Small Business Blog

Segmentation

Segmentation is simply the process by which you segment (divide) a market (your customers and potential customers) into distinctive groups or subsets, we call these segments. Division and grouping of these segments can be done using a range of information, but in general it is likely best done by their behaviour and needs.

Articles in this Series Finding New Customers Segment Analysis Target Selection Marketing Strategy & Sales Methodology Marketing Tactics & Sales Tactics Recording & Reporting

Now, why should small businesses care about this? Simple, by using segmentation you get better marketing results because you can communicate far more effectively.

Members of one segment, because they are similar to one another, are likely to respond to marketing and communication of particular products and services in a particular way. Members of another segment will be likely to respond in a different way. So, it makes sense to get a far deeper level of understanding of your market (customer and potential customers) so you can market your products and services with better results.

Segmentation Variables

• Demographics
  • name, age, gender
  • address, phone, e-mail
  • occupation, title, social class
• Psychographics
  • Personality
  • values, attitudes
  • interests, lifestyles
• Behavior
  • actions & activities
  • purchase history
  • website & marketing interaction (visits, downloads, enquiries)

Segmentation vs Targeting vs Positioning

Segmentation is not the same as targeting. Targeting is about selecting which segment to go after (target). Likewise segmentation is also not positioning. Positioning is about selecting the appropriate marketing mix for each segment, basically what product, what price, what promotion, what placement.

Step 1: Segmentation (dividing the market into subsets)

Step 2: Targeting (selecting which segment to address)

Step 3: Positioning (designing how to market to each segment)

Segmentation Process

Ok, this is the hard bit for many small businesses. Why? Well, normally because nothing has ever been setup in the past and marketing recording & reporting systems are poor or nonexistent. The key to segmenting your market is to use whatever information you have.

Now at time of writing most small businesses don’t have sophisticated marketing software setup (give this a few years and I think we will see more and more small businesses with software capable of making this a heck of a lot easier. Although a huge percentage of small businesses have accounting software, but most only use half of the available features so I’m not convinced people will use the segmentation features of any new marketing software they may get in the future). But what most businesses do have as I just said is accounting software, the data in here can be very useful.

1) Raw Data

From your accounting software, export your customer data to a MS Excel spreadsheet. Export all of it, every field you have about customer A and customer B, etc. What you then get is a list of customers, maybe it’s 100, maybe it’s 10,000. Hopefully you’ll see in some of the columns the beginning segmentation variables you need to make this work. Normally the main information everyone will have is demographic and purchasing behaviour. Add more columns to your spreadsheet for other variables listed above in this article. Even if you have to manually run through and make an educated guess to complete the data for 1000 customers, it will be worth it.

If you have CRM (customer-relationship management) software with data add that to the mix too. Whatever systems you have try to bring the data into one raw data file.

2) Analyse

If you are familiar with MS Excel you could run Pivot Table reports. What you are looking for are patterns in the variables, averages, groupings.

3) Define Segments

Start with the obvious divisions from your analysis, write down characteristics. I like to find 4 or 5 Segments then between 2 and 4 sub segments;

A Segment

            A1 Sub Segment

            A2 Sub Segment

B Segment

            B1 Sub Segment

            B2 Sub Segment

            B3 Sub Sgement

Etc…

Action Points

Schedule an hour or two a week to work on segmentation, targeting & positioning for the next few weeks. Doing this should produce increased leads and enquiries, increased repeat business, and reduced acquisition cost. Is that worth it for you?