How to Make Segmentation Research Actionable

Summary: Segmentation research allows companies to find target segments that can propel their growth and profitability. Many variables may be part of the mix of criteria that differentiate between segments. Segmentation studies may have little impact on organizational decision-making unless some conditions needed for insights implementation are in place.

12 minutes to read. By author Michaela Mora on January 17, 2022
Topics: Market Research, Market Segmentation

How to Make Research Segmentation Actionable

Segmentation research helps companies identify groups of current and potential customers or users with the highest profitability potential. This is one of the pillars of strategic marketing and product development. The other pillars are product positioning and target marketing.

In marketing and market research, this is broadly called “market segmentation,” because we are effectively studying current and potential buyers and users of products and services. Buyer and user behaviors may or may not be present at the same time in customers depending on the roles they adopt at different points in the user experience journey.

For example, in the purchase of video games for minors, in certain segments of the gaming population the parents are more likely to play the role of buyers since they hold the purse or may require their children to ask for permission to make purchases, while their kids are most likely to be users of the product, but also influence the purchase decision, often by nagging their parents to grant such permission or give them money. Depending on the business goals, we may focus on segmenting customers on the buying or their user behaviors or a combination of both.

The division (or merging) of roles between buyers, decision-makers, decision influencers, and users can be found in many product categories. It is a mistake to assume users only play a particular role. The roles change based on many factors including demographics, psychographics, market trends, and purchase and usage situation scenarios.

Addressing the myriad of roles, a customer can take on, requires different marketing tactics and product positioning as part of the overall strategy to reach the intended market. On the product development side, it may require the development of product features to satisfy different needs based on those roles.

Key Concepts in Market Segmentation

Markets are not homogeneous. They are comprised of individual consumers/users, each with unique needs and desires. This is why segmentation research in which we explore the underlying drivers of user behavior is a powerful tool for creating better user experiences and leveraging competitive advantage. This applies to both B2C and B2B markets.

A market segment is a portion of a larger market whose needs differ somewhat from the larger market and potentially from other portions of the market.

When we do segmentation research, we need to consider the set of current and potential capabilities an organization has. Capabilities could be existing products and services, technologies, brand reputation, innovation pipeline, etc.

The first step is to identify need sets the organization can meet. There is no point in doing segmentation around needs that we don’t have the skills and resources to meet and there are no plans to acquire them.

We talk about Need Sets because most products satisfy more than one need.

Customer needs are not restricted to those satisfied by product features or user interactions. Their needs include also those that arise at different points during the journey of becoming (or not) a customer connected to:

  • Types and sources of information about the product.
  • Channels where the product is available.
  • Price of the product.
  • Services associated with the product.
  • Perceptions and image of the product or brand about product quality, corporate values, etc.
  • Where and how the product is produced or developed.
  • User’s life stages and lifestyle.

Identifying relevant need sets that the organization’s current and potential products may satisfy requires qualitative and quantitative research.

Product Features vs. Product Benefits

Customers buy need satisfaction, not product features or attributes. Behind a preference for a feature or attribute, there is a need searching for satisfaction and driving behavior.

A consumer may buy cosmetics to satisfy the need to feel beautiful or transformed. Another will buy a drill for a DIY project that gives him or her a sense of accomplishment. A product manager may buy software to save time and be more efficient in managing her job’s daily tasks.
Segmentation studies based on product features tend to be less actionable than those based on needs, or what is sometimes called the “jobs the user needs to get done.”

The Role of Demographic Variables

Users’ needs don’t exist in a vacuum. They are often associated with demographic variables such as gender, age, ethnicity, marital status, family composition, education, social class, occupation, and geographic location.

A segmentation solution may start by grouping users with similar product needs sets despite different demographics. However, it is important to understand these demographic differences in order to design effective marketing programs to reach them through different channels and with different messages.

Demographic information provides insights into the context in which products are purchased and used, how they think about the products beyond product features, and the language they use to describe their user experience. For example, while singles, young families with children, and middle-aged couples may want the same features in a mobile app, website or a car, it is likely that the language, the themes, and other elements of product design and media we use to communicate with each group and the points of friction in product interactions will be different.

Excluding demographic information from the understanding of user interactions with products and services also leads to a lack of diversity, unintended discrimination, and missed product development opportunities.

For certain product categories, demographic variables can be used as segmentation criteria if they really identify segments with distinctive needs and behaviors. In other categories, demographic information may not be as discriminating, but still can be used to profile the segments and understand the context in which products are purchased and used.

Some Key Demographics Influencing Product Use

Age

Research has shown that age shapes the products we buy, how we use them, where we shop, how we use technology and media, and how we think and feel about marketing activities. The use of product categories grows and declines as we age from diapers for babies to diapers for seniors.

Gender

Many products are created with a gender in mind given the different needs each gender may have in various product categories. However, sometimes gender-specific products can be based on obsolete ideas of what a gender may need or prefer. There are also product designs that ignore, intentionally or unintentionally, the needs of the other gender (e.g., Battery packs for portable microphones are designed to be clipped on pants, so a female speaker in a dress would have nowhere to clip it on to).

Ethnicity

Race and ethnic origin are connected to ethnic subcultures in which members share unique behaviors based on a common racial, language, or nationality background. It is important to remember that all subcultures are very diverse and general descriptions don’t apply to all the members, so we need to be vigilant about unconscious biases that can lead to stereotypes.

Nonetheless, there are shared cultural traditions, sets of values, language, and behaviors within those subcultures rooted in their histories that influence how some of their members see their needs represented in the products they buy and use. The cultures we identify with influence how we use language, how we interpret visual design elements, and what mental models we have about how a product should work based on personal experiences connected to that culture.

Stage of the Household Cycle

As social species, we usually grow up in families and go through different stages in life, each with specific needs. As we age, we may get married, have children, become empty nesters, or caregivers of older parents. Our family may shrink or expand over time depending on the paths we take and the relationships we develop. The needs for products and services in each stage will change and influence what we buy and how we use products.

Education and Income

Education influences opportunities and what one can purchase and use by often determining occupation and income. Education also influences how we think, make decisions, and related to others.

Consider Intersectionality

We don’t just identify with a gender, race, or have a particular age. We are all those things together all the time. This means research must consider the intersectionality of many of these variables at the segment level. The experiences of young black American men in America are very different from that of young White men. They will share preferences and use certain products in similar ways but could differ in perceived barriers to product use, depending on design elements and messaging about the product connected to their respective identity groups.

Firmographics

In B2B markets, we use “firmographics” as equivalents to demographic information in B2C. Variables such as company size in terms of employees and revenue, industry, product category, structure, decision-making chain and processes, and geographic location are often correlated with the products and services they buy and how they are used internally.

These are just some of the demographics or firmographic variables that may be relevant for your product category. There are more. Qualitative research and secondary research coming from internal data systems or prior primary research can shed light on which variables may influence product use in your case.

Segment Profiling

The selection of a segmentation solution is often based on a combination of technical know-how and judgment calls that consider the consistency and viability of the segments.

In exploratory segmentation research, in which we don’t know what the segments are a priori, we use multivariate statistical techniques to identify segments with similar needs sets, behaviors, attitudes, perceptions, demographics, and any other relevant variables. But we can’t stop there. We need to describe the segments across all the measured variables and check if their profiles make sense.

The smaller the segments, the more likely the product is to meet the segment’s needs. Smaller segments tend to have dominant and specific needs and behaviors that separate them from the rest, but servicing a small segment can be very costly. To be viable, a segment must be large enough to be worth investing in it.

Segment profiles, also called Personas, should highlight the most prominent common traits within the segments that act as differentiators against other segments. These could be behaviors, attitudes, barriers and pains, motivators, demographics, use scenarios, roles, etc.

Segments are probabilistic constructs, which means they summarize needs sets, behaviors, attitudes, etc. that are more likely to be shared by a group of people (or companies in B2B). This doesn’t mean that each individual classified in a segment will fit the segment in a perfect way. We are all individuals with unique needs, yet we share commonalities with different groups we belong to.

Segment profiles help understand the core needs and distinctive user behaviors of a group so the company can develop products that satisfy those needs.

Conditions to Make Segmentation Research Actionable

Despite significant investment in segmentation studies, these may have little impact on organizational decision-making unless some conditions needed for insights implementation are in place.

Research Champion (s) at the Top

Segmentation studies generate a lot of insights that are often difficult to socialize internally. The sheer amount of data can be overwhelming. Consequently, an action plan is needed to share the insights and help the organization to adopt them. Internal research teams are often responsible for this task but are rarely successful without a mandate from the top. Any type of strategic research effort needs a champion in the C-suite from its conception to its insights implementation.

With support from the executive team, researchers connected to marketing or product development, need to educate internal stakeholders on the value of both the tactical and strategic implications of the segmentation research the company may have conducted. They need to understand the organization’s ability to adapt to the study’s findings and create an insights implementation plan that can help manage internal clients’ expectations.

By connecting the tactical changes recommended by the findings to the overall strategic business goals, the research team can help internal teams, including the C-suite, to become educated on needed strategic changes.

Flexible Organizational Structures

Segmentation research provides insights with both tactical and strategic recommendations. Tactical recommendations may include changing a product configuration, adding new features, changing how is presented in advertising, etc. These changes can be implemented without major organizational changes.

However, serving identified segments long-term may require a new structure to help manage them if the segmentation solution doesn’t align with the current organizational structure. In cases like these, the solution companies use is to create cross-functional teams, but depending on how rigid the structure is, these teams may get little accomplished.

In order to implement the strategic insights stemming from segmentation studies, the organization has to be willing to change its structure, if needed to manage the market segments in an efficient way.

Balance Between Short- and Long-Term Goals

In many organizations, there is often tension between functions such as marketing, sales, and product development as they own channels and goals with different time horizons. A segmentation study may have recommendations that impact the design of channels owned by these functions (e.g., eCommerce, offline retail). The marketing team may be receptive to changes that the sales team resists because it may upset established client relationship patterns and short-term sales goals.

To find a balance between short- and Long-Term Goals, the management team needs to consider all research outcomes and decision possibilities of strategic value at the research design stage. If there is no commitment to implement strategic insights that may stem from the segmentation study, it is best to narrow its scope to find tactical solutions.

Willingness to Prioritize Certain Market Segments

A segmentation by definition implies discriminating among the segments in some respects. This means that the marketing and product development will also be discriminating if the segmentation solution is adopted. In practical terms, this will require prioritizing particular customer segments considering the risk of dedicating fewer resources to others.
If the company doesn’t want to take the risk to discriminate between segments and tries a middle-of-the-road strategy to reach all, it is likely to forfeit the competitive edge the segmentation insights may provide.

Experienced Team

Understanding the value of the insights that can come from segmentation research and being willing to implement them requires prior experience with segmentation work. A marketing or product team that has not been exposed to a well-designed segmentation study will have a hard time translating the insights into business implications.

If this is the case at your company, internal researchers or external research suppliers should be called to help the teams think through the implications of decision-making based on different findings. Segmentation research is not for amateurs. Both internal researchers and external research suppliers should have experience in this methodology to help internal teams to derive actionable insights.

Conclusion

Segmentation research allows companies to find target segments that can propel their growth and profitability. Many variables may be part of the mix of criteria that differentiate between segments. Demographics is just one set of variables to consider in addition to customers’ need sets, pains, motivators, preferences, attitudes, purchase and user behaviors, values, cultural identity, among others. A hybrid approach using qualitative and quantitative research methods is usually needed.

To make segmentation research actionable, organizations must be ready to understand how these studies may affect their structure and decision-making process regarding customer communications, channels, and product development. Management needs to be a champion of this type of research, bring an experienced team to conduct the research and implement the insights, provide guidance to manage short- and long-term during the insights implementation process, foster willingness to prioritize segments, and be open to change the organizational structure to manage and serve those segments.