The Data Analytics Blog

Our news and views relating to Data Analytics, Big Data, Machine Learning, and the world of Credit.

All Posts

Customer Segmentation Through A Historic Lens

October 30, 2015 at 11:43 AM

It was Wendell Smith, president of The Marketing Science Institute at the time, who in 1956 first advocated customer segmentation as a means to drive market demand, influence brand preference, and improve overall marketing profitability. Smith’s observations in this now 66 year old Journal of Marketing  piece still holds some views that are largely relevant to today’s marketing landscape.

In his article titled, Product Differentiation and Market Segmentation as Alternative Marketing Strategies, he states that,

“The theory of perfect competition assumed homogeneity among the components of demand and supply sides of the market, but diversity or heterogeneity is now the rule rather than the exception.”

Not much of Smith’s observation differs from what we consider to be customer segmentation today, but when first coined, the term didn’t encompass the magnitude, diversity, density - and often volatility - markets of future generations would be characteristic of.

From the shotgun approach to more targeted marketing strategies

In the early days of customer segmentation, supply chain obstacles such as unequal progress in product design, development and manufacture and the inability to acutely align products according to market expectations led to the adoption of product convergence strategies. These approaches narrowed the consumer’s choice by aggressively marketing limited product ranges that offered little if any diversity, personalisation features or differentiation. But as consumerism, market diversification and demands changed, marketers adopted more customer-centric strategies that would focus more on buyer preferences, habits and expectations. This Harvard Business Review article of 1964  points to the growing awareness for more intense segment analyses that look beyond mere demographic data to determine product and brand positioning. But for the most part, traditional advertising was still rather hit and miss, leaving marketing departments battling to see ROI on often bloated advertising spend. With agency fees and marketing spending taking a serious chunk out of company budgets, the need for more scientific, data-driven customer segmentation methodologies became increasingly clear.

Replacing perception-based marketing with insightful, data-driven decisions

Rapidly supplanting traditional communications media, internet-based spin-off technologies such as e-commerce, social media, mobility, cloud and big data analytics have cast a new light on customer segmentation and the marketing discipline as a whole. We’ve entered what Forrester Research terms the age of the customer where consumers are enjoying a much bigger say than in the days of one-dimensional, and rather static, product ranges accompanied by marketing efforts that seemed more dictatorial than informative. Today, marketers are increasingly looking to apply more granular customer segmentation methodologies as we get to know more about our markets through the various data channels out there. As we attempt to apply greater context to who our customers are, our reliance on the technology that serves as the vehicle that bridges historic gaps between our customers and ourselves will increase.

So what will the future of market segmentation methodologies look like?

For marketers, the outlook is more than a little promising. As technology increasingly becomes an extension of the individual, opportunities to get to know our markets will become more abundant. And as individuals seek more meaningful engagement with their brands, so will the opportunities to collect more pertinent data about them. This bodes well for further curation of granular metrics that will reveal so much more about our customer segments and even reveal new ones we didn’t know existed.

using data analytics for customer engagement

Image credit: http://homeworktips.about.com/

Julian Diaz
Julian Diaz
Julian Diaz was Head of Marketing for Principa until 2017, after which he became Head of Marketing for Honeybee CRM. American born and raised, Julian has worked in the IT industry for over 20 years. Having begun his career at a major software company in Germany, Julian made the move to South Africa in 1998 when he joined Dimension Data and later MWEB (leading South African ISP). Since then, Julian has helped launch various South African technology brands into international markets, including Principa.

Latest Posts

The Top 6 Ways To Improve Motivation Levels In A Call Centre

Staff motivation levels are an important factor in every business, but even more so in a client or prospect facing environment such as a call centre. If your call centre agents are motivated, you can expect them to remain an employee for a longer period of time, reducing staff turnover. This not only saves you a lot of resources for recruiting, but also for training.

The Difference Between A Live Chat and A Chatbot

Most websites or apps lately have a chat function, whether that be a chatbot or a live chat function. But many people (and some businesses) don’t know the difference between the two and aren’t sure when they are talking to (or have installed) a bot or an agent.

How To Get Started With Machine Learning

The benefits have been recounted many times, but now that Machine Learning has the business world’s attention, how does one get started?  Moving into the machine learning space can be somewhat daunting, but we hope this blog post provides some guidance that you will find helpful.