Thoughtful segmentation is the foundation of product definition and any good marketing and sales initiative. Without prior segmentation, every personalization effort is useless (see blog article: „Personalization is the supreme discipline of relevant communication„). But meaningful segmentation is only possible through accurate preparation and the combination of quantitative and qualitative analysis. Focus groups and demographic factors have become less important. A combination of qualitative field research and big data analysis nowadays produces economically more relevant results.
The flow of Segmentation
Source: iq! Management Consulting
Thorough preparation for targeted segmentation
Probably the hardest part of getting a good segmentation of your own clientele is preparing the analysis. Which segmentation criteria are the really important ones from an economic point of view? Are there customer needs that are so different that it is appropriate to offer alternative products?
First of all, it is important to define the overall objectives of the segmentation. Do I want to redefine my product portfolio? Or is it about rebuilding the marketing mix? Was there a slump in the sales figures of a particular product? Or would I like to change my positioning and e.g. target younger audiences? The reason for the segmentation is extremely important in order to ask the right research questions and to make accurate hypotheses regarding the segmentation.
Qualitative research as basis for big data analysis
Good segmentation optimally goes through two phases. In a first qualitative analysis, the customers are observed in detail. Field research is the best approach here. The benefits of focus groups are becoming increasingly critical. It is better to analyze the customers in their natural environment. This leads to the right research questions that seem to differentiate customer groups.
In a second stage, these hypotheses are tested by means of quantitative big data analysis. These data may be product usage data, customer behavior data, demographic data, etc.
Criteria for relevant segments
Not every segment that can be demarcated can also be approached in a meaningful way. First of all, it is important that the segment has a significant size, so that it is worth working on.
In addition, the criteria that characterize the segment should not be transient. For example, certain lifestyle attributes or brand affinities are not stable and can change quickly.
The segmentation criteria should be defined so clearly that the customers can easily be selected based on them. Animal love or environmental awareness may describe a particular segment, but it may be hard to determine which customers meet those criteria. In addition, it is important that the segments can be reached through certain media.
And, last but not least, there should be an offer that fits the selected customer segment.
All of these criteria seem self-evident, but often are not in the corporate reality.
Understanding the different customer groups served is crucial for every company. On many steps of the value chain, it is important to know which different types of customer needs have to be considered. Who is using which product? Why are customers using a distict product? How can customers likely to use a distict product be reached? These important questions may be answered by a well-prepared segmentation. Customer centricity (see Blog Article: „Customer Centricity is king„) is one of the key pillars of entrepreneurial success. And it starts with knowing which customer segments a company serves.