4 Top Questions about Customer Segmentation Answered
If you’re reading this, you’re likely looking for the answers to one of four related questions: what is a customer segmentation framework, what is an example of one, why would you want one, and where can you get help creating or updating one for your business?
What is a Customer Segmentation Framework?
Simply put, a customer segmentation framework is a way of sorting customers into groups.
This kind of process is often abstractly referred to as a “customer segmentation framework” because, on the one hand, “segmentation” refers to the process of creating smaller pieces out of some former whole. Therefore, when someone “segments” customers, all it means is that they are sorting the general category of customers into smaller subcategories.
On the other hand, the term “framework” is intended as an analogy that refers to the way buildings have “frames” which organize the supports in their structure. Therefore, a “framework” for customer segmentation implies there is also some sort of “frame” (among many possible frames) that fundamentally shapes how we are segmenting customers.
For example, some common “frames” for sorting customers into groups might include:
- family size
- location of residence
What’s an Example of a Customer Segmentation Framework?
Ultimately, knowing what kind of customer segmentation framework is most relevant depends on what a business needs to learn about its customers. Although there are arguably some best practices for any customer segmentation framework, no two businesses’ info needs are alike!
Why Would You Want a Customer Segmentation Framework?
Should businesses’ invest time and money to sort customers into groups? Some might argue not; that customer segmentation frameworks are unnecessary, perhaps even unhelpful, insofar as any business should always try to sell its products or services to as many people as possible.
Yet, even if you want to sell products or services to as many people as possible, presumably you only want to present them to customers willing to purchase them—not shoppers who won’t.
In other words, you have already assumed you should sort customers into two groups (those who will purchase and those who will not) and that you should focus your efforts on purchasers. In practice, you already think a customer segmentation framework is a vital and practical tool.
Ultimately, unless you like running your business by the seat of your pants (and some certainly do!) you will need to test theories that explain why people purchase certain of your products at differential rates. The long term profitability and success of any business necessarily depends on the nuances of the customer segmentation framework it relies on.
In truth, any business already relies on some customer segmentation framework. The real question is not whether it’s worth trying to develop one (it always is!) but if a given business’ customer segmentation framework is as nuanced and updated as its leaders feel it needs to be.
Generally, it’s less important for a leader to have a precise and accurate customer segmentation framework if they are unwilling or unable to prioritize the long term health of their business. Conversely, the more one ambitiously desires to improve their business in the long run, the more important it will be to create and regularly revise their customer segmentation framework.
In short, it’s typically wise to sort customers into groups. If you want to sell things to as many people as possible (for as long as possible) then you must regularly segment customers. Thus, anyone serious about efficiently running a business needs a customer segmentation framework.
Where Can I Get Help Creating or Updating a Customer Segmentation Framework?
Sometimes, it can be prudent to develop your own customer segmentation framework in-house. But, it can be challenging to devote the time and resources to ongoing customer segmentation.
Often, the outside experience and perspective of experts will yield the most effective results. There are many consulting firms which can help develop customer segmentation frameworks and this is one of many services we offer at Insight to Action.