10 Customer Segmentation Best Practices

What is customer segmentation? It is dividing an entire market demographic into different subgroups. This allows an organization to be able to optimize revenue performances from each subgroup because different priorities, needs, and levers can be identified for targeting. It can be simplified to this: customer segmentation helps you discover the problems that each customer has and be able to meet them so you can establish value for your goods and services.

There is no better way to produce profitability for your business than to segment out the general market. Here are some of the best practices that have been developed that can help you accomplish this in an effective way.

1. Keep the goals of your business as the top priority.

It’s very easy to lose yourself in a quest to meet your customers needs. Instead of making the visitor to your website or your prospect the #1 priority of your business, the end goals of your business plan should stay your top goal. Focus on the ROI you seeing and work to enhance your profitability. Every action that you take should help to improve the visitor counts you’re seeing, conversion rates, and ultimately your profits.

2. The positioning of your product matters more than you think.

You can bring your goods and services to segmented customer groups, but that won’t matter any if your prospect groups can’t interpret the product as something that is valuable. Your key terms and descriptors are an important part of this process. If you know that your new oatmeal bars trend positively when they’re described as “crunchy,” but don’t trend well when described as “healthy,” then you’ll know how to approach your customer segmentation.

3. Always take an analytic approach to your customer segmentation.

There are two basic approaches to customer segmentation that businesses may take: analytic or non-analytic. Non-analytic segmentation is more about personal convenience more than anything else. It doesn’t provide you with any real data because you’re essentially making assumptions about the customers in the demographics that you’ve identified. The analytic approach, on the other hand, will give you a more complete look at each market segment and allow you to tailor your approach to every sub-demographic.

4. Don’t dictate your market parameters.

Your products and the market itself can dictate the market parameters for you as you’re looking at each segment. You’ve got to basic options: to take a tactics approach because you have a dependence within your market for what your goods or services can provide; or to take a strategic approach because your market segments are independent and your offerings are of a want than an actual need. Don’t make assumptions about this data because your assumptions could lead you in the wrong direction.

5. You need to have more than a basic sampling of your customer segments.

If you only have data on a couple dozen prospects from each subgroup that you’ve identified, then you don’t really have any data that can be used. You’ll need to have a large and random sampling from each customer segment that’s been identified so that you can get the marketing information that you’re going to need. Look to include a minimum of 600 different responses as a best practice to make sure that you’ve got a true sampling of the subgroup.

6. Don’t disregard the power of the questionnaire.

Just because the business world has moved to an online structure doesn’t mean the old-fashioned methods have become unreliable. Nothing beats a good quality questionnaire when it comes to identifying customer segmentation needs. You’ve actually got an advantage today with this step in the segmentation process because you can include a wide variety of media materials as you gather information. Videos, graphic designs, photographs, and even product prototype evaluations can all be included to determine how the overall market can be broken apart for you.

7. You need to make sure you avoid segmentation bias.

The biggest problem that every business entity faces in the segmentation process is a bias. Bias happens when questions are asked in a specific way so that they can solicit a specific answer. This alters the data that is received and may even make it incomplete. Use extreme examples to get a true baseline of where your prospects happen to fall and this will help you better identify the various subgroups that you’ll be engaging in the future.

8. The overall goal is to find the unique values that are attractive.

Many subgroups are formed today during customer segmentation through originality, being original and being unique are two very different things in this world. You can get a lot of original answers to help you segment customers, but it is up to you to analyze the originality so that you can fit them into the unique subcategories you’re identifying. If someone is eating those oatmeal bars and they say “I like how it feels when I eat it,” would you put this into a texture category? Or a crunchiness category? Your interpretation matters.

9. It’s fine to include the human judgment element.

Not all of the data that is collected during the customer segmentation process is going to automatically fit into a certain subgroup. You can analyze the data all you want, but in the end there will always be folks that don’t really fit into one distinct profile. In these instances, you have two choices: to use your judgment to fit them into identified segments or to create a new segment for outliers. The first options is better than the second because there can be substantial differences in the targeted subgroup that could make marketing to it virtually impossible.

10. Your job is never done.

Once you identify subgroups, you can keep identifying subgroups that are further down your chain. Every new sub-level offers specific marketing opportunities that can help bring in more profitability.

Customer segmentation allows each business to achieve better profitability because the marketing message can become more specific. Use these customer segmentation best practices today to give you the information you need to improve the performance values you’re seeing.

Breakdown of Customer Segments