How to Master Market Segmentation – The KISS Guide
Estimated reading time: 17 minutes
A few days ago, taking part in a brainstorming event, I was reminded about market segmentation. During this exercise on how college professors and companies can join forces to enable students’ entrepreneurial spirit, one of the teams mentioned they were addressing everybody. Capital EVERYBODY. Mentally, I heard myself say “Talk about market segmentation, huh?!” But, that was because I get easily overwhelmed.
I’m all about the elephants. Ever since I discovered Twitter back in 2007, I’m all about eating the poor elephant piece by piece. Back then, I quit the social network for a few years, just because I felt overwhelmed by the speed and amount of information I was to digest, make sense of and implement effectively. Ha! So, again, I needed some “market” segmentation myself.
My train of thought abruptly shifted to you, guys – eShop owners; on or offline entrepreneurs; regular people sorting through life with purpose and determination; extraordinary individuals juggling a self-imposed calling to do more for this world and their intrinsic need of building and belonging; leaders of tomorrow. I smiled and wondered how did you do market segmentation? Do you address EVERYBODY, or do you carefully craft buyer personas? Is there any other way? In today’s context, do you approach the market segmentation process strategically or still see it as a stand-alone marketing practice? Especially, if you’re just starting out.
So, if you’re just about to begin your journey, this might help enable your market segmentation spirit, as well. This piece is about to uncover that:
- It’s all about crunching numbers. Optimization and two demographic perspectives make up for the 3 critical reasons you need to do market segmentation online. And, yes, it involves elephants. 😉
- There are basically 3 types of market segmentation and you’d like to choose one based on what you’re actually offering and your approach to the need itself. But, rest assured, I pinpointed a few plus and minuses for all of them.
- Again, I’m a sucker for 3-step processes. So, I’ve built another one and called it the 3 Bs Market Segmentation Framework for #eShop owners. Your easiest guide on how to do market segmentation.
- In the end, I added my extra-special favorite profiling tools. 😉 Care to share yours, too?
But, remember me with the piece-by-piece elephant? First thing’s first…
The reason behind market segmentation
What does optimization, elephants & demographics have in common?
In college, from a fellow AIESEC-er, I learned to always have at least 3 reasons for which I do something. (Thank you, Dragos.)
So, my dear entrepreneur, here’s why you’d want to care about market segmentation:
1. Optimization. Optimization. Optimization.
In the past year, I heard this word more often than I had my entire life. Almost 30 years, that is. Took me a bit to figure why the optimization thirst, but right when I was about to quit (ironically) for the sake of optimizing, I figured what it really meant. Remember Pareto and his 80-20 rule?
He’s the one saying that 20% of our inputs generate 80% outputs. And right he is. So, how else are we going to find our 20% of consumers who generate 80% of our profits if not by segmentation and testing? How else are we going to know which 20% of our market returns 80% sales? Or which segment has the financial power to support it?
We’re business owners. Behind our positive impact in the world, we aim for profit and sustainability. And we make logical decisions driven by facts and figures. Each market tribe has a sales potential and it’s only natural for us to assess it and decide where to invest.
2. Elephants are meant to be eaten piece by piece
We’re 7 billion people on this Earth, indeed. Picture these 7 billion as if they were a gigantic elephant. Remember from above when I mentioned eating it piece by piece? Well, the great news is that it’s already segmented. Just like when we were little and our parents would portion our food before we learned how to cut it ourselves. Only these are imaginary chunks. Interconnected. Through the internet.
We all sort of have the same backbone. And by “backbone” I mean an understanding of how we function in the world and life. Events that happen give us information about our environment, based on which we come up with a personal “truth”. This truth is made of thoughts and emotions that eventually determine our daily experiences. In other words, our individual truth is our perception. Our perception is based on core beliefs (such as principles and values, for instance) that reflect in our behavior.
We all go by these. And, at some point, for taking part in the same big historical events, or sharing the same spiritual knowing, we’re bound to be alike. So, we naturally group in tribes and segments. Which makes it one of those imperative challenges for marketers to define them, instead of generating new segments.
What I’m trying to say is that we’re already there, patiently waiting to be grouped and “trib-ed” and segmented and… so on.
3. The Rising Billions
We are segments, as proved above. But we’re not the only ones. In one of @Peter Diamandis’ articles on Huffington Post, the XPRIZE CEO noted that 1.8 billion people were using the internet in 2010. Five years later, that figure rose to 2.8 billion people. With all efforts towards innovation and connectivity, it’ll naturally keep growing.
I loved how he zoomed in on this crowd, naming them “the rising billions”. Now, what I find usefully interesting is that these rising billions are that exact global market you’re aiming at, your diverse target group.
Yes, the internet and some emerging spiritual ideas bring us closer, shape the idea of one major tribe. But until that happens, we’re still very individualistic and thirsting for that recognition.
We’ve only just begun to grasp the idea of a global market. And until we embrace it entirely, we’re still divided by ethnicities, interests, local cultures, and so on. Awareness and recognition of one’s background translate into understanding behavior and decision making, the key to online shopping.
Increasing effectiveness and efficiency is a prerogative of a self-sustainable and regenerating world. With each initiative we’re avoiding overwhelming, still encouraging individuality and addressing consumers slice by slice. All to eventually set a working framework for the generations (and billions) to come. That’s why we do market segmentation – for the sake of optimization, elephants, and demographics.
Types of market segmentation
“Ok, fine, you’ve got me at elephants” you might say… So, what kind of market segmentation?
Well, it depends…
In high school, we learned how to answer questions. Our head teacher revealed the single best answer to any question – “It depends.” Especially because it gives you time to actually prepare an answer.
There are 3 main types of market segmentation:
- Undifferentiated segmentation – this is when your entire market consists of a single segment. Say, in case you sold gasoline or diesel fuel. People buy it because their cars need it, not because it makes them feel special. So, YES, sometimes you can actually address everybody – usually when you’re selling products or services that won’t factor in human preferences. Practicing this type of market segmentation might save a lot of your marketing budget, but you’ll be offering a general product (as opposed to one specifically for that customer).
- Concentrated segmentation – this is when you focus on one segment of the entire market. Say, in case you sold Braille smart watches. Most probably, only blind people would buy them. Which would be great, because you’d be positively impacting their lives and enabling inclusiveness. But, how would developing non-niched smartwatches impact your business? Choosing this type of segmentation, you’d definitely serve your customers’ needs better and rationalize your resources. But, at the same time, your segment might be too small and you’d want to pay attention to larger competitors – the ones with more capabilities that can buy you out.
- Multiple segmentation – this is when you cluster your customers in one or more groups of people. Say, in case you sold traveling services. Everybody wants to take a vacation. But people with different lifestyles understand that differently. This kind of strategy will make sure you’re a solid brand, very well positioned and will add to your income. On the other side, though, it comes at greater costs and diversifying product offerings might reduce another product’s market share.
Your simple 3Bs Framework for Market Segmentation
Market segmentation was my first serious issue since I first came to AYG, exactly one year ago. Back then, trying to make sense of it all – the vision and our purpose and everything – I struggled for a bit, trying to understand who our customers were and where I could meet them.
We’re building and serving Magento eShops. Got that, no problem. And the customers – they’re entrepreneurs making the best out of the online, everybody said. Ok, great. So, where do these guys hang out? Blank. *Error 404 – File not found.*
So, here’s the 3-step-process (I’m a sucker for 3 steps things as you well know from here and here) I followed then and now turned into a working framework to do market segmentation. Later on, it became the basis for our Buyer Legends, sales strategy and further on, our email marketing system. We’re using this 1-pager strategically, not just as a marketing tactic.
Above, when talking about elephants, I showed how “sort of the same backbone” brings us together. Big ideas (perception), Beliefs and Behaviors are the three crucial points that unite people, segment markets, and tribe followers. The 3Bs Framework by which you get to do market segmentation.
From what I noticed, market segmentation has a lot to do with the story you’re telling. Firstly because your story is what your audience is perceiving. And secondly, because the stories we tell ourselves is where we start from in creating our realities. We each have a view, a terribly strong opinion about who we are, why we’re here and how we’re supposed to do life. We call that perspective. And we hold onto it pretty badly.
That’s why most controversy occurs in terms of politics, religion, and tastes – because these are the cornerstones of our worldviews. Challenge those and you’ve practically challenged someone’s entire identity.
When getting to know each other, we exchange those worldviews. So, I’d even dare to say that story segmentation is one of the most effective ways to do market segmentation because we all identify with our stories.
Now, a marketer’s goal is to either enforce or change that story with what (s)he’s offering. In my humble opinion, changing the story is harder and not as wise as appealing to and enhancing what already is, but obviously, not impossible.
1. The BIG IDEA – What’s your online shop’s business model?
First, identify (if you haven’t already) your business model. Are you customer, price or product oriented?
Strategically, what’s the first thing that pops up in your mind when you get out of bed in the morning? Is it:
- a. Offering the best customer experience there is?
- b. Making sure your #eShop provides the lowest price there is?
- c. Ensuring your #Shop’s offering a product or a service like no other?
Help – This helps with knowing what story to tell and where does the spotlight fall:
- Onto the customer and his shiny happy experience with your #eShop
- Onto the product or service and how it stands out of the rest of the offerings, or
- Onto the added value your #eShop’s bringing.
Example: I would’ve ticked a.
AYG is focused on Customer Centricity, making sure our business partners are delighted to be working with us. It’s mainly because of the relationship we have that they choose us as their Magento developers.
So, the main story our marketing campaigns tell is that of how #eShop owners feel and what they achieve when working with us.
2. The BELIEFS – What do your customers believe of your business model?
As I was underlining above, each of us strongly holds a worldview. It’s perspective versus perception at its best. Perspective is what you bring to the table, who you want to be, your #eShop’s business model from above. Perception, on the other hand, is what gets to your target group.
Now, I’ll let you in on a little secret – usually, these two are supposed to be one and the same. But, if there’s a gap, you, most probably, have a brand image “misspell” that you’d like to take another look at.
When identifying beliefs, you want to be clear about what your customers mainly believe about your online store.
Exercise: Fill in the blanks!
Part I: Make a list with the possible stories your eStore might be telling. Brainstorm it with your team on a coffee break. 😉 Filling this super easy sentence:
Our ____________ (name customers) believe that ____________.
Take about 15 minutes to do that. (Depends on how large your team is)
Write whatever pops up in your minds:
- Our customers believe that there’s life after death.
- Our customers believe that women are better leaders than men.
- Our customers believe that going for a run every morning is pure health.
- Our customers believe they’d never fly a plane.
This helps with having an overview on what are your major clumps, as Seth Godin calls them in All marketers are liars. A book you’ve probably read already. He sais that people clump together into common worldviews and our job is to just find them a new one.
Part II: After you’ve got all those ideas down and it seems you’re drained from all obvious mindsets, take an extra 10 minutes to come up with the NEW ideas. This is when the real brainstorming actually begins. Answer the question: What’s the untold story here? What’s the story our customers didn’t quite hear before?
Helps – This helps to figure out your story’s main point. It’s “Meet The Customers 101”.
A story is the flow that turns a pain-point into a happy point. That’s why I say “meet” the customers – because their main perspective about your #eShop comes from their biggest pain-point.
On our first campaign, we came up with the usual such as:
- eShop owners want to speak eCommerce.
- eShop owners believe that they deserve the best, the quickest because they’re busy.
- eShop owners believe they’re supposed to get the best service for the cheapest price. And yesterday, for that matter.
We paid most attention to our sales people’s inputs, here. After all, they’re the ones in direct dialogue with prospective customers.
It was only at our 2nd brainstorming that we realized that eShop owners believe they’re one with their business. And if they deserved the best treatment (because we’re customer centric, remember?), so did their business. Hence, we came up with the simplest “Your shop deserves the best, and so do you.” Which remained our campaign slogan till today. And here’s how we got to choose that exact one.
We, then, sent the curated list of perspectives to our team and partners (past and present). We asked them to rate each of the affirmations from 1 to 4, totaled the scores and highlighted the one which got the highest score.
That was our starting point in doing market segmentation and creating our buyer legends. We started from this common perspective, identified the main feeling we were appealing to and the stories triggering people to act according to what we considered positive behaviors.
The BEHAVIORS – How do you profile your customers?
When we talk behaviors, we talk decision making.
We’ve got that romanian saying “Show me your friends and I’ll show you who you are”. So, after an extensive analysis, we concluded it must have been a marketer who said that. 😉 People with the same behaviors, do tend to form a tribe. Speaking of tribes, they used to define roles according to division of labor and specialization, remember? Yes, I think that was market segmentation 0.1.
According to their worldview, values, and principles, customers resonate with your story or not. What hooks them, though, (remember the Hook-Anchor-Loop AYG system?) is the emotion you trigger.
Talia Wolf explains this best in her Emotional Targeting 101 article. She mentions Antonio Damasio’s groundbreaking neuroscientific discovery according to which people with brain damage in the area that manages emotions, have a hard time making decisions. Broadly, if you can’t feel love, you won’t be able to choose whether you like the dress I’m showing you or not.
Now, in AYG terms, we put it like this: you hook customers if your eShop’s story appeals to an emotion they like to feel; you anchor them if your eShop is a verbalisation and a reflection of their thoughts; and eventually, you loop consumers as returnees by solving their actual, real problems and needs.
So, your last easy, but a bit more complex step in market segmentation is to break the main belief you identified earlier, into behaviors triggered by emotions. In other words, how did your customers end up to the previously set belief?
First, based on the above brainstorming, identify some of your customers’ key traits and group them accordingly. They’re going to be your buyer personas’ backbones. According to these, you can then start profiling.
My main challenge – I struggled with this for weeks – was how do I figure out the criteria I group them by?
Well, I first identified our prospective customers’ main concerns. In our case, these were affordability and lack of trust in teams of developers. So, we started from there, grouping profiles based on stores’ budgets and profits – data we had easy access to by googling the company’s public financial files.
Anyhow, in terms of profiling, here are 3 of the coolest tools, we used:
- Segmentation Solutions from Nielsen. These best work if your market is based in America. Basically, CLARITAS PRIZM is the American leading market segmentation system. They shape a comprehensive consumer profile based on helpful insights about their preferences, lifestyles, demographics, behaviors and more.
- My new favorite extension-app-thing – Xtensio. They give you templates, for free. Just like the one above. And they have much more outside of the market segmentation area. This is a quick and easy to use tool. For a more in-depth analysis, you should study buyer legends.
- Brad’s Buyer Legend Example – Bryan Eisenberg was the first one to introduce me to Buyer Legends last year, at GPeC Summit – an eCommerce conference I vividly recommend. Part of this article is based on my learnings from that conference. Read more juicy details about my experience here. BTW, the May GPeC Summit 2017 is coming up shortly, May 16th to 18th. I promise, you won’t want to miss this.
All in all, I know market segmentation might seem complex and difficult to grasp, as in flow-less or without any logic. I’ve actually been there. Well, when a process seems to not have any logic, be happy, because it’s an invitation to create one of your own.
So, when you want to do market segmentation, start from what you know – your business model. Your customers perceive your business model in a certain way. Write those viewpoints down and validate the most popular one. That’s the story you want to tell from now on. At least for a while. And, at least for “this” product. At the end of your market segmentation, profile your customers based on their main pain-points. Tell their stories in their own way, paying attention to whom they are, their emotions and thoughts, appealing to their preferences and doing it all in their own words.
After you’ve done all of this, make sure to use this framework to the fullest, as a strategic tool. Starting here, build buyer legends and marketing campaigns. Measure results, improve, optimize and redo. And, please, share your inputs with us, in the comments section below.
We’d love to hear and improve the tool ourselves. 😉