How to Make Segmentation Research 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.

This is broadly called “market segmentation” in marketing and market research because we effectively study current and potential buyers and users of products and services. Depending on the roles they adopt at different points in the user experience journey, buyer and user behaviors may or may not be present simultaneously in customers.

For example, in video game purchases for minors, in specific 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. At the same time, their kids are most likely to be product users, but they 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 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 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 current and potential organizational capabilities. Capabilities include 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 segmenting 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 also include 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 more efficiently manage 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 need sets despite different demographics. However, it is essential to understand these demographic differences to design effective marketing programs to reach them through different channels and 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 car display, they likely differ in how they perceive different aspects of product design, messages, channels we use to communicate with each group and the points of friction in product interactions.

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

For specific product categories, demographic variables can be used as segmentation criteria if they 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.

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 gender in mind. However, sometimes gender-specific products can be based on obsolete ideas of what each gender may need or prefer. There are also product designs that intentionally or unintentionally ignore 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 cultural background. It is important to remember that all subcultures are very diverse, and general descriptions don’t apply to all the members, so we must be vigilant about unconscious biases that can lead to stereotypes.

Nonetheless, shared cultural traditions, values, language, and behaviors within those subcultures are rooted in history, impacting how their members see their needs represented in the products they buy and use. The cultures we identify with influence how we use language, interpret visual design elements, and activate mental models about how products 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 be 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 relate to others.

Consider Intersectionality

We don’t just identify with a gender, race, or 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. Still, they could differ in perceived barriers to product use, depending on design elements and messaging about the product connected to their 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 often correlate 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 and secondary research 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 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 will 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. A segment must be large enough to be worth investing in to be viable.

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, use occasions, buyer and user roles, attitudes, barriers and pains, motivators, demographics, 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 perfectly fit the segment. We are all individuals with unique needs, yet we share commonalities with the different groups we belong to.

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

Making Segmentation Research Actionable

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

Define Desired Business Decisions and Outcomes

The key to an actionable segmentation study is a precise translation of desired business actions and outcomes into the information needs the research should meet to support those actions and outcomes. In survey-based segmentation studies, this must go further to operationalizing those information needs into good question design grounded in how the team plans to use the results.

It’s not uncommon to see clients bring very indefinite descriptions of how they plan to use the research results. As someone who does market segmentation studies for clients, I often have to help them define the jobs they want done to support particular function(s) (marketing, product development, operations, etc.) and how they support business outcomes.

Failure to define the specific actions the team plans to make (e.g., select reach channels, create content for different media, find key benefits for positioning, identify keywords for SEO, prioritize features for product development, etc.) to achieve business outcomes, can take the segmentation study in a direction that is likely to provide less than valuable insights.

Find 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 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 to 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.

Allow for a Flexible Organizational Structure

Segmentation research provides insights with both tactical and strategic recommendations. Tactical recommendations may include changing a product configuration, adding new features, changing advertising messages, etc. These changes can be implemented without significant 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.

To implement the strategic insights stemming from segmentation studies, the organization must be willing to change its structure to manage the market segments efficiently.

Balance Short- and Long-Term Business Goals

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

To balance short- and long-term goals, the management team must consider all research outcomes and decision possibilities of strategic value at the research design stage. If there is no commitment to implement strategic insights from the segmentation study, it is best to narrow its scope to find tactical solutions.

Prioritize Certain Market Segments

A segmentation, by definition, implies discriminating among the segments in some respects. This means the marketing and product development will also discriminate certain segments 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 of discriminating 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.

Have an 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 not exposed to a well-designed segmentation study will have difficulty translating the insights into business implications.

If this is the case at your company, experienced 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, and 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.