Micro-Segmentation in the Age of Big Data

One of the essential topics taught in introductory marketing courses is the concept of market segmentation, which is the division of a market into groups of consumers that share one or more characteristics. Although most marketers understand the value of segmentation as a means to better target their efforts, many are daunted by the task of applying segmentation in an age of Big Data, where a deluge of information—both internal and external—is available. In this post, I’ll quickly review traditional B2C and B2B approaches to segmentation and touch on the concepts of anti-segments before relaying story of how a retailer used micro-segmentation to significantly impact the probability of sale.

B2C Segmentation in the Age of ‘Mad Men’

If you took an introduction to Marketing class more than a decade ago, you were probably taught that there are four primary bases for segmentation: geographic (e.g. region, population growth or density), demographic (e.g. age, gender, education, income), psychographic (e.g. values, attitudes, lifestyles), and behavioral (e.g. usage patterns, price sensitivity).

Although the recent popularity of the hit TV show ‘Mad Men’ may make some nostalgic for simplistic demographic segments like ‘housewives’ or ‘professionals,’ segmentation of B2C markets today is very granular and typically accounts for specific online and offline behaviors.

B2B Segmentation is a Different Animal

For business (B2B) markets, however, these variables are often less helpful. Traditionally, B2B marketers relied on SIC or NAISC codes to perform industry segmentation. However, these code systems are antiquated and new industries and business models—such as cloud services, SaaS and social media—are not represented.

B2B segments are typically based on such factors as company size, buyer type, purchase criteria, etc. A recent survey by the Content Marketing Institute (CMI) and Outbrain of 1,416 business-to-business (B2B) marketers from North America ranked the frequency that B2B small business marketers targeted their content based on such characteristics (see chart).

The advantage of segmentation schemes based on these traditional approaches is that they produce a relatively small number of easily understandable segments. The disadvantage is that they produce relatively broad segments that may have limited effectiveness.

Anti-Segments (or Explicitly Defining Who You DON’T Want to Sell To)

First introduced in The Lean Entrepreneur – How Visionaries Create Products, Innovate with New Ventures, and Disrupt Markets, an anti-segment is simply a market segment that you want to avoid selling to. As outlined by Brian Gladstein in a recent blog post titled “Turn Away a Customer? Yes… If They Are In Your Anti-Segment,” there are a number of reasons why this might be the case, including:

• You can’t reach or service these customers profitably
• They have product requirements that would consume your resources, making it impossible (or extremely difficult) to meet the needs of the rest of your customers
• These customers don’t provide the upside that other segments do, in the form of longevity, up-sell opportunities, cross-sell opportunities, or other sources of revenue

Why take the time to define anti-segments? If you don’t define your anti-segments, incorporate them in your internal sales and marketing training, and embed them in your targeting approach, you will find yourself squandering marketing dollars to move them through your funnel and wasting sales bandwidth to close them. It’s a classic problem where opportunistic sales may increase short-term revenue, but these customers and the accompanying lack of focus can ultimately sink the business.