Better Segmentation for Better Insights

Steps to build marketing strategies on what matters most to your consumers

When brands want to connect more strongly with their customers to create tailored marketing strategies, one of the first things to do is segment the market. When done right, segmentation can provide a company cornerstone on which to build and grow—that true understanding of who makes up a customer base; a critical step in marketing’s golden rule of “know thy customer.”

Segmentation Overview

Traditional market segmentation is a strategy for dividing a broad target market into subsets of distinctive groups based on commonalities—customer similarities and what sets them apart from others. These shared traits, or differentiating factors, could include needs, attitudes, behaviors, and even basic geographic and demographic information. Understanding the customer at this more granular level allows brands to zero-in on priority segments and follow the ultimate Goldilocks principle—finding those “just right” opportunities to inform future marketing and positioning strategies.

Basing Customer Segmentation on Brand Goals

The question to ask before starting segmentation research is, “What are the customer segmentation goals for the brand or company?” Segmentation approaches have been around for decades, and there are different options out there on how to approach this process. Not only that, sometimes the research process tries to cover too many bases by asking too many questions to get the most information—more is more, right?

Not always—and definitely not in today’s digital world.

It is important to remember: In the end, segments need to be meaningful and sensible, aspirational yet attainable. By breaking down a big group into more manageable and accessible smaller groups, brands gain an understanding of the consumers in each cohort better. More information, yes, but moreover, quality information. A foundational study to help a brand build and grow must start with the selection of the right building materials to create a solid base.

Taking Market Segmentation One Step Further

Traditional market segmentation can show quite a bit about who a brand’s customers are (and aren’t), and works very well as an initial step to getting to know the customer. What a traditional market segmentation does not do, however, is answer or explore the specific reasons behind why these individuals buy a certain product or category.

For example, a brand or company may have a market segmentation that includes a group of active baby boomers and a group of internet-heavy millennial consumers—both of whom buy products within their product category and maybe even the brand specifically. But, the reasons behind why they buy may be entirely different. And lacking that piece of the puzzle diminishes the ability to truly understand customers and, of course, to provide them with the products and services that actually fulfill a need.

To make products, services and messaging truly meaningful, it’s helpful to take traditional segmentation one step further and also segment customers based on why customers are purchasing certain products or brands in the category. This type of segmentation flips the focus from the “who” to explore the additional thoughts and behaviors that make up purchase decisions. To understand the ultimate motivations of customers, brands need to understand what they’re asking the brand or product to do for them. This is an outcome—what outcome do your customers require from your products (and similar products in the category)? As Harvard University’s Theodore Leavitt puts it, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

Gaining Better Consumer Insights Through Effective Segmentation

Getting to the right answer means starting with the right questions. To understand exactly why consumers buy products or services, utilize a segmentation structure capable of answering that question. To understand what truly makes consumers different, use a methodological approach capable of providing strong discrimination. This means segmenting consumers in a way that puts outcomes first.

A similar approach and overarching concept has been used for some time by market researchers supporting brand success, as indicated in Anthony W. Ulwick’s theory around Jobs to be Done (JTBD). This new evolution of outcome-driven segmentation can be looked at as a three-step approach to clear and actionable insights.

Step 1: Defining the Customer Outcomes

Depending on the category, customers could (and should!) have hundreds of different outcomes for products. For example, when thinking of the fast-food/Quick Service Restaurant (QSR) industry, outcomes could range from those focused on delivering convenience to others focused on offering variety. The outcomes include a mix of both emotional and functional requirements for a product and/or service and must be developed hand-in-hand with the end customer.

There are many different approaches to gaining customer feedback on their required outcomes for a particular product category, but one of the market research approaches that can work most effectively relies heavily on longitudinal creative qualitative techniques. This means connecting directly with customers by repeatedly asking them what you need to know (in almost a tête-à-tête style format) so you can understand a behavior or experience across time. Understanding deeply how a brand’s products or services fit into customers’ everyday lives is critical to building out the extensive list of outcomes. When done right, the research process should uncover 100 or more required outcomes for a single product category.

Step 2: Identifying the Top Opportunities

With the comprehensive list of outcome statements in place, it’s time to start prioritizing which outcomes offer the greatest opportunity for growth and innovation in the category. Using Ulwick’s approach as a guide, the market research process should quantitatively evaluate the overall importance of each outcome and how satisfied customers are with what’s available to them today on being able to deliver on that specific outcome (i.e., whether an outcome is already being fulfilled).

Using the combination of Importance x Satisfaction and Ulwick’s recommended formula, calculate an opportunity score for each outcome. This allows identification of which outcomes are currently underserved, appropriately served, and overserved within the category. Then, the outcomes are prioritized.

This analysis may sound straight forward, but many factors need to be considered to ensure that the right outcomes are being prioritized. For example, look not only at the opportunity scores at the total customer-level, but also look to understand the top opportunities by brand-users and by the traditional consumer segments.

To quote Vanilla Ice, this is the point in the process where it is time to “stop, collaborate, and listen.” Just because the data has been gathered doesn’t mean the full story is yet available. This is where art meets science and the perspectives of all key stakeholders (insights and innovation, brand teams, research and development, etc.) must be included to finalize the prioritized list of outcomes. When narrowing a list down from 100 to about 30 outcomes, work to ensure the outcomes being prioritized are not just unmet needs for the customers, but something the brand can actually deliver on.

Step 3: Segmenting Customers Based on Prioritized Outcomes

With a list of approximately 30 prioritized outcomes offering the greatest opportunity for growth, it’s officially time to let the segmentation begin!

With an outcome-driven segmentation, the approach can (and should!) be much more streamlined, as long as the front-end work has already been completed. For example, if there is already a traditional consumer segmentation in place and the brand already understands the “who,” all that needs to be included is that segmentation algorithm versus doubling up on all the profiling information. It’s the perfect way to trim down the brutal battery after battery of rating questions we’re used to seeing in segmentation surveys.

In Step 2, we learned that all of these outcomes are important—the traditional rating scale approach isn’t going to provide that discrimination among segments needed. So, what should be done? Utilize a distinct trade-off analysis and force customers to make the difficult decisions between which outcomes truly drive purchase decisions. This type of analysis is designed to quantify customers’ values associated with different required outcomes to establish preferences. This approach is more fun and engaging to complete from a respondent standpoint than traditional ratings, which ultimately lends itself to higher-quality data.

Analytical clustering based on the trade-off results provides the basis for uncovering segments. Just as consumer profiles differ in a traditional consumer segmentation, the outcomes and asks of the product/product category differ by group in an outcome-driven segmentation. Each group has different personal definitions of what they require (i.e., the outcomes they seek) from a product or product category.

The Outcome

At the end of the day, this type of approach to market segmentation can give brands or organizations distinct segments and a clear understanding of the exact outcomes they must deliver on (and which outcomes they

shouldn’t worry about) to reach each segment. This approach can help brands or organizations with product development and innovation, marketing messaging and positioning, and packaging claims, among other product aspects. Connecting with customers through this segmentation approach ensures that brands are no longer left saying, “Well, this information is great to know, but now what?” Instead, they have a clear path to action that will positively impact their customers and their business.