How to Adopt Segmentation for Your Customer Journey: A Primer for NFPs

The customer journey, or more appropriately for much of the NFP sector, the donor journey, is an area that is rightly getting lots of attention these days. Understanding how prospects move from consideration to engaged to donor (or volunteer, or advocate as appropriate) can ensure ever-squeezed NFPs use their resources wisely by designing an engagement strategy that works.

But inherent to customer journey mapping is some form of segmentation because usually more than one journey or path is required to be effective with diverse prospects that most NFPs are working with. The concept of segmentation has been around a long time in the marketplace – including among NFPs. Annual Giving vs. Major Gifts is ultimately just a type of behavioural segmentation.

The purpose of this blog is to provide a primer on different types of segmentation, and their uses and limitations. Ultimately there are many types of segmentation, and organizations can adopt hybrid types - often to great effect. What follows is a description of the types most relevant to NFPs. The material summarized here is drawn from an internal training course that Environics Analytics provides to its own employees.

Behavioural Segmentation

This is perhaps the most intuitive type of segmentation and NFPs have used it for a long time. We have long understood that Annual Giving donors, compared to Monthly, Major Gift, or Planned all have different behaviours, capacity, motivations and donor journeys and NFPs have devised different approaches to engaging with these different types of donors. In fact, I would argue that NFPs have been trailblazers in this area because so many industries did not have enough of their own internal data to deal with this segmentation of “customers”.

For example, think about grocery retailers: until recently they didn’t really have an effective way to know – and treat differently – someone who spends $20 per week compared to someone who spends $200. Behavioural Segmentation uses NFPs’ own data (usually transactional) to create useful segments. Historically, this has simply been by donor type, but with more data available, and the use of more sophisticated techniques, NFPs are able to look at frequency of donation, participation in events and volunteering to measure engagement to create a more complete picture of donors.

Advantages:

• Uses NFPs’ own internal data
• Can be structured to conform to how NFPs understand the business: they tend to be intuitive because the approach uses data NFPs are already familiar with
• Useful to devise engagement strategies that lead existing donors down a path to greater engagement because of the rich donation data available

Disadvantages:

• Provides only an internal view of donor behaviours: the data is only reflective of how donors engage with a single NFP; there is no (or very limited) view of who else they donate to, their lifestyle characteristics, financial capacity
• It is unclear whether the behaviours are constructs of how the NFP has engaged in the marketplace or the result of an underlying preference in the market (e.g. if an NFP has a very small Monthly Giving segment, this could be because it has not effectively promoted Monthly Giving, or because the market does not like the concept of Monthly Giving, but it can be hard to know which)
• Difficult to use for acquisition because there is usually no data upon which to segment a prospect
• Doesn’t provide the motivations behind the behaviours that underlie the segments

Attitudinal or Psychographic Segmentation

Usually Attitudinal Segmentation uses a survey of donors or prospects to understand the motivations and behaviours around awareness, consideration, engagement and donation. This type of segmentation can help NFPs understand which “hot buttons” to press (and which to avoid) in their positioning and communications to improve their chances of being noticed by prospects.

Advantages:

• Can create a clear “story” around the various motivations that groups of target populations have (e.g. an environmental cause could have a segment that is motivated by improving the environment to support human health, and another that is motivated by ethical considerations around wildlife preservation for other species)
• Helps with alignment of the organization’s outreach efforts around the key motivators that drive awareness, consideration, engagement and donation, and prioritization of the motivators based on the breadth of appeal

Disadvantages:

• Difficult to systematically tie motivations to individual donors/prospects to action more personalized messaging around the donor journey: this would require every donor/prospect to answer the battery of questions asked on the survey so they could be put into a segment, which is unrealistic
• Describing the segments beyond their attitudes is difficult because when segments are optimized purely on attitudes, the behavioural and demographic dimensions are often “mushy” which does not lead to a clear picture of who the target is for practical purposes like media exposure, donor capacity, etc.

Demographic Segmentation

Demographic Segmentation is very straightforward and has been used in marketing for ages. The current preoccupation with Millennials is a prime example. But there are literally hundreds of demographic variables, so understanding which ones are relevant for an NFP’s cause is important to create segments using relevant demographic markers. Is presence of children important? Age? Income? Some combination?

Demographic segmentation is usually created by using surveys or neighbourhood demographic estimates (or neighbourhood demographic clusters) as surrogates for individual-level demographic characteristics (which are usually very limited on donor databases).

Advantages:

• Easy to understand and describe donors and prospects
• Demographics are easier to use for acquisition because they are available on acquisition databases or can be inferred from postal code data
• Demographics can help to bridge across segmentation techniques and disparate data sources

Disadvantages:

• Other important elements are missing: behaviours and attitudes which can be key drivers in tailoring the donor journey. Everyone within a demographic segment may not behave the same or have the same beliefs

Hybrid Approaches

The fact is that no approach to segmentation is a panacea. This is where using hybrid approaches to solve for different business challenges, and using some analytical techniques to bridge across these approaches can create a more holistic, functional view of the donor/prospect.

As discussed, Behavioural Segments could be a good starting point in the stewardship of existing donors. Attitudinal Segments could provide better information on the motivators of these donors. Attitudinal Segments could also be used to make the case more effectively in acquisition efforts. But the challenge lies in connecting the two approaches.

Adding demographic “hooks” in the data that drives the different segmentation approaches allows them to be connected and used more flexibly because demographics tend to be widely available. The approach entails either using statistical models to identify “look-alikes” based on donor data, or using neighbourhood lifestyle segmentation systems which act like off-the-shelf, ready-to-use models to identify look-alikes and link with many third-party data sources that provide additional lifestyle information.

Models are customizable, created specifically for a specific NFP and can do a better job of explicitly including behavioural data. Neighbourhood segments are not created specifically for an NFP, but have a lot of detail and are usually much less expensive to use.

Advantages:

• Integrates different dimensions of segmentation and data into a unified view of target segments
• Allows NFPs to be more donor/constituent-centric

Disadvantages:

• Additional data, expertise and cost required to operationalize
• Must be considered in the planning stages of segmentation work: should not be an afterthought

Parting Thoughts

So how to proceed? Which is the right approach for you? I’d imagine these are questions that could be going through your mind. I’m going to leave you with four things to consider:

• You should do some longer-term thinking and research to select an approach (or combination of approaches) that not only suits your immediate needs but can be scaled over the longer term if appropriate, and can link up to other needs beyond your immediate ones (e.g. should segmentation to drive a direct marketing campaign be structured to mesh with a donor experience segmentation strategy?). Sometimes focussing only on the immediate is just fine, but this should be done in a deliberate way, for good reasons.
• Think specifically and tactically about how you will take action against the segments you create. I frequently hear practitioners from all industries complain about how segmentation didn’t have the expected utility because the segments were not actionable enough in the end. The expectations and approach regarding actionability should be clear before undertaking any segmentation project.
• Seek out experiences of your colleagues in other organizations who have adopted segmentation approaches in a more integrated way to learn how they structured their segmentation “infrastructure” to meet their needs.
• Get advice from vendors who provide segmentation expertise and services since their perspective across different organizations can be helpful. But make sure they have good answers to the above three points!