Using Data-Driven Segmentation to Transform Government Services

Leading companies have taken the maxim “Know your customer” to new levels. From retail giants like Amazon and Tesco to credit card companies like MBNA, segmentation—understanding customer groups and tailoring the offering to the needs of each—has been a core element of strategy for decades. Segmentation not only increases sales by providing customers with personalized products and services designed to meet their preferences; it also reduces costs by matching overhead to what is actually required to serve each customer group. Now this approach is set to transform how governments deliver services.

The momentum behind this shift is powerful—and the potential rewards significant. Several forces are driving the need for segmentation, including tight government budgets that make efficiency critical, rising expectations from consumers that services should be customized to fit their lives, and growing awareness that government agencies around the world are approaching similar problems in radically different ways. Moreover, the opportunities for sophisticated segmentation are expanding rapidly thanks to the advent of big data, advanced analytics, and greater computing power. The impact is likely to be profound, in terms of both the cost savings and the major improvements in the effectiveness of public services that can be delivered.

Segmentation strategies can be applied across most areas of government, including criminal justice, health, transportation, and taxation. Wherever citizens have different needs, motivations, or behaviors, segmentation has a role to play. For instance, some governments have already begun to use segmentation to help citizens get back into the workforce by tailoring unemployment services to their personal circumstances. And while government objectives can be different from those in the private sector, the best-practice operational principles are broadly the same. These include understanding where the greatest opportunity lies, having a focused set of objectives, and developing a well-paced plan of execution. Any effort must also deal head-on with the challenges­­­—for example, by providing clear communications to allay concerns about privacy or fairness. The essence of these messages should be that the same support does not work for everyone, but all citizens can expect to receive services appropriate to their individual circumstances.

Acknowledgments

The authors would like to acknowledge Andrew Browning, Alice Bolton, John Rose, and Carmen Roche for their contributions to the development of this report and Amy Barrett for her assistance with writing.