Holistic segmentation

Clive Brand and Sue Jarvis

Source: Admap Magazine, June 1998
Downloaded from WARC

Argues that traditional segmentation methods are too rigid and narrow for today's more individualistic
markets. The drivers of attitudes and behaviour in some markets (though not all) can be very complex,
and include attitudinal as well as behavioural/circumstantial components. New technology makes
possible more complex analyses without restriction to a small number of factors. The resulting `holistic'
segmentation can include all the traditional concepts of attitude, behaviour, life-stage and
demographics, by matching databases. Advantages and drawbacks of this `holistic' segmentation are
described, illustrated from work in financial services. It requires thorough research and structured
planning, and is not suitable for all markets, but where it does apply it provides a sharper focus on
strategy and tactics. One of five articles in a feature on `segmentation and consumer profiling'.

Sue Jarvis and Clive Brand, Consensus Research, suggest that

traditional segmentation approaches are too narrow and constrained by
old technology and assumptions
Sue Jarvis and Clive Brand

Okay, hands up! How many of us have been involved in a segmentation exercise that failed to live up to
expectations? A fair proportion, if the stories are anything to go by.

There are inherent difficulties in segmentation analysis. It is not always all it is cracked up to be, and it is all too
rarely the 'holy grail' that we would like it to be. Nevertheless, in the right circumstances, segmentation can be
an extremely powerful tool: a starting point for further development and action.

The challenge for the research industry is that client personnel often find the concept of segmentation
appealing, but have doubts about application in practice. Will the segments that emerge be recognisable on a
day-to-day basis (for example by the sales and/or customer service teams)? Can the information be married to
the data held on customers in the client database, and used for direct marketing? Organisations that get their
fingers burned through segmentation often, understandably, find it difficult to justify exploring the potential
benefits again. And yet there are other organisations that regularly invest in a new segmentation in the
expectation (or hope) that it will yield an advance on what they learnt from the previous exercise only a couple of
years earlier.

The trouble with segmentation is that, in many respects, it is just like doing the decorating at home. Success, to
a large extent, is in the preparation. Fail to get that right, and the results may leave a lot to be desired. It is too
easy to rush into a segmentation exercise. If the planning is given too little thought, and too little time, the
infrastructure needed to support the segmentation is often not in place to ensure that the results are
successfully utilised by the company.

A key question to be resolved up-front is whether segmentation is the right tool for an organisation at its current
stage of development. We believe there are three key issues that clients should be asking themselves before
they commit to what is undoubtedly a major investment of resources:

Is the climate in the organisation right for segmentation?

How will the segmentation be used by the organisation?
What is the most appropriate form of segmentation?

The focus of this article is on the third of these issues - the most appropriate form of segmentation for an
individual client. Nevertheless, the three issues are interrelated. For a segmentation programme to be
successful, it is essential that the climate is right within the organisation. Some segmentations are seen to 'fail'
because they are never adopted wholeheartedly by the company. Senior personnel need to be committed to
championing the benefits of segmentation as a marketing tool. 'Ownership' of the segmentation needs to be
effectively transferred from research consultancy to client, through initiatives such as joint workshops with the
project team. Ideally there should be a process of cascading the insight and direction yielded from the research,
beyond the project team back through the organisation.

THE RIGHT SEGMENTATION

The classic approach to segmentation has been to choose a particular way of looking at the target audience
prior to any research. In financial consumer research, for example, we effectively assume that a market can be
described either by its demographics, or life-stage, or attitude. The segmentation research is then designed to
reflect the assumption.

There are circumstances when the approach need be no more complex than this. For example, if a new
investment product is aimed at high-net-worth individuals, then a measure of disposable income may be more
than adequate for development and targeting purposes. Similarly, if a company is developing a mortgage
product aimed at first-time buyers, then it may need no more than a lifestage-based analysis to understand who
are in the market and what their needs are.

But it is important to recognise that markets are often not that simple. Frequently a variety of different
circumstances bring consumers into a market, just as a number of different triggers prompt corporate decision-
makers into business markets.

Taking consumer markets first, it is clear that, for some customers, entry into a market may be driven primarily
by attitude (typically these people are the 'hobbyists' in a market). For others the trigger may be life-stage or
lifestyle-based (starting a family, changing jobs, reaching retirement). For others, it may be economic
circumstances (a windfall, inheritance, redundancy).

In fact the actual factors at play may sometimes be quite complex. Clearly, in the following scenarios from the
financial market there may be more than one factor at work.

His attitudes are carefree, but he is not using his credit card

The reason may be that he remembers too well the pain of the last recession, and the difficulties caused by debt
(which of course were at the root of the problem). So although he spends freely today, it is from existing cash
resources. Any purchase of a substantial nature is saved for in advance.

She's high net worth, but has no unit trusts

She is determined to protect the value of her capital, and will not countenance anything to which is attached the
familiar tag 'the price of units may go down as well as up'.

They're setting up home together, but not arranging a mortgage

Indeed, they are already a two-property couple, and are now seeking to sell property and to redeem one of the
mortgages. Business-to-business markets may face similar issues. How is a segmentation based on just one
trigger going to explain, for example, the dynamics in the credit insurance market (bad debt protection).
Japanese companies in the UK are attitudinally pro the concept of bad debt insurance because incurring bad
debts entails loss of face. In contrast, other nationalities, British companies among them, are prompted to take
out credit insurance because of a specific event (what might be termed a discontinuity) such as a recent bad
debt, entering a new market, or a change in their own fortunes. Other companies dip in and out of the product
according to the level of risk they perceive to exist in their core markets.

As can be seen, from the above examples, segmentation based on just one form of trigger may not provide a full
explanation of what is driving the market. Consequently, the results gained may actually be misleading in terms
of the strategic and tactical direction provided.

FLEXIBILITY THROUGH TECHNOLOGY

Before we despair that segmentation will never be able satisfactorily to tackle anything other than fairly simple
markets, there is some good news. The considerable improvements in computing power and increasing
sophistication of multivariate analysis allow us much greater flexibility in our approach. Specifically, we can take
a holistic view of what drives a market.

We are no longer constrained by the eight to ten factors that classically have formed the basis of a cluster
analysis in attitudinal segmentation. It is now possible to draw on all aspects of the consumer or corporate
animal - attitude, behaviour, demographics, life-stage and needs - at the same time, to create an analytical
'melting pot' of many factors. Importantly, these factors can include what is already known about the customer
and is held on a customer database. Incorporating this information can provide a useful link, post-analysis, back
into the database.

The resulting holistic segmentation is more powerful and relevant because it does not pre-suppose what
characterises a market. It allows groups based on different characteristics to emerge in the same segmentation
(Exhibit 1). It also acknowledges the possibility of change over time - a person's purchase decisions in the past
may have been influenced by attitude, but life-stage needs can put a different perspective on things. Take the
shift in behaviour by a switch from 'sports car lover' to 'Volvo man'. In fact, his underlying attitudes may not have
shifted: he would still dearly love to be driving a TVR. But he recognises the practical issues that arise on
parenthood. A segmentation based solely on attitudes may not provide the most appropriate picture for later
marketing action.

TAKING THINGS FORWARD

Once we have our holistic segments, we can marry up the segmentation to known customer details from a
database (or use the segmentation findings to guide the future collection of information on customer
questionnaires. If some customer information is already held, bringing the two sets of information together
normally involves the following steps.

First, once defined on many factors, each segment can be described and re-interpreted purely in terms of what
is known from the database information held by the client.

Then, a 'shorthand' version of each segment can be matched back to the client database, to identify and predict
customer types in the database as a whole. Segment 'markers' can be applied to individual records.

Missing or incomplete data on the database can often be managed through a process of 'backward chaining' (for
example if ABCD, and we know C and D from the database, then with some probability we can deduce A).

Segments can then be prioritised by potential attractiveness and potential exploitation by the client organisation,
to help develop future marketing strategy and action.

HOW DOES IT WORK IN PRACTISE?

In research conducted by Consensus in financial services our analysis identified eight separate segments in the
core target audience, each populated by between 10% and 15% of the audience.

Some of the segments are based on life-stage or socio-demographic characteristics that may change over time.
One such segment is Early Nesters. Predominately in their 20s/30s, joint decision makers, with young children,
their entrance into the life assurance and pensions market is event-driven - the events being marriage and the
start of a family. This segment responds best to marketing initiatives that focus on current event-led needs and
behaviour and feelings about their young family: nurturing, protection, an increasing sense of mortality and
responsibility and the need to look to the longer term.

Other segments - derived in the same segmentation - are strongly attitudinal. One such group is the Planners.
Roughly 10% of the population, they are to be found in similar proportions across all ages and life-stages. The
Planner response to the financial market stems from deep-seated beliefs and attitudes laid down early in life that
change only slowly (unlike those in the Early Nester segment, who may hold quite different views in a few years
time - depending on circumstances). Planners choose their first job by whether it has a pension scheme, have
endowments in place for their daughter's wedding almost before the daughter has been conceived, and start
paying additional contributions to their pension when most people are still making up their minds whether or not
to have a pension at all. Marketing to them is about continuity, stability and security. They are receptive to new
financial products for the long term and an ideal target for cross-selling.
 EXHIBIT 2: BENEFITS AND DRAWBACKS OF HOLISTIC
SEGMENTATION

Benefits

Builds on what the client already knows about customers (however incomplete)
Tailor-made to the client's particular circumstances
Reflects reality - customers are in the market for different reasons. Embraces all the
key drivers of behaviour, and therefore reflects the market more accurately
Gives both depth of understanding and robust data
Can be related back to what the client does know about customers (however
incomplete) and used to deduce which customers belong to which segments
Can produce segments that are easily recognisable
Can pinpoint action appropriate for marketing to key segments (for example, to early
adopters, opinion-leaders)

Drawbacks

Usually requires original research

Without care and project planning, may be difficult to marry up to other client data;
and may be difficult to recognise and overtly target segments
Not the cheapest form of segmentation

Holistic segmentations show that marketing to event-led groups is about being 'in the moment' - what they need
from their provider, in response to today's circumstances, will change over time. Attitudinally-based groups,
however, will carry the same fundamental beliefs and needs over many years. This brings a new perspective to
product and communications development and may lead to markedly different strategies for the different
segments, in areas such as relationship building, client servicing and cross-selling.

Holistic segmentation can also throw into sharp relief whether certain groups merit targeting at all. We worked
with an insurance company that routinely sends questionnaires to those who have let their policy lapse, to
understand why (dissatisfaction with service, better value elsewhere, etc). A few questions were added to
enable us to analyse a 'shorthand' version of our holistic segmentation. This showed that the majority of those
who let their policies lapse came from one segment - the Battlers. Their circumstances mean that, whatever their
aspirations, they are struggling to make ends meet.

The segmentation highlighted that many customers who are lapsing are the wrong target. Far from finding ways
of keeping them (the original objective), it became clear that - at least for the type of policy being sold - it would
be better to identify Battlers during the sales process and not close the sale, but steer them in another direction.

IT IS NOT PANACEA
In many instances holistic segmentation offers a more sophisticated, powerful and useful management tool for
developing highly targeted strategies. But we have to be realistic. It is not always the most appropriate solution.
Indeed there are potentially as many drawbacks with holistic segmentation as there are with other approaches.

THE HOLISTIC PROCESS

Holistic segmentation, even more so than other approaches, requires a structured approach to project planning.
Indeed, in order to ensure that the client organisation needs anything as sophisticated as holistic segmentation,
and to ensure the segments that emerge are going to be recognisable and actionable, we see great merit in a
series of initial discussions with the client project team. This is not just to agree on the scope of the project, but
also to share existing knowledge, working hypotheses and assumptions about the target market; as well as to
discuss the potential applications of the research in relation to marketing, sales, database management, product
development and customer service applications. And finally, to plan the all-important 'sell-in' of segmentation to
the client organisation.

A ROUTE WORTH EXPLORING?

Our work in the financial sector with holistic segmentation has:

clearly shown which segments offer greater marketing opportunities;

led to new strategy in relation to lapsing customers;
brought a new perspective to product and communications development;
highlighted which segments are most comfortable with new distribution channels;
enhanced database analysis;
enriched analysis of on-going customer satisfaction measurement.

The holistic approach is not always the most appropriate solution to a client's segmentation needs, but where it
does fit it can provide a sharper focus for the client on the strategy and tactics needed to move forward - both
through more recognisable segments and more actionable information.

NOTES & EXHIBITS

Sue Jarvis is managing director at Consensus Research. Her experience of the implementation of
segmentation research goes back to the mid-1980s and she is a frequent speaker on the use of
research in the finance sector.

Clive Brand is client services director at Consensus Research. Previously, he was assistant director,
marketing, at insurance and credit management group Trade Indemnity plc. Prior to that he worked in
research and policy development at the CBI, as well as at management consultants Temple Barker &
Sloane (now Mercer Consulting).
 EXHIBIT 1: HOLISTIC SEGMENTATION - THE DIFFERENCE

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