How to Segment for Actionability & Success

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Last week I shared the twelve questions you need to be able to answer in order to ensure you really know your target audience. If you missed it, you can read it here.

The post certainly attracted a lot of hits, so I hope you have all found ways to improve your own customer understanding as a result of reading it. Comments welcome as always.

All brands and services need a group of customers that they are going to satisfy, since it is impossible to appeal to everyone most of the time. This means that you will need to make a choice about who you are going to target, which also implies that you must accept that you will also ignore some other category users.

Last week I read a really great post by Colin Nelson of HYPE on how a simple segmentation of employees enabled Swisslog to understand and improve participation in their innovation ideas campaigns. I highly recommend reading this case study as it shows how even the simplest grouping of a market – in this case employees – can be both actionable and successful.

Segmentation can be as simple or as complex as you like, but is essential for all successful businesses. If you yourself are struggling to understand your consumers, employees, retail customers, or any other group of people, perhaps a segmentation exercise is what you need to run.

Where to start

When deciding who to target, most companies will start by conducting some sort of data gathering. This could be as simple as identifying your users by what you observe, such as young men or large families, or as complex as gathering your customers’ values and motivations. As mentioned in last week’s post, the deeper the understanding of your target customer is, the more likely it is to provide you with a competitive advantage. The same also goes for segmentation.

Do you have the MIDAS touch?

Whatever method you use for segmenting and choosing your target group, the results of your exercise need to meet the following five conditions, known collectively as the MIDAS touch:

Measurable: The individual groups need to be clearly defined and quantifiable using KPI’s such as size, market share, value share
Identifiable: Each segment must have a distinct profile and each customer must be attributed to only one segment
Definable: Every cluster must be easy to describe and share with others, so that you have mutual understanding of each of them
Actionable: The groups must be easy to identify, in order to be able to target your actions and communications to them
Substantial: The chosen segment must be financially viable to target, which means that it should in general be stable or growing, and durable over the long term

All good segmentations or groupings will fulfil these five key conditions, so it is easy for you to evaluate the results of your segmentation exercise. If they do not meet these conditions, then you will struggle to target your actions to your chosen group of customers.

Why not take a look at your own segmentation right now and decide how it can be improved? This may be by completing the information you have on each group, or may make you realise that you need a whole new segmentation study. However, it is definitely worth getting target customer choice right, as this forms the foundation for your brands’ customer centricity.

Don’t have the resources? Here’s a solution

If you do not have the time, money, or expertise to run a detailed segmentation study, you can still make an informed decision of the best customer group to target. Use an analysis similar to the Boston Matrix, first developed in the 70′s by the BCG. At that time, it was created to help corporations analyse their business units and was based on market growth and relative market share. There are numerous free articles online explaining both the methodology and giving example plots; the one from MindTools is in my opinion one of the better sources.

Source: BCG

Whilst the criteria you use for each axis can vary, this simple method has the advantage of being able to be completed over time, as you get more information. Examples of the criteria that can be used are:

Attractiveness: Segment size, segment growth, segment value, competitive environment, fit to the company or brand
Ability to win: Product attractiveness to your customer, your distribution channels, your media mix, your reputation

Once you have positioned the different segments or groups of customers on the axes, you can easily see what needs to be done for each:

Target: these are your core customers to target, as they are both attractive to the business and easy for the company’s product or service to attract
Convert: these users can be attracted to your product or service but your ability to win them is currently low; you probably need to consider improving one of the elements of the marketing mix to attract them
Grow: your product or service can easily win these groups but perhaps they are not as profitable as you would like; review them from time-to-time or develop a different strategy to attract them
Ignore: many organisations struggle to make the decision NOT to go after a group of category users, but if you have neither the product / service nor the segment size that would be profitable to you, why spend time, money and energy going after them?

Choosing the right group of customers to satisfy with your product or service is essential for business success. So is doing everything you can to understand them as deeply as possible. Truly customer centric organisations excel at doing both; do you? Why not share your own success story on segmentation?