Segmentation is making headlines. The journalistic reprise of some inelegant remarks by Abercrombie & Fitch’s CEO and the eruption of a scandal involving IRS scrutiny of conservative non-profit groups have come together at the same moment to put the spotlight on targeting, which, of course, is what segmentation is all about.
The ensuing outcry has pummeled targeting from both sides – in the case of Abercrombie & Fitch it’s criticized as too exclusionary; in the case of the IRS it’s condemned as overly – meaning unfairly – inclusionary. The fact of the matter, though, is that it’s one or the other only when it’s poorly done. This is the takeaway for brand marketers.
Targeting is a core, purposeful activity undertaken in support of organizational objectives. It is essential for organizations to narrow their focus in order to concentrate on their mission and not waste scarce resources on things or people not central to that mission. Organizations accomplish this by targeting.
No organization can do everything or serve everyone. Admittedly, some organizations have a more all-encompassing remit than others, but those organizations serve their broad mission by subdividing into smaller units, each of which has a narrow focus. More than anything else, it is the target on which a group is focused that motivates efforts, unifies allegiances and defines the dividing lines between operating units.
Implicit within targeting is the presumption that the targeted segment has value worth the attention. By definition, then, non-targeted segments do no. In fact, this is the measure of a good segmentation – does it differentiate value? A good marketing segmentation must do more than simply divide consumers into groups with contrasting attitudes. If every group has the same buying potential, then the attitudinal differences don’t matter because modifying products or ads to match one set of attitudes versus another won’t concentrate marketing development or spending on high-value customers. Only segmentations that differentiate value offer a useful marketing roadmap.
The definition of value varies by organization. Abercrombie & Fitch is trying to maximize profits; the IRS is trying to collect all taxes due. Targeting by Abercrombie & Fitch should differentiate groups on the basis of potential profit contribution. Targeting by the IRS should differentiate groups on the basis of tax status. But the core purpose of differentiating value is where targeting gets controversial.
Abercrombie & Fitch has drawn heat because its retail concept is exclusionary by design. It targets certain kind of teens – in the words of its CEO, “cool, good-looking people.” All others aren’t welcome because their presence would presumably keep the ‘cool kids’ away. This is a very sharp-elbowed concentration of efforts and resources that may well reflect, even sanction, unwholesome, unkind values, but it is shoddy targeting only if it is a misreading of ‘cool kids.’
The IRS has come under fire because it utilized politically treacherous and ideologically divisive keywords for sorting groups applying for non-profit status. This targeted worked as intended, with the result that certain conservative groups received disproportionately greater scrutiny. It goes without saying that such targeting by politics is inappropriate. It may even be illegal. But it is understandable as a necessary effort – however misguided it worked in practice – to identify groups worth a focused concentration of efforts and resources.
Oftentimes, targeting criteria are off-limits. Numerous legal challenges over the years have curtailed or ended the most egregious kinds of redlining. Companies are more sensitive than ever to the partiality inherent to targeting. Well-done segmentations that differentiate value necessarily channel efforts and resources in one direction over another. Groups often feel this is unfair, either because they feel they get too little share of attention as a result or because they feel they get too much.
The bigger risk from poor targeting is inefficiency not bad publicity. Unfocused operations waste money. Brand marketers want the biggest bang for the buck, and that requires razor sharp targeting.
Abercrombie & Fitch has long been criticized for having a condescending concept (the remarks at issue date back to 2006), but its Q1 2013 sales shortfall was due to inventory shortfalls. In other words, it has plenty of demand, just no merchandise on hand to meet that demand. Logistics is the bigger problem at hand for Abercrombie & Fitch.
However the IRS scandal plays out, after all is said and done, the issue it was trying to handle will still be there. It will just have to find a more acceptable way of targeting.
Protests about unfairness should not cause brand marketers to question the merits of targeting. Targeting is always ‘unfair’ – not as a matter of ethics but as a matter of priorities. Every organization must focus and concentrate. This means prioritizing, and central to setting priorities is picking a target and coalescing around it.
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