Refractory Segmentation Marketing

DMers can improve results by gradually refining their target groups LIST SEGMENTATION is the most utilized and least understood process in direct mail.

I say “process” with forethought because segmentation is used today by most mailers as a “statement” rather than a process. That is, the groups are perceived as an end unto themselves, not as one of a series of steps along the way to isolate the mailer’s best prospects from the other names on a list.

“Age 40-plus, last-three-month hotline.” Clunk. Clunk. “Male, $50,000-plus.” Clunk. Clunk. The phrases – and the concepts behind them – seem immutable as they appear on a list order form. But they’re not.

The “40-plus” segment can embrace an endless variety of lifestyles, tied together by the respondent’s increasing feelings of vulnerability to the vagaries of health and survival. And “$50,000-plus” means that the respondent can embrace a greater number of lifestyles because he has more money – presumably slightly more discretionary income – than the majority of his fellow Americans. These hardly describe a definitive way of life, and in fact are simply way stations to our perceptions of respondents’ lifestyles.

Here are some suggestions for making better use of these way stations.

To start, let’s be certain we have our definitions correct.

The goal of segmentation is to find that point in a list where the optimum return occurs, whatever that means to the mailer. If the mailer is looking for response percentage, he may wish to settle for a smaller universe. If he’s looking for gross volume over the break-even line, he may wish to settle for less segmentation and a larger universe.

The process of segmentation is that of inhibiting the principal selection taken in a list rental by adding one or more segments to make the names perform better. The additional selections either involve the way the prospect responds to the list’s owner (his recency of response, the way in which he has paid, etc.), or clarify the respondent’s identity by associating him with a key fact – his income bracket or age, for example.

The net effect of segmentation is, theoretically, threefold:

– By adding a qualification to the buyer’s behavior, the selection should add to the response of the mailing list.

– The additional qualification will reduce the number of names available – the “universe” – on the list, should the mailer’s test succeed.

– Each new segmentation selection will add to the mailer’s rental cost, albeit a small one.

Too much segmentation on a list rental order will result in the number of names available on the universe being so small that the entire project becomes prohibitive. This same danger is present when one is considering segmenting a small list; very quickly, one runs out of rentable names. These are dangers to always keep in mind, but they shouldn’t deter us from investigating list segmentation thoroughly.

The mailer does not segment blindly. Going in, he has a pretty good idea, on a sort of “introductory” basis, of what his target market is like: male or female, rich or poor, young or old. If he’s part of a huge organization that has conducted comprehensive focus studies, he may have a much more refined idea of the prospect’s nature. But that’s relatively rare in a seat-of-the-pants field like direct mail.

For the most part, the mailer’s view of his prospect at this point is very much like getting a refractory examination in an optometrist’s office: The doctor is trying to find exactly the right lens for your eyeglasses. He starts with a kind of “all-purpose” lens, knowing that it’s not quite right for you but hoping to close in on exactly the right kind – the one that allows you to see clearly. How you view an object as a result of looking at the first lens is a clue to what sort of second lens you will be looking at, and so forth.

However, this metaphor only goes so far. You’ll recall that we defined the goal of segmentation as finding that point in a list where the optimum return occurs. It’s usually not necessary to gain total clarity of the prospect when one segments a list. What we’re concerned with here is how far the mailer should go to reach that point of optimum return.

And very often, it’s a lot farther than the mailer goes now. Consider a large list with lots of options. To the marketer it looks juicy, like a large casaba melon ready to be opened. He goes in, knowing something about his own product and a few general list marketing concepts: A hotline should always be tried first, for example. Well done! Also: He’s got a catalog offer; how about trying catalog buyers? “Last-three-month hotline catalog buyers.” Bingo! He wins! Time for a rollout.

Remember that this is a large list, and it’s terrific that the mailer has so many names on which to feast. But I would submit that there are compelling reasons to continue to segment on this file. And the mailer can do so without losing any of his universe.

For in fact, the mailer at this point has found out nothing about the affinity between his package and the list’s respondents, save the most basic elements: recency and catalog purchase. Why is it important for the mailer to go further in this examination process? Isn’t it enough that the names work?

There are two reasons to go further: first, the practical one – it provides insurance if continuation responses drop. By continuing to segment the file, to break it down into A/B or A/B/C splits, the mailer will know what his fallback position will be. That certainly ain’t bad.

The second reason is more abstract, but equally important. The mailer has an opportunity to find out all kinds of critical lifestyle and demographic data about his target respondent – whatever kinds of data are available for segmentation on the file. Since this is a no-lose situation the mailer will, in any event, use the quantity of names that he would have if he didn’t segment the file at all. He is simply breaking these names into segmented subsets; it would seem that the opportunity is irresistible. Yet many mailers simply stop here.

Clunk.

At this point, if a mailer has been lucky enough to reach it, he has an incredible opportunity: He knows the list works, he has a sizable universe to dip into, and the list has lots of selections. He can get lots of information by spending little or no money. Worried about the additional costs of choosing, say, an age select? Take a shot at getting your broker to contact the list manager. Explain to the manager that the mailer is about to take a sizable continuation. Add that it’s in everyone’s interest, even though the list has worked for him, that the mailer continue to re-segment the file to get additional data. This information will ensure that even if the list stops working at the same level as before, good quantities will continue to be mailed.

Ask the manager to waive the selection charges for continued segmentation. Assure him that the quantities taken, at least on the upcoming mailing, will be no less than what he would have taken if he had not opted to select additional segmentation. Tell him that it’s in the mailer’s interest to rent as many names as possible from the list owner. He’s looking for volume, as long as response is over the break-even line.

Will it work? If the list owner says yes, the mailer is possessed of an even more valuable bit of information: He knows the owner may very well continue to work with him to make this large list successful. If the list owner says no, the mailer still has the option of segmenting, at a relatively low cost per thousand, to gain additional data and ensure the file’s continued success.

The act of segmentation itself should resemble the “refractory process” I’ve described above – the mailer should select the characteristic he wishes to segment and start with the broadest, most general elements of that characteristic. If income is selected, for example, start by doing an A/B/C split, bracketing income into top, middle and low groups. When results come in, refine further the characteristics that are most close to break-even to get the most precise information you can out of the rental.

You’ll end up with the proverbial cherry on the cake, I promise you: fallback segments, even if the original test parameters stop working. Plus a whole lot of information about your prospect.

There are all kinds of textbook definitions of list marketing. But the description that will serve us best states that one strong advantage of list marketing is that it enables us to quantify people – in action, in their lives, in the acts of buying or subscribing or whatever – in a way that no other marketing vehicle can. It behooves us to exploit this advantage as comprehensively as possible.