A Breakdown of Customer Segmentation For Non-Tech People
First of all, what is it?
It’s the process of looking at your current customers and potential prospects to determine if there are ways you can split them into smaller groups, which will allow you to tailor your messaging to each group and market more effectively.
Why is customer segmentation important?
You probably don’t have an endless marketing budget, so you want to make sure that you’re using those dollars wisely. Your entire customer base - past, present and future - is made up of individuals, with each person having their own worldview. So it makes sense that different messaging will resonate with different people. In essence, what customer segmentation really allows you do is match the right message with the right person. And being that in most cases, roughly 20% of your customers will contribute the bulk of your revenue, ideally these strategies will help you find that all-important 20% and nurture those relationships properly.
What if I don’t have a marketing budget?
You can still apply customer segmentation principles to numerous efforts outside of marketing. For example:
After developing customer segments, you’ll have a clearer picture of both your past and current customers, which will help you figure out what you’re doing right, and what you could improve upon.
- In regards to looking at future prospects, your customer segments might be mostly based on research and assumptions; regardless, at least now you’ll be able to test those assumptions and adjust accordingly.
- Getting to know your customers and prospects will help you tailor messaging that resonates on your website, blog, marketing materials, etc.; may also lead to discoveries about how your could better segment or structure your offer.
- You can also use segmentation to test communication channels like social media, forums or content marketing to see which get the most engagement.
What do customer segments look like?
According to this great article in the Harvard Business Review, customer segmentation should include the following characteristics:
1. Identifiable: Can you measure characteristics, behavior and demographics?
2. Substantial: Is each segment you’ve identified large enough to be profitable?
3. Accessible: Can you reach each segment via both communication and distribution channels?
4. Stable: Are the behaviors, hangouts, and lifestyles of your segments going to hold, or do they fluctuate rapidly?
5. Differentiable: How clear are the motivations of each segment? What makes each segment unique?
6. Actionable: Are you positive that each segment truly needs your product?
Okay, so what are the types of customer segments?
Demographic: Age, gender, household income, etc.
Behavioral: Interests, usage, knowledge, online hangouts
Geographic: Physical location
Psychographic: Values, personality, beliefs, wants/needs, likes/dislikes, loves/hates
Is there perhaps a better way to organize these categories?
We would suggest putting them in order of importance, unpacking psychographics into two categories, and adding communication channels into the mix. For us, it would look like this:
- Wants (emotional)
- Needs (logical)
- Behavior (observable)
- Geography (if you’re able to engage in person)
- Communication Channels (how users might spread your message)
- Demographics (least important, but may help you find patterns)
If you’ve been reading up on customer segments, you’ll undoubtedly find a lot of articles that essentially tell you to simply split up segments by demographics only - age, gender, income, etc. - and start marketing. We couldn’t disagree more. Demographics will tell you virtually nothing about a person’s wants, needs or personality, which are the driving factors when making purchases. No one says, “Oh, well since I’m a male, aged 25-40 with an income of $75K+, I’m definitely going to go out and buy _____.” In fact, your product may defy demographics entirely. Consider this quote to illustrate the point:
People make purchases based on impulse and gut feelings first and foremost, and those won’t necessarily match up with what their social status or demographic profile might suggest. Therefore, if we want to simplify customer segmentation even further, we might say: Find out what people want. If they want your product for different reasons, or experience your product differently, they’re in different segments.
Finally, consider that if you're offering multiple products or services, each one might have its own segment(s), and that the different categories listed above might overlap.
How can I find this customer data in order to segment? Where do I start?
You can easily target demographically through most advertising platforms, and if you have a large enough budget, you can probably even buy data about purchasing behaviors and patterns. However, if you have a small or non-existent budget, that might be putting the cart before the horse. Wouldn’t you first want to know what your customer actually wants? Isn't that the most important thing?
To find out, you’ll want to get out and talk to people, ideally with a product to put in front of them or something to test. Face-to-face interviews are best, where you can observe reactions and get the most candid feedback; but even purposeful, targeted surveys conducted online will get you a good amount of fabric to work with. And when all else fails, try to do as much market research as you can - look for trends, blogs, or forums on the subject. It might help you get a grasp of the language people are using in regards to the problem you’re trying to solve. It can also show you what kind of person has this problem and what they’re currently trying to do to solve it.
If two people can't communicate, should they be in different segments?
Again, you'll find conflicting views. Some articles don't even mention communication as a factor in customer segmentation, whereas others state strictly that if two people can't communicate, they're in different segments. We would argue that if you keep your focus on customer behavior, that should lead you to find out where people are hanging out and where they would feasibly communicate, both online and in person.
Behavior can also reveal what people do when they find a product they love (i.e. how they spread the word online). So in theory, if two customers are visiting the same blogs, or both frequent the farmer’s market, or are both primarily Twitter users over other social media, sure - they can communicate, but it doesn’t necessarily mean that they do. It seems like the smarter play is to focus on wants, needs, and behaviors. If you start there and use those factors to create an effective product and message, then ideally, those people will a) love your product, and b) spread the message to their own individual networks, regardless if they ever communicate with other customers in the same segment.
Segment the segments?
In some cases, there’s a clear distinction between customers and users. For example, Instagram’s users are the people who use their service for free, whereas their customers are the advertisers who purchase space on the platform. So Instagram probably has customer segments defined for both their users and paying customers.
To apply this (since you’re probably an artist or small business owner - not Instagram), what if you did two segmentation rounds, let’s say for prospects and buyers?
You could break it down this way: “Okay, for customer retention (buyers), we have groups A, B, and C. Group A are repeat, regular buyers who are passionate and vocal about our cause on social media or otherwise, offering feedback, praise, and referrals; Group B are active buyers who have bought or engaged more than once, but not as aggressively; and Group C are people who only bought once and have since gone ghost.” Now come up with a strategy. Group A, you’ll want to nurture, so maybe offer them something for free to keep them thrilled with your product. Group B, well, perhaps a discount on their next purchase is in order. Or you could encourage them to be more passionate like Group A by giving them an incentive to refer others from their network. Finally, Group C - the ones who’ve gone ghost - what could bring them back into the fold? Perhaps you ask them for feedback about what went wrong or why they left. Or try enticing them with a deal of some kind as well. The point is to try something. As long as you're learning, it's working.
And now, for marketing to prospects: “Okay, we have groups D, E and F. Group D are people who are actively seeking a product like ours to feel _____, and are incredibly frustrated with the current solutions out there; Group E are people who are mildly content with the competition but would surely love our product more; and Group G are people who showed interest at one time but never followed through.” Now, your strategy: is there one group that appears to be the largest? What about the most passionate, or at least the most interested? What language would appeal to them? What can you offer them?
Finally, how to build out your customer segments:
1. Wants: Figure out what your customer wants before you do anything else. Talk to people, conduct surveys, participate in forums & group discussions, find meetups, give away free samples - whatever you can do to get people talking. Look for similar likes and dislikes, common interests, or other patterns that reveal what it is exactly that they value. Finding the underlying wants that motivate your customers will inform both your product (are you solving the right problem?) and your messaging (are you speaking the right language?). And let’s face it: if you don’t have those things nailed down, what’s the point in marketing at all?
2. Needs: Think of needs as the things people are using to try to fulfil their wants that you discovered in Step One. So, for example, let’s say you’re a chef who wants to start a business doing private catering events for small gatherings. So you do research and talk to people, only to find out that most would rather just go out to dinner with friends instead of host parties, and that if they did hire a personal chef, it would be to come in once a week and prepare seven days worth of meals that require little-to-no prep. The biggest problem they have is that they don’t have time to cook, and they need quick, healthy options. Right now, they’re solving the problem by getting takeout almost every night, and they feel like crap. What a huge discovery! Now, you realize that you’re not competing against other catering services. Instead, your competition is time and lethargy. Thankfully, you can fix their problem by saving them time in the kitchen, which will free up their life, and by preparing organic meals for the entire week, which will make them feel better and have more energy. Now you can focus your message and marketing around that sentiment.
3. Behavior: What trends or patterns can you spot based on your research? When you talked to people, did they have anything in common? Did they visit the same places, or shop at the same stores? What seemed to pique their interest the most? Where do they go online to discuss their interests or problems? What are their favorite websites or apps? How much technology do they use? Are they in touch with nature? Analytical or emotional? Naive or grounded? What do they believe about your industry, competition or just life in general? The only way to know is to ask and observe.
4. Geography: If we go back to the personal chef example, this step is kind of a no-brainer. You’re not going to worry about people outside of your city. Same goes if you’re a wedding photographer or interior designer. But for a lot of products and services, geography isn’t really an issue. If you’re delivering a physical product, you can usually ship it, and if you’re delivering a digital product, then almost anyone in the world can have it. However, for marketing purposes, if you’ve found traction advertising in a certain city, state, or region, or have research indicating you should do so, then by all means, go for it. Finally, geography is important because you want to find people around you. Again, face-to-face interviews or product demonstrations are always best.
5. Communication channels: If someone fell in love with your product, where would they go to tell people about it? Would they tell everyone in sight, or just close friends and family? Would they give a shoutout on Instagram, or write a review on a forum somewhere? Pin it to their board? Where might they talk about it with a stranger? At a coffee shop or the grocery store? At a small fashion boutique or bookstore? In class or at work? Generally speaking, if you know where people are talking, you know where to put your product.
6. Demographics: In case you haven’t noticed by now, we don’t put a lot of stock in targeting people based on numbers that don’t tell you much about their personality. Of course, there are people out there who’ve had success when marketing based on traditional demographics; but for your average small business owner or artist entrepreneur, again - you probably don’t have a large advertising budget, if any. So why waste it on shot-in-the-dark demographic targeting? Instead, invest in research & development, messaging, education, networking events and meetups, treating people to coffee for interviews - anything that helps you learn and grow. Demographics may come into play when the time is right, but don’t let it be your focus before you’ve discovered your customer segments using more personal methods.
Once you have all of this information gathered, it’s simply a matter of looking for patterns, creating assumptions to test, and experimenting. When you learn something, adjust; and when something doesn’t work, you’re that much closer to finding something that will. Hopefully, this post will give you plenty of ideas to put into action. Bottom line? Customer segments help you learn about the people who need your product the most. The more you learn about them, the more you’ll know your product and yourself. And that’s invaluable.
You can also read our post on Product Market Fit to continue down the rabbit hole.