Profiling & Segmentation – what’s the difference?
18/05/2010 Leave a comment
We often find confusion among marketers and sales managers around the terminology of a “profile” versus a “segment”. The reason for this appears to be that Customers have been “profiled” on a single profile element and then these have been grouped and communicated as segments. Point in case; Doctors are often profiled based on their potential to prescribe drugs within a therapy area. ‘A’ customers are defined as having the highest potential, B’s as moderate potential and C’s as average potential. The sales force is then asked to allocate their customers into a segment bucket. In this way, the profile is seen as the segment.
The alternate option would be to ask the sales team to capture number of prescriptions written in a defined time period and these results would then be used to define segments at a head office level. Based on the individual results and distribution of these, customers will be grouped into segments that are equitable at the highest level.
Some organizations start with the premise that they are basing their segments on multiple profile elements (which we commend), but they then ask their sales team to capture the segment rather than the individual profile elements that make up the segment. (e.g. “A” customers have one or more of the following attributes…..). In this situation, the underlying rationale for how a sales person came up with the segment they placed a customer in cannot be defined, nor is the organization able to redefine segments or analyze detailed data about their customers because the base data was not captured. Our experience has been that organizations who take this approach have difficulty in recalling the profile elements they used to define their segments less than a year after implementing the segmentation exercise and the quality of resultant customer segments deteriorates very quickly with time, leaving them with a costly and frustrating exercise of having to repeat the process at regular intervals (unfortunately, often repeating the poor process they previously employed!).
Based on these types of segmentation approaches, it is also very difficult for organizations to identify meaningful results from any strategic analysis of these segments. The types of analysis we are referring to would include resource allocation modeling, scenario planning and response curve analysis. Their results typically show little variation across segments due to the coarseness and heterogeneity of the segments used. This in turn often leads to the wrong business conclusions being made (i.e. there is no difference in the sales responsiveness of customers to promotional activity or Customers in the A segment don’t seem to be any different to the C segment customers).
By intelligently capturing additional relevant profile elements about your customers and then building segments based on these aggregated profiles, we have seen a 10 fold difference in sales response between customers with the same level of promotional activity who were all previously defined as “A targets”.
By capturing each customer’s individual profile values (Profiling) and then grouping customers into homogeneous groups (Segmentation) based on these values, the understanding of profiling versus the resultant segments becomes clearer.
2X2 Customer Segmentation Model
By incorporating 2 profile elements and capturing the value of customers on these two dimensions, each customer can be placed into a discrete segment. In the example above, scores of 1-5 are typically used to define ‘value’ for each profile element, with 1-3 being grouped as HIGH.
A customer who scores 1-3 for the Brand Value and 1-3 for Market Value will fall into the Green segment. They have high brand value and high market value.
A customer who scores 4-5 for the Brand Value but 1-3 for the Market value will fall into the Yellow segment. They have low brand value but high potential. Traditionally, both groups would have been defined as A’s (because of their Market Value), yet they are quite different (as defined by their use of your Brand) and need to be marketed to differently.
This provides sales and marketing with opportunities to differentiate strategy and resources to these new segments. Importantly, a greater understanding and ability to measure cause and effect on sales also allows the organization to measure ROI moving forward.
