Customer Segmentation Framework: Step-By-Step Guide

Customer Segmentation Framework: Step-By-Step Guide

4 Steps Identify Critical Sources to Leverage

A customer segmentation framework, coupled with a need state segmentation is a powerful tool that can help business leaders hone-in their communication, portfolio, and new product strategy. 

  • Customer segmentations essentially group people into distinct segments based on key dimensions, such as demographics, behaviors, attitudes, etc.
  • Need state segmentations group needs of consumers into distinct segments based on occasion and usage dimensions, such as time of day, need and benefits sought, etc. 

    In a customer segmentation, each person falls into one segment, whereas in a need state segmentation, each person can have multiple needs.  Having  both a customer segmentation and need state segmentation allows for a comprehensive view of the marketplace, including WHO purchases the category and WHAT are the varies needs/usage occasions.  With this information, teams can then identify what are the most valuable segments to align their brands to and what matters the most to them.

    While the concept is simple, developing a robust customer segmentation or need state segmentation often requires extensive research.  Some inputs are easier to determine, such as demographic, behavior frequency, etc.  However, psychographics are often more difficult to articulate and validate – these are what people believe, along with their attitudes and/or motivations for purchasing or using a product.

    Below is a step-by-step guide on sources to leverage to build to a robust and comprehensive customer segmentation framework. 

    Customer Segmentation Framework: Step-By-Step Guide

    Customer Segmentation Framework Step 1: Leverage Existing Research

    The best place to start is with what you have:  leverage any qualitative or quantitative  research that gives insight into the category or customer.  Even if the intent of the original study was different, I often find that there are nuggets of insights that can be leveraged to provide a starting point for the dimensions that matter the most.

    Industry reports and online secondary research are also a great starting point.  There are companies like Mintel that provide syndicated category reports. While these do not go into a lot of depth, they do provide essential information on category dynamics, competitive set and consumer demand. 

    Customer Segmentation Framework: Step-By-Step Guide

    Customer Segmentation Framework Step 2: Leverage Your Team to Build a Hypothesized Segmentation

    Second, leverage the collective knowledge of your team to workshop what is the appropriate category frame of reference for your product and what are the hypothesized key dimensions to segment consumers on. Doing this as a group exercise will build in different perspectives to get to a comprehensive view of consumers, while doing it on your own will result in a skewed perspective that only includes how you view the category.   Leveraging your team is also a critical step because it helps the team identify gaps in knowledge that require further exploration and/or direct customer input. 

    Customer Segmentation Framework: Step-By-Step Guide

    Customer Segmentation Framework Step 3: Conduct Qualitative Research to Tease Out Dimensions

    There are many ways customers can express their motivation, attitudes, and beliefs.  The reason for doing qualitative research is so that you can tease out the most important psychographic dimensions and how to articulate them in customer-friendly language.  Including both users and non-users of the category can be valuable, as it can lend insight into potential barriers, unmet needs and/or opportunities.  Following this step, you should be able to go back to your hypothesized segments and determine if there is a new segment or dimension that emerged.

    Customer Segmentation Framework: Step-By-Step Guide

    Customer Segmentation Framework Step 4: Conduct Quantitative Research to Size the Market 

    The last step is to validate the segments from a quantitative  standpoint, using advanced statistical methodologies.  The value of this step is that it statistically allows you to validate the most important dimension based on a large sample of consumers (larger than step three) and size the market opportunity. While you might have a highly-engaged segment, if that segment is just 1% of the population, does the company really want to spend millions of marketing dollars targeting and creating products for that group? Having numbers to quantify your segments and support itstrategic decisions is a recommended and important step. 

    To learn more about Customer Segmentations and how we can help, visit our resource page, or contact us to start a conversation with Insight to Action experts.

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