Segmentation Is Dead

5th January, 2014 No Comments Blog

The concept of market segmentation is simple and powerful and has been a major driver of marketing strategy and spending for decades.  It is also a fundamentally flawed concept that will soon be a thing of the past.

The basic premise of market segmentation is that consumers are not all the same, that one marketing strategy will not work for all customers.  In practice, this premise has led marketers to break down large markets into smaller segments, each of which is more narrowly-defined than the overall target market.  Soccer moms.  Tween boys.  Gen Y.  Segments like these have made their way into the popular consciousness and have guided marketing messages, product development, and advertising dollars.

Segmentation, as thoughtful marketers have known since it was first practiced, violates its own basic premise.  Segmentation is an attempt to avoid treating all customers the same by treating all members of a smaller group of customers the same.  But the truth, and the basic idea behind segmentation to start with, is that no two consumers have the same interests, buying power, or shopping habits.

Nonetheless, segmentation has survived as a practice because it has been the best available alternative to simple broadcasting.  Major marketers could not communicate with each target consumer one-at-a-time in the era of direct mail, television and newspaper advertising, and spam.  No longer.  New technologies make it possible to understand the preferences of each and every customer and prospect, and to tailor marketing messages to each individual.

The Internet made this theoretically possible more than a decade ago, but a host of more recent developments have made this Holy Grail of marketing practically feasible.  A smartphone in every pocket enables real-time coupon issuance and redemption, geo-targeted messages, and other previous pipe dreams.  I am an investor, either individually or through Gotham Ventures, in a number of companies in this space.  Sailthru, as I’ve previously written in this blog, enables marketers to provide a unique customer experience to every consumer across every digital channel (e-mail, website, mobile) at each touch point.  Encore, LocalResponse, and others enable marketers to engage with individual consumers through or based on social media activity.  Nomi, Euclid and others are working to bring the customized experience of online shopping into the real world (note I am not an investor in Nomi or Euclid).

Smart marketers who have the good fortune or will to throw off the yoke of antiquated systems and adopt new, flexible architectures can already have a complete view of each consumer – across all digital channels and in the real world.  They can tailor each message and every interaction across those channels.  Such marketers are few and far between today, and may comprise more new companies than large, established marketers.  I believe, however, that this new approach to marketing, one that leaves segmentation completely behind, will be the universal approach practiced by all successful marketers in the future.  Those clinging to traditional segmentation will be left behind with it.

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