Digging Deep into the 4 Steps that Uncover Your Ideal Customer Segmentation
A customer segmentation template is a powerful tool that can lay the foundation to a strong brand and growth strategy. It allows brand leaders to understand their consumer landscape and identify profitable consumer targets, learning:
- what matters to them
- what they want from a product standpoint
- how to best reach them
Building a robust customer segmentation, however, is not an easy task – it is often a multi-month research effort that requires both qualitative and quantitative research. Below is a customer segmentation template that breaks down the steps in building a robust customer segmentation fact base and key considerations to think through at each step.
Customer Segmentation Template Step 1: Build a Hypothesized Segmentation & Identify Key Variables
Before diving into drafting a quantitative study, it’s important to take a step back and:
- Assess everything you know about the consumers based on existing research
- Actually talk to a few consumers in your target audience – so much can be learned!
Qualitative research in the form of 1:1 in-depth interviews or focus groups (either online or in-person) can help teams garner rich insight on…
- Why and how consumers use the category
- What other products/brands are in the competitive set?
- Why do consumers prefer certain brands?
- What are the functional and emotional needs of consumers?
- What information sources do consumers use and where do they shop?
The goal of qualitative research is to help tease out key dimension or themes among the target audience. From there, building a hypothesized segmentation is a good best practice, as it will allow teams to visualize different consumer groups and more readily identify gaps.
Additional qualitative research is helpful in identifying consumer-friendly language to help articulate different needs and motivations in step two (Quantitative Tool Development). This richness is important, because in a quantitative study, you are limited on the number of questions you can ask. If you don’t take the time to really understand the different types of consumers, you could end up with a segmentation that lacks depth and/or lacks key inputs and variables.
Here is a recent example of a hypothesized customer segmentation of first-time parents.
Customer Segmentation Template Step 2: Develop a Quantitative Tool
Once you have a solid grounding on the target audience, key dimensions, and consumer language, the next step is to develop a quantitative tool that will allow you size the opportunity by segment.
Below are some key considerations when designing and building out a quantitative tool
- Survey Length: Segmentation studies are generally between 20-30 minutes. Consumers will be taking the survey online or on their mobile phone. Anything over 30 minutes will result in significant drop-off rates. Generally, one should budget two or three questions per minute, meaning a 20-minute survey will allow for 40-60 questions
- Sample Design: Budget for a large representative sample. Generally, over 2000 is a good number to target, since this will be what is used to create the segmentation solution. Assuming six to seven segments, that’s about a 200-300 sample size per segment. Budget for additional over-quota sample to make sure you can analyze the information by specific key brands or user/non-user groups
- Frame of Reference: Throughout the survey, it’s important to be clear on the category definition and what types of products consumers should be thinking about when answering the questions
- Analytics: Segmentation studies are complex and require advanced analytics. It’s important to have the right team that can not only execute the study but also apply advance analytics and bring forth robust segmentation solution options in step three (Assess Segmentation Solutions)
Customer Segmentation Template Step 3: Assess Segmentation Solutions
Once you have quantitative results back, the next step is to select the segmentation solution that makes the most sense for your organization. Generally, research partners run various iterations of segmentation solutions and bring forth two or three recommendations. Understanding the pros and cons of each of the segmentation options is important and should take into account:
- Actionability: Segmentation frameworks should provide depth but not be overwhelming. Anything over a 10-segmentation solution will be difficult to socialize and might yield some segments that are not sizable enough to target. Equally, a two-segment solution might not provide enough depth and be too broad of a target.
- Consistency: It’s important to look at psychographic information, profile behavior and demographics to make sure the segments are distinct enough, and there is consistency in what they say they value and what they actually purchase.
Getting to the “right” segmentation is both an art and a science-– sometimes you need to re-run the clustering analysis, adding in or taking out variables based on what you see as the output. The end goal is to have a representative and intuitive group of segments that can be targeted.
Here is a quantitative customer segmentation case study in household cleaning.
Customer Segmentation Template Step 4: Bring the Segments to Life
A segmentation is a powerful tool, but it is only valuable if the organization actually uses it – getting others to “buy-in” to the segmentation framework and use it to build a consumer centric strategy. Most organizations have a combination of analytical and initiative thinkers, and we recommend having a way of bringing the segments to life that appeals to both groups.
Ways I have seen segments brought to life range from PowerPoint one pagers to two-minute videos that capture the essence of the different consumer groups. In any case, having your end-audience in mind is important, so that you can drive adoption and impact with customer segmentation.