Market Segmentation Analysis

Market segmentation analysis is about identifying large groups of customers and prospects based on certain characteristics that can align with your business objectives and provide market opportunities for growth.

Why You Should Do It

Your products and services are not for everybody. Even if you are lucky to serve large parts of the population (e.g. Amazon), customers and potential customers will come to you for different reasons and use your products and services in different ways.

Similarly to personas research, the main reason for doing this type of research is that you are not the user, and again your products are not everybody. If you are a user of your own products, you are likely to represent a very small and biased segment of your customer base. You are invested in the company like no user will ever be.

To find new market opportunities with useful, usable, and appealing products and services you have to understand who your customers and prospects are and what they need. Segmentation analysis is the tool for that.

The Approach

Segmentation analysis is primarily in quantitative research but often includes qualitative research prior to quantitative research to identify relevant variables the may discriminate best among the segments. Qualitative research can also be used after the quantitative research to get a richer profile of the segments to build detailed segment profiles and personas. Quantitative research is based on survey methodology but can be combined with transactional data collected by the client (e.g., products purchased, the dollar amount spent, purchase frequency, etc.).

It’s also important to get key stakeholders involved in the research process to facilitate the implementation of the results, particularly if there is interest in personas development. We always recommend kicking off the project in meetings with key stakeholder groups.

Segmentation analysis usually uses one of two approaches:

• Empirical Segmentation Analysis: In this approach, the segments are identified based on the data structure and are not known a priori. We explore segmentation solutions including needs, attitudes, and behaviors among customers and prospects in the target audience.
• A Priori Segment Analysis: In this approach, we use known, pre-determined criteria to segment (e.g. spending categories, revenue, industry, age, etc.) the target audience. The goal is often to get a better understanding of known segments.

Qualitative research methods we can use for segmentation analysis include:

• In-depth interviews (phone, online and in-person)
• Focus groups (online, offline)
• Diary studies
• Direct observation
• Contextual inquiry

Target Audience Recruitment

Relevant Insights can recruit qualified B2C and B2B participants through our sample provider partners for both qualitative and quantitative research. Relevant Insights can also recruit participants from your customer database and will implement procedures to protect any identifiable personal information.

As an alternative, you may also recruit directly from your own customer database if data privacy restrictions don’t allow for customer data sharing. In these cases, we will provide the necessary data collection tools or work with your data collection tools (i.e., survey tools) if the data is required to stay in the account.

After discussions with you, we determine the sample parameters and assist in developing screeners. We also manage participant incentives.

Implementation

In direct collaboration with the client team, Relevant Insights will:

1. Assist in designing the personas research objectives, scope, and approach.
2. Conduct stakeholder group meetings and interviews.
3. Gather and synthesize any internal data available (e.g. surveys, segmentation, analytics, sales team feedback, etc.).
4. Recommend data collection mode depending on sample parameters and the industry in which your organization operates. Surveys can be conducted online, by phone, by mail, or with a hybrid approach.
5. Develop questions and metrics to support the development of segment profiles and personas.
6. Discuss who to include (customers and non-customers) and recommend sample size and sample sources. Sample size requirements will depend on the product category, target audience, and incidence rates, among other factors. However, as a guiding principle, we recommend at least 1,000 participants for segmentation analysis. When qualitative research is combined with quantitative research in segmentation analysis, we recommend at least 10 to 30 participants.
7. Program, test, and host the survey(s). In addition to testing the programmed survey for errors before launch, a “soft-launch” is deployed to a small sample to detect any potential issues with actual participants before its distribution to a large sample.
8. Monitor the field and provide daily reports on its progress, as well as any issues that may arise.

For qualitative research, Relevant Insights will:

1. Recommend the most appropriate qualitative research data collection method for the target sample.
2. Develop discussion guides.
3. Collect the data according to the qualitative approach selected (e.g., interviews, observation, etc.).
4. Rent facilities or online platforms as needed.

Analytical Plan

In market segmentation analysis we look for discrete, identifiable, and actionable segments where the client can grow their business. The data is presented by the segments, which are profiled using metrics related to their needs, motivations, attitudes, and behaviors

The type of information included in segment profiles will depend on the product category and industry, and the scope of the segmentation. If there is interest in developing personas from the segment profiles, more qualitative and granular information needs to be collected.

Some of the most common segment profiling criteria are:

• Segment size
• Purchase behavior
• Usage behavior, habits
• Brand awareness and usage
• Needs (met and unmet)
• Motivations for using your product/service
• Pain points, barriers
• Technology and tools used
• Competing options
• Media consumption

In market segmentation analysis, we can develop a predictive algorithm to identify segments/personas in future research the client may do. Different multivariate statistical and trade-off techniques are used to identify the segments, including:

• Convergent Cluster & Ensemble Analysis (CCEA)
• Conjoint Analysis (CBC, ACBC, MBC)
• MaxDiff Analysis
• Latent Class Analysis
• Factor Analysis
• Discriminant Analysis
• Cluster Analysis

Reporting

Relevant Insights can provide different levels of reporting based on budget and time constraints including:

1. Raw data for segmentation analysis and qualitative research, including media files and transcripts of interviews, diaries, etc.
2. Summary of internal stakeholder meetings.
3. Short written summary report with key findings for external research.
4. Full detailed report with analysis, charts, tables, quotes in a graphically appealing format for external research.
5. Cross-tabulated tables for segmentation analysis.
6. Segment/personas typing tool (classification tool).

Typical Project Duration

Four to eight weeks for qualitative research.

Six to eight weeks for quantitative research.

Factors that affect project duration include:

• The incidence rate of the target sample: The lower the incidence rate, the longer we need to stay in the field to gather the required data.
• Client team responsiveness: A delayed response to requests for feedback at different steps of the project, will stall a project and affect the delivery date.
• Timeline for stakeholder meetings.
• The number of participants in qualitative research.

Investment

The cost will vary depending on:

• Research approach selected.
• Sample specifications and sample size.
• Reporting requirements.
• Number of stakeholder meetings/interviews.
• Whether qualitative research is included.