Don't Give Up on That Segmentation Study -- Do It Smarter

Stock market volatility. Consumer pessimism. Economic instability. Even though the US presidential election is behind us, these are still very uncertain times. When it comes to market research, the easiest thing to do is nothing. Wait it out. But for how long? And what will the opportunity cost be if you don't begin the process now?

Obviously, we all need to be cognizant of economic factors when deciding when to launch any project. Any information can help, whether it's external data or your customers indicate that sentiments have stabilized -- even if that stabilization is pessimistic.

For segmentation in particular, which could be especially challenging during periods of extreme uncertainty, it's important to at least begin the process for conducting the study. I have highlighted several major concerns below, with my thoughts on their validity, how to address, or even overcome those challenges.

Segmentation is less actionable in a bad economy than in a good one.

Not so.Remember that segmentation makes you smarter about how you make all your investments. And as resources get scarcer, knowing who is most important (currently and in the future) makes tough decisions a bit easier. You could even make the argument that segmentation is actually more important in bad times.

The research could produce different (or invalid) segments.

This should not be a concern, and should not stop you from launching a study. For example, if you think about the key basis variables that would make for a great motivationally-based segmentation scheme (e.g., needs, attitudes, etc.), these things would not change based on economic climate.

The one area where you should expect to see some change in priority is the "price" dimension. But this is not necessarily a negative thing, and certainly no reason to throw your segmentation study in the recycle bin. Price is probably more important to nearly everyone now, and you may see more variance in any price variables included today than you would have a year ago. But this is the reality you will likely need to deal with for at least the next 12 months, and possibly beyond.

The key is to understand the relative price sensitivity for each segment. This is critical as you make investment decisions in the current economic climate.

We could derive incorrect relative values for the segments, leading to improper resource allocation.

Admittedly, this one is likely the trickiest.

The reality is that this November is probably a bad time to field anything that relies partially on self-reported measures of future spending. "Totally uncertain" is more problematic than "unhappy, but realistic." A lot will happen between now and January; people will have processed all of the information (the election, the stock market, employment data), and made a mental plan for how this economy will affect them. By then, the best guess is how people plan to approach spending in 2009 will be the same (imperfect, but directionally reasonable) proximity of reality it is at any point in time.

The study will have a shorter shelf life, and the ROI from the research will be materially smaller.

This is a small concern. I typically consider the shelf life of a segmentation study to be roughly 18-30 months, with 24 months being about right for most companies.A major upturn in the economy might affect some segments more than others, and therefore change how we would value those segments.Each company would need to weigh the possibility and cost of needing to explore segmentation again earlier than this benchmark, against the risk of proceeding in this market without this information.

Predictive scoring models that utilize internal data warehouses might not be as accurate.

It may be a bit tougher to do so, but you can and should get actionable predictive models created from existing data. If you include 3 years of data (for those customers you have it for), you can investigate and transform raw variables into new measures that may be more useful. However, it is possible that you will need to take an extra step because recent purchase history is so different from past trends. But that isn't a major problem and should not hold you back.

About the Author

Brant Cruz, the head of Chadwick Martin Bailey's Retail practice,focuses much of his time overseeing the execution of projects, from questionnaire design and data collection through data analysis and report writing. Brant also dedicates time to consult with premium brands about tying brand development and strategy to operational execution and processes. During his time at Chadwick Martin Bailey, he has demonstrated a keen ability to develop excellent ongoing working relationships with clients. Brant has managed and conducted many studies, ranging in scope from brand equity and value measurement, customer satisfaction, market performance and potential, to service evaluation and product positioning.

Brant brings his strong analytical and quantitative skills to research studies in the consumer product, retail, utility, and financial services industries, among others. In addition to a strong foundation in fundamental design and analysis, Brant has extensive experience in the design and analysis of tradeoff-based studies, including full profile and self-explicated conjoint and discrete choice.

Brant is well grounded in Chadwick Martin Bailey's innovative brand measurement approaches, with significant experience fielding organization-wide brand performance information systems.

Brant holds a B.S. in management science with a concentration in marketing from Bridgewater State College