Performing Customer Segmentation For Better Marketing Results

With so many potential customers to go after, who is the best target? And, how do you target them?

These are key questions anyone developing marketing or go-to-market plans must answer. After all, how can you create compelling marketing positioning and messaging, let alone pick the right marketing channels, if these questions remain unanswered.

This is where customer segmentation comes in. As a market research method that finds unique groups within a particular population, customer segmentation not only objectively isolates potential customer groups but it also sheds light on what’s needed to attract them to your organization.

Customer segmentation is the practice of dividing a customer base into smaller distinct groups based on shared characteristics. Typically, these characteristics fall into one of two types: demographics and psychographics.

1) Demographic Metrics: These are statistical characteristics within the population. The easiest way to think about this is by considering the types of metrics in a government census like:

• Zipcode
• Race or ethnicity
• Income
• Household size
• Geography

2) Psychographic Metrics: These are characteristics that reflect opinions or attitudes. Think about psychographics as the types of things people think or feel. This includes:

• Political sentiment
• Attitudes about technology
• Opinions about climate change
• Preferred hobbies or activities

By combining demographic and psychographic metrics, you get a robust view of who your target customer is. You can see what drives them..and also what barriers they have. You understand their fears and concerns, but also their hopes. With this deep picture, you begin formulating plans to attract them as customers.

A typical question is: why not just break out a population via simple demographic or psychographic metrics alone? While this is a start, it may be too simplistic and yield less actionable results.

Let’s take an example we speculate happened inside Nissan HQ when considering their next advertising campaign. Nissan wanted to understand the car-buying segment. Specifically, they wanted to understand women car buyers. As primary household purchasers and influencers, this is a typical segment to examine. However, Nissan didn’t just run market research to compare female vs. male car buyers. If they had, they may have seen that that women tend to prioritize reliability and safety versus men and built a marketing campaign around that alone.

Instead, Nissan went a step further. They performed customer segmentation among women car buyers. In doing so, they uncovered something else. Sure, women car buyers want reliability and safety. But, there’s a segment that sees cars as symbols of freedom and empowerment. For these women, cars don’t just get you from point A to point B. Instead, cars represent these womens’ drive to excel.

For Nissan’s marketing team to even develop that campaign, they first needed to understand the distinct segments within the female car buying population. Enter customer segmentation.

Here’s how it works. We first start with a really large sample population. Ideally 1,000 respondents or more. We then have each respondent take the same, somewhat lengthy survey that captures their demographic data as well as psychographic information. In the case of Nissan, this likely meant asking about aspirations, professional goals, and attitudes towards cars.

With the data fully collected, we can then perform factor analysis. This is a statistical method that isolates distinct clusters within a unique population. Each cluster is comprised of individuals that look alike based on demographic or psychographic variables.

Customer segmentation is an incredible tool when powering marketing strategy for two reasons. First, it lets you see the market share of distinct segments within a population, which helps isolate if certain groups warrant your focus. Second, it identifies how these segments are different across key dimensions, necessary inputs to formulate positioning and value props that fuel future marketing messaging and collateral.

As an example of how to visualize segments and market share, let’s keep using our Nissan example. For instance, let’s say we ran a segmentation study among female car drivers and found 3 distinct groups.

Let’s look at some make-believe data to see how this all plays out. As you’ll see in the table below, we’ve made up some data to visualize how each of the segments nets out in terms of demographics but also car-related psychographics.

As you saw via the process above, working with customer segmentation data is a mix of art and science. The science comes when doing the statistical analysis and observing how each segment is similar or different than the rest.

However, the art comes via the interpretation and application of that data. It gives us an opportunity to assess which customer target is ideal given an organization’s place in the market today and what they can offer to each target. And, it lets us craft positioning and messaging that we know will strike a chord with that segment.