McKinsey have released a book (registration required) that digs into the challenges facing marketing today.

• Marketers are struggling to keep up with an explosion of new customer segments, sales and service channels, media, marketing approaches, products, and brands.
• Many have responded to fragmenting opportunities by bolting on new brands, channels, and marketing programs, but doing so increases costs and complexity while reducing organizational agility.
• To deal with proliferation companies must instead become more sophisticated at prioritizing opportunities and allocating resources while increasing the consistency and coordination of their marketing execution.

Source: The McKinsey Quarterly: Profiting from Proliferation

One chapter that caught my attention is “Managing your business as if customer segments matter”.  Several factors make reassessment of segmentation approach important.

• market polarisation:  widening the gaps between the lifetime values of various segments
• fragmenting customer needs are creating opportunities for specialist competitors to go after just one segment
• proliferating distribution channels and media vehicles are helping all companies target the most valuable customers with focussed service and advertising

Yet the article notes that few firms get their segmentation to work.  Many organisation’s are having difficulty measuring customer spending patterns and exploiting that in a useful way, into differentiated customer propositions and experience.  They cite data-rich firms such as financial services, (and airlines, retailers) as having failed to exploit state of the art Customer Relationship Management (CRM) systems to develop and deliver truly differentiated value propositions, and customer level scorecards.  They cite a key reason, as difficulty in coordination across diverse organisational groups.

Developing powerful segmentations, is portrayed as a management and organisational challenge measure, understand and focus on the right things.

There are three tasks:

• choose an actionable segmentation
• build formal performance management processes
• create organisational accountability for segment results

And some tips on creating actionable segmentation.

• ability to assign all customers … distinct set of common customers … shared products, services, channels (5 – 8 segments)
• distinct difference between segments, by customer value, behaviours, needs
• clear relationship between these segments and alternative approaches (demographic, attitudinal)