even worse, not all of them shop
for cars at new car dealers. Not all of
them buy new cars. Not all of them
buy cars for the same reasons or
use their cars in the same way.
And so on. Time and again we
have seen companies use this
simple demographic-centered
approach to seg-
mentation to try
to reduce the com-
plexity of their mar-
keting mix, or their ad spend, or the training of their sales force.
And they’ve missed real market opportunities in the quest for
that simplicity.
Failure No. 2: We can identify “clusters,” but can’t find the
customers. The analytical antidote to the first failure––or so many
academics and consultants would claim––is finding a sophisticat-
ed mathematical solution to the demographic problem. This
approach recognizes that simple traditional segmentation
approaches have worn thin, and it proposes a solution that seems
to be simply common sense: Ask customers what they want, and
then target their needs. In practice, this usually means a large,
single customer survey that presents a sample of prospective cus-
tomers with a battery of questions about what they want and
why they buy––a reasonable enough thing to do. Then the statis-
tical magic begins. Usually this involves a series of linear regres-
sions or cluster-factor analysis to identify groups of customers
with similar needs, who can then be targeted with products or
services designed to meet those needs. These are the segmenta-
tions that result in segments with names like “the free spirits”
and “the outgoing socializers,” which are intended to be memo-
rably indicative of their needs or attitudes. In theory, this is an
eminently rational approach. In practice, it almost never works.
The reason the needs-based cluster approach fails is simple:
In practice, “needs” almost never correlate neatly to demograph-
ics or other metrics that would and theoretically should help you
find and target customers,
no matter how many
regressions you
run. This is
the oppo-
site side
By Jennifer Barron and Jim Hollingshead
EXECUTIVE b r i e f i n g
In today’s marketing world, segmentation is often treated as old hat. And it’s no wonder. With so many misconceptions and seg-
mentation failures, marketing professionals are left with little more than survey statistics, textbook rhetoric, and wasted market
research dollars. But all hope is not lost. Building segmentation that works requires a new approach to an old concept. And doing
it well can revolutionize a market and create explosive top-line growth.
of the same coin of Failure No. 1. While this seems counterintu-
itive to most experienced market researchers, we have proven
and re-proven this finding hundreds of times, even in our own
work. During the late ’80s and early ’90s, we developed extreme-
ly sophisticated tools for conducting this type of needs-based
segmentation. Again and again, despite a continual increase in
the statistical and mathematical sophistication of our analytical
tools, we ran into the same brick wall––needs-based clusters
almost never identify groups of customers you can find in the
real world. Where do “the free spirits” shop? Where do they live?
How old are they? How much money do they make? What
media do they read? These are the simple questions that would
lead to marketing actions, and cluster analysis rarely if ever
answers them.
Failure No. 3: Sales, marketing, and management can’t
agree on what the segmentation looks like. In light of the first
two classic failures, the third is not surprising. Most marketing
organizations have war stories about the giant segmentation
study that went nowhere or “the guys in market research” doing
yet another segmentation. Often sales, marketing, and market
research can’t agree on how to segment their markets, which
leads to untold amounts of waste, not only in additional but yet-
to-be-unused market research, but in poorly targeted product
development, poorly conceived channel strategies, wide-of-the-
mark ad campaigns, and organizational friction. Often this fric-
tion becomes so pronounced that different parts of the organiza-
tion stop talking to each other and a general skepticism develops
regarding the usefulness of customer segmentation, or even mar-
ket research broadly speaking. This is a dangerous situation
because the organization becomes paralyzed, unable to generate
new insights into constantly changing markets. A marketing
death spiral can result as you lose share, and different parts of
the organization argue with each other rather than focus on
working together to solve the problem.
Steps to Success
Despite these classic failures, segmentation remains a vital
strategy for any successful business and is as much an art as it is
a science. Taking certain steps can help prevent these common
pitfalls and put your company on the path to success. The right
team armed with clear objectives and a systematic approach can
develop a segmentation that’s both insightful and practical, form-
ing a solid foundation for a marketing strategy.
Assemble a team. The first step in building an effective cus-
tomer segmentation is making sure the right people are involved.
This means putting together a team from multiple parts of the
organization. The best results are produced when the working
team includes people from marketing, sales, market research,
brand management, and sometimes channel partners or general
management. By including people with different perspectives,
the process will not only incorporate a richer and more varied set
of knowledge, but it will also ease the process of buy-in and com-
munication across the company.
Define an appropriate scope. Launch the analytical task by
asking practical questions about what you’re trying to accom-
plish in the market, not in the analysis. This means getting the
scope of the exercise right. First, segmentations should explain
and predict customer behavior in the market because this is
what you’re trying to manage. You want to know why cus-
tomers buy what they buy so you can sell them your products
or services. This point may seem almost too basic to mention,
but we’re continually surprised by how often we find segmen-
tations that are too broad or too abstract to be useful. If, for
example, you’re trying to grow your share of the mobile tele-
phone market, you want a segmentation designed to under-
stand customers’ choices about mobile telephone service, not a
segmentation built to understand “lifestyles” or “attitudes
toward technology.” In many cases, you’ll want to be even more
specific. For example, in consumer goods the relevant customer
behavior may be brand choice (Coke vs. Pepsi), but it may alter-
natively be a prior category choice (soft drink vs. water), so
your segmentation should explain that. In any case, you need to
scope the effort around a practical set of customer behaviors
you want to understand and influence.
Brainstorm and test new variables. Once you have appro-
priately scoped the segmentation effort, then create a short list of
segmentation variables to explain customer behavior and help
target customers. The key in this step is to find variables that are
“meaningful” (they help explain and predict customer activity in
the marketplace) and “actionable” (they help identify the cus-
tomers and reach them with practical and proven marketing
actions). Variables that are actionable, but not meaningful, lead
to Failure No. 1; variables that are meaningful, but not action-
able, lead to Failure No. 2. When we work with clients we brain-
storm variables and then systematically score them for action-
ability and meaningfulness according to a set of criteria we cre-
ate beforehand.
In many cases the variables normally regarded as the most
meaningful will simply not be actionable. So, to return to the fore-
going example, “attitudes toward technology” may well be a
meaningful variable driving customer choices of mobile phone
service providers. But an attitude is very difficult to identify in the
market without interviewing each customer. In these cases, the
team works together to develop hypotheses around which vari-
ables could “proxy” for attitudes toward technology. The idea is
to find a variable or combination of variables that together draw
 MakIng SegmentatIon Work
Successful marketing really does begin with effective segmentation.
T oday it’s a cliché to suggest that successful marketing begins
with good customer segmentation. In fact, ever since the late
’60s marketers have sought to first divide consumers into dis-
tinct groups and then tailor products, service offerings, brands,
and channel strategies to suit. Beginning in the world of pack-
aged consumer goods and spreading across virtually all indus-
tries, customer segmentation is now broadly practiced by mar-
keters almost everywhere. And countless approaches to develop-
ing “the right” segmentation, from needs-based cluster analysis
to database mining to the Internet-driven myth of the “segment
of one” are springing up almost everywhere. The trouble is these
approaches rarely work.
Segmentation Pitfalls
There are three fundamental failures associated with most
approaches to segmentation, and if you’re a marketing profes-
sional, chances are you’re familiar with all of them.
Failure No. 1: We can target the customers, but they don’t
buy different things. This is traditionally the classic, and still the
most frequent, reason segmentations fail. Most often this hap-
pens when companies try to segment the markets they’re in
according to simple demographic (or in B2B markets, “firmo-
graphic”) data. This approach is appealing because it makes the
customer groups you identify relatively easy to target.
Segmentation built around gender and income can easily gener-
ate a direct mail list, for example.
The trouble with this approach is that simple
demographics almost never strongly correlate
to actual behaviors in the market. While this
has always been the case, it has become
even more apparent as markets have
grown more competitive over the last
several years. Not all American
men age 35 to 44 making $100,000
per year buy a Mercedes. In fact,
not all of them buy a luxury car.
Even worse, not all of them shop
for cars at new car dealers. Not all of
them buy new cars. Not all of them
buy cars for the same reasons or
use their cars in the same way.
And so on. Time and again we
have seen companies use this
simple demographic-centered
approach to seg-
mentation to try
to reduce the com-
plexity of their mar-
keting mix, or their ad spend, or the training of their sales force.
And they’ve missed real market opportunities in the quest for
that simplicity.
Failure No. 2: We can identify “clusters,” but can’t find the
customers. The analytical antidote to the first failure––or so many
academics and consultants would claim––is finding a sophisticat-
ed mathematical solution to the demographic problem. This
approach recognizes that simple traditional segmentation
approaches have worn thin, and it proposes a solution that seems
to be simply common sense: Ask customers what they want, and
then target their needs. In practice, this usually means a large,
single customer survey that presents a sample of prospective cus-
tomers with a battery of questions about what they want and
why they buy––a reasonable enough thing to do. Then the statis-
tical magic begins. Usually this involves a series of linear regres-
sions or cluster-factor analysis to identify groups of customers
with similar needs, who can then be targeted with products or
services designed to meet those needs. These are the segmenta-
tions that result in segments with names like “the free spirits”
and “the outgoing socializers,” which are intended to be memo-
rably indicative of their needs or attitudes. In theory, this is an
eminently rational approach. In practice, it almost never works.
The reason the needs-based cluster approach fails is simple:
In practice, “needs” almost never correlate neatly to demograph-
ics or other metrics that would and theoretically should help you
find and target customers,
no matter how many
regressions you
run. This is
the oppo-
site side
By Jennifer Barron and Jim Hollingshead
EXECUTIVE b r i e f i n g
In today’s marketing world, segmentation is often treated as old hat. And it’s no wonder. With so many misconceptions and seg-
mentation failures, marketing professionals are left with little more than survey statistics, textbook rhetoric, and wasted market
research dollars. But all hope is not lost. Building segmentation that works requires a new approach to an old concept. And doing
it well can revolutionize a market and create explosive top-line growth.
of the same coin of Failure No. 1. While this seems counterintu-
itive to most experienced market researchers, we have proven
and re-proven this finding hundreds of times, even in our own
work. During the late ’80s and early ’90s, we developed extreme-
ly sophisticated tools for conducting this type of needs-based
segmentation. Again and again, despite a continual increase in
the statistical and mathematical sophistication of our analytical
tools, we ran into the same brick wall––needs-based clusters
almost never identify groups of customers you can find in the
real world. Where do “the free spirits” shop? Where do they live?
How old are they? How much money do they make? What
media do they read? These are the simple questions that would
lead to marketing actions, and cluster analysis rarely if ever
answers them.
Failure No. 3: Sales, marketing, and management can’t
agree on what the segmentation looks like. In light of the first
two classic failures, the third is not surprising. Most marketing
organizations have war stories about the giant segmentation
study that went nowhere or “the guys in market research” doing
yet another segmentation. Often sales, marketing, and market
research can’t agree on how to segment their markets, which
leads to untold amounts of waste, not only in additional but yet-
to-be-unused market research, but in poorly targeted product
development, poorly conceived channel strategies, wide-of-the-
mark ad campaigns, and organizational friction. Often this fric-
tion becomes so pronounced that different parts of the organiza-
tion stop talking to each other and a general skepticism develops
regarding the usefulness of customer segmentation, or even mar-
ket research broadly speaking. This is a dangerous situation
because the organization becomes paralyzed, unable to generate
new insights into constantly changing markets. A marketing
death spiral can result as you lose share, and different parts of
the organization argue with each other rather than focus on
working together to solve the problem.
Steps to Success
Despite these classic failures, segmentation remains a vital
strategy for any successful business and is as much an art as it is
a science. Taking certain steps can help prevent these common
pitfalls and put your company on the path to success. The right
team armed with clear objectives and a systematic approach can
develop a segmentation that’s both insightful and practical, form-
ing a solid foundation for a marketing strategy.
Assemble a team. The first step in building an effective cus-
tomer segmentation is making sure the right people are involved.
This means putting together a team from multiple parts of the
organization. The best results are produced when the working
team includes people from marketing, sales, market research,
brand management, and sometimes channel partners or general
management. By including people with different perspectives,
the process will not only incorporate a richer and more varied set
of knowledge, but it will also ease the process of buy-in and com-
munication across the company.
Define an appropriate scope. Launch the analytical task by
asking practical questions about what you’re trying to accom-
plish in the market, not in the analysis. This means getting the
scope of the exercise right. First, segmentations should explain
and predict customer behavior in the market because this is
what you’re trying to manage. You want to know why cus-
tomers buy what they buy so you can sell them your products
or services. This point may seem almost too basic to mention,
but we’re continually surprised by how often we find segmen-
tations that are too broad or too abstract to be useful. If, for
example, you’re trying to grow your share of the mobile tele-
phone market, you want a segmentation designed to under-
stand customers’ choices about mobile telephone service, not a
segmentation built to understand “lifestyles” or “attitudes
toward technology.” In many cases, you’ll want to be even more
specific. For example, in consumer goods the relevant customer
behavior may be brand choice (Coke vs. Pepsi), but it may alter-
natively be a prior category choice (soft drink vs. water), so
your segmentation should explain that. In any case, you need to
scope the effort around a practical set of customer behaviors
you want to understand and influence.
Brainstorm and test new variables. Once you have appro-
priately scoped the segmentation effort, then create a short list of
segmentation variables to explain customer behavior and help
target customers. The key in this step is to find variables that are
“meaningful” (they help explain and predict customer activity in
the marketplace) and “actionable” (they help identify the cus-
tomers and reach them with practical and proven marketing
actions). Variables that are actionable, but not meaningful, lead
to Failure No. 1; variables that are meaningful, but not action-
able, lead to Failure No. 2. When we work with clients we brain-
storm variables and then systematically score them for action-
ability and meaningfulness according to a set of criteria we cre-
ate beforehand.
In many cases the variables normally regarded as the most
meaningful will simply not be actionable. So, to return to the fore-
going example, “attitudes toward technology” may well be a
meaningful variable driving customer choices of mobile phone
service providers. But an attitude is very difficult to identify in the
market without interviewing each customer. In these cases, the
team works together to develop hypotheses around which vari-
ables could “proxy” for attitudes toward technology. The idea is
to find a variable or combination of variables that together draw
an inference about an unidentifiable attitude and still find the cus-
tomer. For example, Internet usage could be a proxy, or owner-
ship of a PDA, or both taken together. Both of those variables
would be more actionable because direct information is available
for sale from ISPs or direct marketing companies.
In developing such proxy variables, two critical developments
take place. First, the segmentation takes a step toward being practi-
cal, or being actionable. Second, the team assembled begins to build
a consensus around the market; they share their individual experi-
ences and perspectives, and in doing so not only surface tacit
knowledge that has never been systematically captured, but also
build bridges between different parts of the organization.
Create a frame. Once the team has identified variables that
score high on both meaningfulness and actionability, it per-
forms quantitative analysis to identify which short list of vari-
ables is likely to best predict customer behavior. This refined
short list of variables is then put into a segmentation “frame,”
as shown in Exhibit 1.
In this (disguised) example, taken from work with a client in
the food and beverage sector, the team was able to identify a
number of proxy variables that were both actionable and power-
fully meaningful. The original segmentation, which was not pro-
ducing strong results in terms of penetration or growth, was built
around very broad demographic categories, such as “teenagers”
or “blue collar workers.”
Consistent with the steps outlined above, this team began by
defining the scope of the segmentation around a marketing objec-
tive—selling more snacks in the setting of the workplace. Once
that refined scope was established, the team brainstormed a long
list of variables, which were scored and then tested. One of the
more interesting results here is how powerful relatively simple
demographic variables turned out to be. On the left axis age and
gender were used as proxies for more meaningful attitudinal vari-
ables around health and snacks. However, demographics alone
don’t tell the whole story. The team knew there would be a num-
ber of constraints and drivers around the choice of snack, the
accessibility of it, and the reason or occasion for buying it. After
brainstorming and quantitative testing, we determined that the
nature of the occupation could act as a strong proxy for a number
EXHIBIT 1
Segmentation frame for selling “salty snacks” in the workplace
Labor
intensive
(e.g., factory
Age Gender worker)
Male
18-25
Female
Age and gender are
26-35
Male
Female
proxies for:
• Attitudes about
health and nutrition
• Role of the snack
36+
Male
Female
of purchase drivers––again, a somewhat “obvious” segmentation
variable that turns out to be richer and more predictive in the con-
text of an array of meaningful and actionable variables.
Collapse the cells. In most cases, as in this example, the first
frame will generally be treated as a strong “working hypothesis”
and then tested with all existing data. This is an iterative process
shared by the team that relies on hard customer data. With each
step, the analysis goes into increasing detail. Preliminary quanti-
tative work tests the effectiveness of the frame variables to arrive
at a final frame. Then, key behavioral data within each “cell”
defined by the frame (e.g., brand choice, channel choice, volume
consumed, price paid) are compared to determine which “cells”
will collapse into segments. For most markets it will be impracti-
cal to manage offers to more than eight or 10 segments, and in
practice, you’re likely to find that cells are relatively easy to com-
pare and collapse around real customer behaviors.
Profile the segments. Finally, all available data from the cells
that comprise the segments can be placed into an integrating
framework. This data can and should come from multiple
sources, ranging from existing quantitative and qualitative cus-
tomer research to the experiences and latent knowledge of the
team and the broader organization. The effort may––or may
not––require new primary research. This is obviously an empiri-
cally driven process, but one that incorporates significant
amounts of judgment along the way. The fact that a team of peo-
ple makes those judgments helps ensure the results will be both
rich and practical.
Our preferred “integrating framework” is the Customer
Portrait®, as shown in Exhibit 2. Rooted in cognitive psychology,
it allows us to integrate a variety of data describing customer
behavior in a way that allows us to more effectively interpret and
ultimately influence it. In this way, the Customer Portrait® acts
as bridge to the development of segment-specific marketing
plans. The segmentation approach enables in-depth segment pro-
filing, like this, and the creation of targeted marketing plans. You
can both understand the segments and find them in the market-
place precisely because you’ve designed in the capability to easi-
ly identify them from the beginning of the process.
In the end you will have created a customer segmentation
Standing and Sitting and Stationed in On-the go Up and about
interacting interacting office (e.g., (e.g., nurse, professional
(e.g., retail (e.g., operator, secretary, securities (e.g., executive,
assistant) telemarketer) software engineer) trader ) consulting)
Nature of occupation is a proxy for:
• Nature of formal work breaks and ability
to eat snacks on the job
• Type of meal consumed during the work day
• Physical/emotional need for certain types of snacks
• Availability of snacks onsite, likelihood of "home"
provisioning, availability of alternative sources
EXHIBIT 2
Portrait of a “labor intensive” consumer in a manufacturing job
Purchase and
Usage Environment
• Predominantly men working in suburban
or rural settings
• Find work physically demanding and
repetitive
–They are usually standing or moving
around while on their feet
• Work environment likely to be unpleasant
– Least likely to work in an environment
with heating or air conditioning
• Break room without kitchen is the primary
facility where they can relax, socialize, and
consume snacks
• The most commonly available snacks are
chips, pretzels, and sweets
• Although they purchase most snacks at
work, they are more likely than any other
segment to bring snacks from home
• Least likely to consume snacks outside of
scheduled breaks or mealtimes
• Have to walk the farthest of all segments
to get their snack source
that overcomes the three classic failures. The segments you’ve
identified will exhibit significantly distinctive behavior. You’ll be
able to identify the customers who lie within them. And crucial-
ly, your organization will be well down the path toward agree-
ment about who your top-priority customers are, how to find
them, and what to do with them and for them. This approach
produces more than segmentation, it produces a shared view of
your market, a shared language, and a shared set of goals. If this
seems like common sense, it probably ought to. All customers
are people. Effective marketing is about finding them and under-
standing their behavior. A segmentation that works shouldn’t be
as hard, or as easy, as a complicated statistical model. Your
organization probably already has all the data and experience it
needs to build an effective customer segmentation. All that’s
required is a systematic approach to capturing and systematizing
that knowledge.
The point of all of this, of course, is more than just creating
analytical insight into customers; it’s to generate results for your
business. After developing a segmentation that actually allows
Reprints with permission from the American Marketing Association
Reprinted with permission from MARKETING MANAGEMENT™, January/February 2002.
Copyright 2002 by American Marketing Association. All rights reserved. For reorders, call 651-582-3800.
Desired
Experience
• Want a snack that tastes good during both
meal and non-meal occasions
• More likely during non-meal occasions to
want a snack that provides energy
• More likely during non-meal occasions to
use a snack that to help them cope with their
work environment
• Want a snack that is fun
Product/Service
Beliefs and
Associations
• More likely than other segments to believe
that snacks satisfy physical needs (taste and
refreshment) rather than emotional needs
(personal reward, escape)
• More likely than other segments to enjoy the
taste of chips and pretzels
• More likely than other segments to believe that
"healthy" snacks will improve their work
performance
• Only segment to prefer competitor product over
client product
M
MARKETING MANAGEMENT
Shaping the Profession of Marketing • January/February 2002
Purchase and
Usage Behavior
• Most likely to use vending machines • Medium bag is the package of choice
as their source of snacks • Most likely segment to use a single serving
• Chips and pretzels are their top choice of bag during meal times
snack for both meal and non-meal occasions • More likely to consume a snack in social settings
• Client brands consumed more often during than other segments
non-meal occasions, but at the same rate as
competitor brands during meal occasions
you to find and target customers, you’ll find it’s much easier to
align the entire organization as it goes to market and to grow
your top-line revenues and bottom-line earnings.
Like many clichés, this one turns out to be true––successful
marketing does begin with effective customer segmentation. The
trick is simply using an approach to segmentation that works
both analytically, and also practically, with your customers and
across your organization. ■
About the Authors
Jennifer Barron is a partner at Monitor Group based in Cambridge
and a co-founder of Market2Customer, a Monitor business unit that
focuses on growth-accelerating marketing strategies. She may be
Marketing in
reached at jennifer_barron@monitor.com.
Jim Hollingshead is a partner at Monitor Group, London. He has 10
years of experience in marketing and strategy, having worked with
clients in consumer goods, telecommunications, and several other
Changing Times
industries. He may be reached at jim_hollingshead@monitor.com.
Does Online Privacy Really Matter?
SEGMENTATION THAT WORKS
220610
Legal obstacles to e-commerce
an inference about an unidentifiable attitude and still find the cus-
tomer. For example, Internet usage could be a proxy, or owner-
ship of a PDA, or both taken together. Both of those variables
would be more actionable because direct information is available
for sale from ISPs or direct marketing companies.
In developing such proxy variables, two critical developments
take place. First, the segmentation takes a step toward being practi-
cal, or being actionable. Second, the team assembled begins to build
a consensus around the market; they share their individual experi-
ences and perspectives, and in doing so not only surface tacit
knowledge that has never been systematically captured, but also
build bridges between different parts of the organization.
Create a frame. Once the team has identified variables that
score high on both meaningfulness and actionability, it per-
forms quantitative analysis to identify which short list of vari-
ables is likely to best predict customer behavior. This refined
short list of variables is then put into a segmentation “frame,”
as shown in Exhibit 1.
In this (disguised) example, taken from work with a client in
the food and beverage sector, the team was able to identify a
number of proxy variables that were both actionable and power-
fully meaningful. The original segmentation, which was not pro-
ducing strong results in terms of penetration or growth, was built
around very broad demographic categories, such as “teenagers”
or “blue collar workers.”
Consistent with the steps outlined above, this team began by
defining the scope of the segmentation around a marketing objec-
tive—selling more snacks in the setting of the workplace. Once
that refined scope was established, the team brainstormed a long
list of variables, which were scored and then tested. One of the
more interesting results here is how powerful relatively simple
demographic variables turned out to be. On the left axis age and
gender were used as proxies for more meaningful attitudinal vari-
ables around health and snacks. However, demographics alone
don’t tell the whole story. The team knew there would be a num-
ber of constraints and drivers around the choice of snack, the
accessibility of it, and the reason or occasion for buying it. After
brainstorming and quantitative testing, we determined that the
nature of the occupation could act as a strong proxy for a number
EXHIBIT 1
Segmentation frame for selling “salty snacks” in the workplace
Labor
intensive
(e.g., factory
Age Gender worker)
Male
18-25
Female
Age and gender are
26-35
Male
Female
proxies for:
• Attitudes about
health and nutrition
• Role of the snack
36+
Male
Female
of purchase drivers––again, a somewhat “obvious” segmentation
variable that turns out to be richer and more predictive in the con-
text of an array of meaningful and actionable variables.
Collapse the cells. In most cases, as in this example, the first
frame will generally be treated as a strong “working hypothesis”
and then tested with all existing data. This is an iterative process
shared by the team that relies on hard customer data. With each
step, the analysis goes into increasing detail. Preliminary quanti-
tative work tests the effectiveness of the frame variables to arrive
at a final frame. Then, key behavioral data within each “cell”
defined by the frame (e.g., brand choice, channel choice, volume
consumed, price paid) are compared to determine which “cells”
will collapse into segments. For most markets it will be impracti-
cal to manage offers to more than eight or 10 segments, and in
practice, you’re likely to find that cells are relatively easy to com-
pare and collapse around real customer behaviors.
Profile the segments. Finally, all available data from the cells
that comprise the segments can be placed into an integrating
framework. This data can and should come from multiple
sources, ranging from existing quantitative and qualitative cus-
tomer research to the experiences and latent knowledge of the
team and the broader organization. The effort may––or may
not––require new primary research. This is obviously an empiri-
cally driven process, but one that incorporates significant
amounts of judgment along the way. The fact that a team of peo-
ple makes those judgments helps ensure the results will be both
rich and practical.
Our preferred “integrating framework” is the Customer
Portrait®, as shown in Exhibit 2. Rooted in cognitive psychology,
it allows us to integrate a variety of data describing customer
behavior in a way that allows us to more effectively interpret and
ultimately influence it. In this way, the Customer Portrait® acts
as bridge to the development of segment-specific marketing
plans. The segmentation approach enables in-depth segment pro-
filing, like this, and the creation of targeted marketing plans. You
can both understand the segments and find them in the market-
place precisely because you’ve designed in the capability to easi-
ly identify them from the beginning of the process.
In the end you will have created a customer segmentation
Standing and Sitting and Stationed in On-the go Up and about
interacting interacting office (e.g., (e.g., nurse, professional
(e.g., retail (e.g., operator, secretary, securities (e.g., executive,
assistant) telemarketer) software engineer) trader ) consulting)
Nature of occupation is a proxy for:
• Nature of formal work breaks and ability
to eat snacks on the job
• Type of meal consumed during the work day
• Physical/emotional need for certain types of snacks
• Availability of snacks onsite, likelihood of "home"
provisioning, availability of alternative sources
EXHIBIT 2
Portrait of a “labor intensive” consumer in a manufacturing job
Purchase and
Usage Environment
• Predominantly men working in suburban
or rural settings
• Find work physically demanding and
repetitive
–They are usually standing or moving
around while on their feet
• Work environment likely to be unpleasant
– Least likely to work in an environment
with heating or air conditioning
• Break room without kitchen is the primary
facility where they can relax, socialize, and
consume snacks
• The most commonly available snacks are
chips, pretzels, and sweets
• Although they purchase most snacks at
work, they are more likely than any other
segment to bring snacks from home
• Least likely to consume snacks outside of
scheduled breaks or mealtimes
• Have to walk the farthest of all segments
to get their snack source
that overcomes the three classic failures. The segments you’ve
identified will exhibit significantly distinctive behavior. You’ll be
able to identify the customers who lie within them. And crucial-
ly, your organization will be well down the path toward agree-
ment about who your top-priority customers are, how to find
them, and what to do with them and for them. This approach
produces more than segmentation, it produces a shared view of
your market, a shared language, and a shared set of goals. If this
seems like common sense, it probably ought to. All customers
are people. Effective marketing is about finding them and under-
standing their behavior. A segmentation that works shouldn’t be
as hard, or as easy, as a complicated statistical model. Your
organization probably already has all the data and experience it
needs to build an effective customer segmentation. All that’s
required is a systematic approach to capturing and systematizing
that knowledge.
The point of all of this, of course, is more than just creating
analytical insight into customers; it’s to generate results for your
business. After developing a segmentation that actually allows
Reprints with permission from the American Marketing Association
Reprinted with permission from MARKETING MANAGEMENT™, January/February 2002.
Copyright 2002 by American Marketing Association. All rights reserved. For reorders, call 651-582-3800.
Desired
Experience
• Want a snack that tastes good during both
meal and non-meal occasions
• More likely during non-meal occasions to
want a snack that provides energy
• More likely during non-meal occasions to
use a snack that to help them cope with their
work environment
• Want a snack that is fun
Product/Service
Beliefs and
Associations
• More likely than other segments to believe
that snacks satisfy physical needs (taste and
refreshment) rather than emotional needs
(personal reward, escape)
• More likely than other segments to enjoy the
taste of chips and pretzels
• More likely than other segments to believe that
"healthy" snacks will improve their work
performance
• Only segment to prefer competitor product over
client product
M
MARKETING MANAGEMENT
Shaping the Profession of Marketing • January/February 2002
Purchase and
Usage Behavior
• Most likely to use vending machines • Medium bag is the package of choice
as their source of snacks • Most likely segment to use a single serving
• Chips and pretzels are their top choice of bag during meal times
snack for both meal and non-meal occasions • More likely to consume a snack in social settings
• Client brands consumed more often during than other segments
non-meal occasions, but at the same rate as
competitor brands during meal occasions
you to find and target customers, you’ll find it’s much easier to
align the entire organization as it goes to market and to grow
your top-line revenues and bottom-line earnings.
Like many clichés, this one turns out to be true––successful
marketing does begin with effective customer segmentation. The
trick is simply using an approach to segmentation that works
both analytically, and also practically, with your customers and
across your organization. ■
About the Authors
Jennifer Barron is a partner at Monitor Group based in Cambridge
and a co-founder of Market2Customer, a Monitor business unit that
focuses on growth-accelerating marketing strategies. She may be
Marketing in
reached at jennifer_barron@monitor.com.
Jim Hollingshead is a partner at Monitor Group, London. He has 10
years of experience in marketing and strategy, having worked with
clients in consumer goods, telecommunications, and several other
Changing Times
industries. He may be reached at jim_hollingshead@monitor.com.
Does Online Privacy Really Matter?
SEGMENTATION THAT WORKS
220610
Legal obstacles to e-commerce