Market segmentation as a tool to help your business improve effectively

So, your organization has embarked, or is planning to embark, on concerted customer segmentation efforts. Or maybe you’ve already gone through segmentation work to identify key customer segments to target. Great!

Practical, clear-eyed customer segmentation is vital to marketing and sales success. As tempting as it may be to claim: 'we sell to everyone!' , this ultimately only leads to confusion: poor sales enablement, weak demand generation, fuzzy content marketing, products and campaigns that perform worse than expected.

What is segmentation, and what do I do with it?

Segmentation is the process of dividing the market into target customers, acceptable customers… and everyone else. It means identifying who your products or services should be sold to, and of identifying which segments exist within that group. Segmentation prevents you from boiling the ocean, giving you clear direction for marketing and sales in terms of where to prioritize investment and effort. It helps you to really know your customers.

There are numerous different segmentation approaches, from needs-based, to demographic, geographic, firmographic, psychographic, or combinations of the above. All these approaches are typically focused on identifying what a good customer looks like for your organization.

However, marketers often raise the question what one should do with customer segments once you have determined them. Once you know what your ideal B2B or B2C customers look like, what then?

Applying segmentation work to marketing activities

Segmentation results can be applied to a number of marketing activities:

• Account-based marketing (ABM): When taking an account-based marketing approach, segmentation allows you to determine which customers deserve the greatest attention and effort from marketing. At minimum, your key accounts who you target with ABM, will likely come from your key customer segments. So, not knowing who those key segments are is an enormous barrier to continued customer growth. Segmentation can also drive a more efficient, tiered approach in which key accounts get the most effort, while at the next tier, accounts that 'look like' those accounts but don’t share all their characteristics, receive some marketing effort and resources. This allows you to focus on the customers most likely to repurchase and buy more, and scale some of the benefits of ABM to other accounts as well. Once selected, your segmentation work will inform the kinds of campaigns, themes, and messages that are sent to those accounts, and how sales engages with them.
• Content marketing: Tighter focus on a specific customer segment even at the highest level (e.g. content for large enterprises vs. content for small or midsized businesses) will yield clearer understanding of customer needs and competitive alternatives, which allows for the development of more disruptive and differentiated content marketing. You may find benefit in selectively tailoring content marketing pieces to appeal to a few specific segments or buyers within those segments as well. Creating a few prestige content pieces can yield great returns in helping those prospects better see themselves in your customer set, and answering their most pressing questions. This may be done in combination with a vertical strategy, creating content that speaks to specific industries who may buy or use your product or service differently, or you may wish to create content that targets key sub-segments based on psychographic profiles (e.g. content targeting a growth-business). Regardless, understanding how different segments buy differently from you helps you create content that speaks more effectively to your customer base, and to prospects.
• Customer experience: Customer segmentation is a core part of customer journey mapping, and customer experience improvements. The customer journey may look different for different key segments, and different segments may engage with different products differently! They may have different pain points, and there may be different places in the journey where investment in improving the experience drives higher ROI. Identifying your priority segments also allows you to map customer journeys more effectively, because you can focus your efforts and resources on improving experiences for your best or most profitable customers, first. Indeed, we often recommend approaching customer journey mapping segment-by-segment and product-by-product, examining how your most important customer segment buys your core products/ services first, rather than trying to map all the customer journeys for all products and services, all at once. (Remember what was said about not boiling the ocean?)
• Demand generation: Understanding your target market segment, ideal customer profile, and buyer personas (particularly when selling to a B2B buying group) helps marketers and sales teams build stronger target audience lists for initial outreach, and can help inform channel strategy (e.g. determining whether a customer is more likely to respond to an email vs. a phone call, or social media message). Segmentation also helps you determine which messaging themes to develop, and which calls to action or offers to highlight.
• Product marketing: It’s been touched on in the bullets above, but strong customer segmentation helps you better investigate and understand customer needs and challenges, which in turn provides the foundation for tighter messaging, more fine-tuned campaigns, better channel or partner selection, and in general, higher degrees of decision-making confidence in campaign planning, leading to higher response rates, more inbound interest, higher credibility with sales, and improved marketing and campaign efficiency over time.
• Sales enablement: Clearly defined customer segmentation will allow marketing to develop stronger sales support that speaks to customer pain points and challenges. It also helps sales more directly, by allowing frontline sales reps to classify individuals they are speaking with (or, potentially, to identify an individual as non-target, thus saving themselves some time and effort). Marketing can develop customer-classification questionnaires and tools that can be easily used by sales so that reps can identify what segment a prospect likely belongs to, and in turn, which pieces of sales collateral are most likely to resonate.

Segmentation fuels marketing and sales success

Segmentation work, the approach you select, and how many key segments you define will vary based on your product or service category, and even your geography. Your target market in Asia might be very different than your target market in Europe, even for the very same product. And as in all cases where we attempt to better understand our customers, you will need to ensure that your segmentation work is a truthful representation of what your customers are actually like, rather than what you imagine they are like. This means drawing on customer voice, synthesizing behavioral and attitudinal data, and engaging sales in the segmentation process. You may also wish to revisit segmentation work periodically as markets and market dynamics continue to shift, and as your organization continues to evolve.

But once completed, segmentation is the driver of a range of marketing and sales activities. It’s all about knowing the customer, and knowing yourself, understanding that nexus between what your organization does well and what your organizational goals are, and who your customers are and should be. Segmentation is only a part of this puzzle, and there’s certainly more to solve. But without customer segmentation firmly in place, it’s a much harder puzzle.

Author: Kristina LaRocca-Cerrone

Source: Gartner