How & Why to Segment Your Customers

Segmentation is the process of defining who, along the spectrum of potential groups, should be your customer (who is most likely to value your offer, product or service).  Segmentation shapes every piece of the marketing strategy since the reason you exist is because you create value for a customer group.  Read why it is critical that your marketing strategy start with the customer here.

The segmentation process deserves time and thought. Below I've outlined the steps to start the segmentation process. You should seriously consider if you need to hire a marketing professional to help you complete your segmentation study if you do not have the expertise yourself. 

Segmentation Steps:

Brainstorm: Who are the Buyers?

Who are all the potential buyers or consumers of your product or service?  Make a list.  Get creative.  Think about different ways to describe them.

Brainstorm:  Consider Different Ways to Segment the Consumers

Think:  what are all the different ways you could divide the list of buyers & consumers you made?

Some common differentiators include geographic (city, nation, rural vs urban, etc.), demographic (age, income, gender, etc.) and lifestyle (luxury, modest, etc.). 

Push beyond these generalities and consider how consumers use or engage with your product or service (at a category level). For example, are there heavy users & light users?  Do they value different benefits - price vs performance?

Define the Segments

Give your segments names & descriptions.

For each segment, describe:

1) use of product or service, 

2) benefits they seek from the product, 

3) attitude and level of loyalty toward product, and

4) pain points or satisfaction level with existing options.

Create Scenarios & Evaluate

For each segment, consider what it would mean for you & your organization if you pick them.  

Take time to explore each segment fully to understand the implications to channel selection or distribution, pricing & brand positioning.

Pick a Segment

Deciding which segment to select depends on several factors.  You need to assess:

1) your "own-able" competitive advantage,

2) your business goals, 

3) available resources and 

4) the expected return or profitability of the different segments.  

Develop Your Positioning Statement

This is one of the hardest steps, but it is very important.  The goal is to "define the specific position you want to occupy in the mind of the target audience you chose." 

This is based on 3 critical elements: 

1) your point of difference or competitive advantage over the other choices your target audience has (your claim), 

2) the reason to believe your point of difference (your proof), 

3) the end benefit your target audience receives (emotional benefit, not functional).

Read more about the concept of positioning from the people who originated the idea in the short book Positioning: The Battle for Your Mind. 

Got a question about segmentation?  Need help?  Email me.

Using Insights to Inspire & Innovate

Entrepreneurs, start-ups and innovation labs at big companies in the modern world face a similar challenge - how to inspire their people to innovate in a way that will result in big ideas that actually make it out of the lab and into the marketplace.

Many of these talented individuals miss a critical step in their innovation process:  gathering the right consumer insights to inform their innovation & brainstorming process.

The right insights are NOT:  demographics, what consumers say they want.

Those kinds of insights don't help inform innovation, in fact they can stifle or mislead it.

The right insights come from: understanding your target consumer unmet needs, observing the habits of the extreme users of your existing products,  understanding your customer's perspective by putting yourself in their shoes as they shop for and use your product.

This last one is really important - what is it like to be a mom toting three kids to the grocery store to shop for your product?  What is it like when she gets home and tries to open your product, figure out how to start using your product?  What could make her experience more rewarding for her?

It's easy to forget that how you see the world is likely very different from the consumer you are trying to win over.

Once you understand their perspective - by literally putting yourself in their situation - you can put your product development hat back on and create a new product that will not only make it out of the lab successfully, but will win over customers again and again with your product alone, not a marketing gimmick or message.

Are you gathering the right insights to inspire you and your team?

Aspirin or Vitamin?

Which one are you?  Are you (and your product or service) addressing a real, unmet need - a pain point that your target customers have & feel deeply, therefore making your solution a must-have?  Or, are you trying to sell a vitamin - a nice-to-have product or service?

You need to be the aspirin.

If you are a vitamin, consider how you could change your product, service or delivery of it in order to become an aspirin.  Your target audience will thank you, and reward you for it.

Fast Company addressed this very concept in a recent article.  Worth a read - the Felt Need.

Turning Insights Into Innovations to Change the World

Using business to combat poverty.  A powerful story about innovation and business changing the world to inspire you to take a break from your daily routine, like the Bangledeshi entrepreneur Iqbal Quadir did when he came up with the idea to bring mobile phones to poor people in his home country.

What insights to have you unique access to in your life – personal or organizational - to spur innovation?

The Idea:   Issue loans to current, reliable people in these poor villages in Bangledesh who would then use mobile telephones to earn money in their village as an income generating enterprise.

The Product:  GrameenPhone, which started with one phone and is now the leading telecommunications provider in Bangladesh.

The Insights:  

• The lives of poor people in Bangladesh are full of inconvenience associated with isolation and a lack of information. Farmers, for example, sell their products to an unscrupulous middleman who cheats them with an unreasonably low price, when a simple telephone call would have enabled them to find out what the market prices are or what prices the competitors are offering.

• Wasted time is a huge cost for everyone and poor people should not waste time —time is at least one resource poor people have the same amount everyday as rich people do.

• The costs of software and hardware decrease as volume rises.

• The value of a product increases when greater numbers of people use it. 

The Result: 

Saving valuable time for poor people and empowering them to lift themselves out of poverty.

Read the full story here.

How well do you know your customer?

How well do you know your customer?  

Do you know them as well as you know your best friend?  You should.  

You should understand their aspirations, their dreams, their fears & deepest desires.  And you should absolutely understand where you create value in their life and why they love you for it.

Take Anthropologie as a great example.  During the economic downturn, while retailers such as Gap struggled, Anthro, and therefore its parent company, thrived.

Why?

Because they continued to deliver what their core customer values about them, and nothing else.   And I'm not talking about just merchandise, but the entire shopping experience is built around her.  That has created extremely passionate customers who don't fade away when economic troubles arise.  

How did they do that?  And, how can you do that?

By knowing the core customer intimately:

 Ask anyone at Anthropologie who that customer is, and they can rattle off a demographic profile:  30 to 45 years old, college or post-graduate education, married with kids or in a committed relationship, professional or ex-professional, annual household income of $150,000 to $200,000. But those dry matters of fact don't suffice to flesh out the living, breathing woman most Anthropologists call "our friend." They can go deeper and describer her in psychographic terms: She's well-read and well-traveled. She is very aware -- she gets our references, whether it's to a town in Europe or to a book or a movie. She's urban minded. She's into cooking, gardening, and wine. She has a natural curiosity about the world. She's relatively fit.

These insights infuse everything Antrhropologie does, from designing its stores to be "a world of discovery, as if she (the core customer) is on a journey or trip."  Stores are designed using local artists that also understand the overall Antrho brand to create a consistent, yet unique & local feel to each store.  Catalogs are shot in different countries all of the world to appeal to "her".  Merchandise sets trends, just like "she" does.  

You can create passionate customers too, but you have to take the time to get to know them first.  Then, you have to build everything around them - from your messages to packaging to the way your customer service reps answer the phone.  

You can read more about Anthro's approach here.

Seth's Blog: Needs don't always lead to demand

Seth's Blog: Needs don't always lead to demand

Great post from Seth Godin today about understanding the difference between what consumers need and what they want and how businesses and organizations can choose to respond.  Good, quick read.

The Attraction Economy

You've heard it before, but you may have forgotten it:  Now, more than ever, customer loyalty matters.  It is far more expensive to acquire new customers than to keep & grow existing ones.  When budgets are tight and consumers are spending less, this is even more important for your organization to keep in mind.   And when you do spend on customer acquisition & engagement, spend on those tactics that attract customers who will stay with you for the long-run.  This means you can't keep offering 25% off to meet your revenue goals because you will end up with more price-sensitive consumers who won't be willing to pay full price in the future.  
The key is to "draw" consumers in with your brand in such a way that resonates with them on an individual basis.  Need help defining your brand or understanding how to draw in customers with your brand?  Email me for help.