Every sales professional knows that the key to success is to move on quickly from unfit leads and be laser focused on prospects that already meet all the buying criteria.  However, only the very few experienced and talented SDRs can qualify prospects quickly and intuitively. So, unless your sales organization only recruits the top 3%, you are better off having a systemic process to filter out the noise before passing your SDRs the sales leads.  Simply put, you should only work on leads that are within your customer segments.

Customer Segmentation

Customer segmentation (or market Segmentation) is a process to identify your targeted customers and further segment them into different groups by similar characteristics.  When customer segmentation is not done properly, you essentially handicap all the downstream sales and marketing activities with the wrong customer assumptions.

Customer segmentation enables you to close more deals by optimizing your messages and activities.  Specifically, a well-defined segment is essential for the following:

  1. Efficiency: To prioritize sales effort and resources on the most important customers
  2. Effectiveness: To develop specific messages that reach to, appeal to, and convert prospects within your customer segments.  A broad customer segment leads to generic messages that convert no one.
  3. Network Effect: To identify and nurture the prospects that are enthusiastic about your product and share with everyone about your company (e.g., think Tesla).
  4. Positive Feedback: To learn from your ideal and most profitable customer segment allow you to optimize your product development, grow your customer base, and drive more sales.

What Qualifies a Customer Segment?

Different customer segments should show different signals that allow marketers to target them differently.  The customer segments should tie to marketing activities where you can personalize your activity for the different segments (e.g., communication channel, email messages, products, value proposition, etc.).

Look at how Nike has different web designs and messages for the two different customer segments between the US and Brazil.  Nike rolled out a curated website for Valentine’s Day shoppers in the US while targeting its Brazilian customers with images of the country’s most popular sport: soccer (Brazil celebrates Valentine’s Day on June 12th).  In this case, the different customer signals (country, preferred sport, holiday) allowed Nike to roll out different marketing activities (websites’ design, appeal, messages).

(Nike USA left; Nike Brazil right)

Segment Your Customers in a 3-Step Model

When it comes to customer segmentation, you intuitively have a grasp on the type of targeted customers you are looking for.  But such segmentation on the surface is usually too broad with too little depth; it is simply not enough to differentiate you from the competitors.

You need a model that systematically identifies and refines your customer segments as they evolve overtime.  First, make sure the basis of your segmentation aligns with your company’s objective, marketing initiatives, or strategies. Then, follow the 3-step model below to develop your customer segments:

Step 1: Hypothesize

The first step of customer segmentation is to hypothesize the combinations of characteristics that best represent an ideal customer group.  You hypothesize because you lack the data to support the validity of characteristics that define the segment.  Based on rationale and experience, you come up with a list of key discriminating characteristics that are collectible and quantifiable.

You can begin your segmentation with the attributes listed in the following:

  1. Demographics: Gender, age, location, income, education, nationality, professions
  2. Psychographics: Lifestyle, personality, opinions, interests, activities, attitudes, perceptions
  3. Company: Industry, sub-industry, size, revenue, location, business model, products, clients, employees
  4. External Factors: Political environment, socioeconomics, competitors

For example, the Nike image below reflects a targeted customer segment of 1) young female between 2) the age of 20 to 35 who has 3) an active lifestyle and 4) an attitude of self-worth.  The choices of model, activity, colors, products, and messages below are all designed to appeal to that specific customer segment to achieve specific company objective(s).

Source: http://www.nike.com/us/en_us/c/nike-plus

Step 2: Validate

After the hypothesis, you need to validate your customer segment by testing and measuring your list of hypothesized characteristics.  You need to test these attributes deliberately and repeatedly until you have enough data to confirm or reject all or part of your segmenting attributes.

You likely need a data scientist or analytical software to do an in-depth validation of your customer segment through information modeling and statistical analysis.  This explains why many marketers do not validate their customer segments and why it is important to get executive buy-in to drive the effort.  However, regardless of your available analytical resource, you must validate your most critical segment attributes to stay relevant in today’s market.

Start the validation with your existing customer data and then follow it up with deliberately designed marketing campaigns to collect additional data for the analytical gaps.  Decide the indicator metrics (e.g., conversion rate, FB likes, etc.) and establish baselines to evaluate success.  In your analysis, evaluate whether your key segment attributes outperform the baseline on the indicator metrics.

For example, a sports apparel company would like us to validate one targeted customer segment for its upcoming fitness tracker:

  • Targeted Segment: Young male athletes
  • Validation Method: Online marketing campaign on sports blogs (Budget: 5K)
  • Indicator Metric: Newsletter subscription
  • Metric Baseline: 5% visitor conversion rate

Assuming online users are generally younger and athletes read sports blogs, our marketing campaign result appears to align with our initial hypothesis.  This result gives us a higher confidence on our customer segment but we likely need further validation in different campaigns before we can draw any conclusion with certainty.  In this case, we spent $5K to acquire 500 subscribers.

Step 3: Refine

As you repeat your validations, you may obtain inconsistent and mixed results – an indicator that your segment is too broad with too few discriminating characteristics.  You need to go back to your customer data and further segment them for more insights.

For example, if we dig further into our previous data, we may realize that there are two groups of athletes that stand out with higher conversion rates for the fitness tracker ads: 1) the young male golfers and the 2) young female tennis players.

From the data, we can further refine our hypothesis on customer segments and design a validation with a more targeted marketing campaign for these specific groups of enthusiasts.

  • Targeted Segments:
  1. Young Male Golfers
  2. Young Female Tennis Players
  • Validation Method: (Budget: 5K)
  1. Targeted messages and images for male golfers at golf blog
  2. Targeted messages and images for female tennis players at tennis blog
  • Indicator Metric: Newsletter subscription
  • Metric Baseline: 5% visitor conversion rate

A 6-layer hierarchy graph targeting tennis and golf blog subscribers

In the example above, our conversion is 15%, exceeding our metric baseline of 5%.  We spend the same marketing budget to run a targeted marketing campaign and acquire 2,250 subscribers, 4.5x more than the previous marketing campaign.  Both the higher number of site visitors and the higher conversion rate support our hypothesis on the refined customer segments.  From now on, we should prioritize our resources for these segments until we exhaust the segment opportunities or identify better customer segments.

Wrap Up

Your customer segments are likely to change over time due to new technologies, competitor offerings, trends, seasons, etc.  So, to stay relevant and productive, you need an effective process to continuously analyze your incoming customer data and adjust your marketing initiatives.

As you refine your customer segments with a combination of various attributes, you will require more resources to test and iterate your customer segments.  If the resources are limited, you should consider technologies that can assist you in defining customer segments.