How To Do Strategic Segmentation – Step 1: Segment The Market

Strategic segmentation is a technique for analyzing your customers/audience in order to develop unique strategies for serving customer groups that share common characteristics. The value of segmentation is it provides clarity about how you can best appeal to specific customers and what it will take to develop and maintain valuable relationships with them.

So how do you go about strategic segmentation?

Like all things strategy, you can do a little or you can do a lot depending on your needs, sophistication and available resources. What I’m going to present is a general outline for performing a segmentation, you can do as much or as little in each step as is appropriate for your needs.

Strategic segmentation assumes that you already have a good understanding of why you’re trying to reach a market and what it is you can/can’t do in service and relating to that market.

If you don’t have a realistic understanding of your own capabilities and intentions, the best segmentation will fail. Unrealistic self-assessment will mean you won’t be able to follow through and deliver value to the customers. That doesn’t mean that if you can’t do something or if you don’t have the capacity to serve the market in the way segmentation suggests, you’ve wasted your time. In that case, segmentation shows you the highest potential for appealing to a customer group. If you’ve determined that reaching that group is valuable, then segmentation will show you what capacities you need to develop to do so. Armed with this information you will be able to strategically invest in improving the necessary capabilities. Whew, that was quite a caveat. On to the good stuff…

In his book, Strategic Market Management (affliliate link), David Aaker proposes three steps for better understanding your market through strategic segmentation.

1. Segment the Market;
2. Understand Customer Motivations;
3. Identify Unmet Needs;

I’ll cover each in a different blog post. Right now, I’ll focus on the first step: segmenting the market.

Segmenting the market

Here’s how you do it:
The goal here is to identify key variables that describe sub-groups in your market and inform how those groups will relate to your offering. A good process for strategically dividing your market is to start with a wide range of general characteristics and iterate to variables that are related to your specific product/service.

Step 1. Think  about general characteristics of your market.

What are the people like?

Focusing on demographics (age, gender, ethnicity) can be valuable because you make inferences about how a person’s life stage affects their interests, values, and behaviors. (of course, don’t hold on too tightly to these heuristics… at the end of the day every person is unique and your strategy must leave room for the exceptions to the rules). Geographic variables may be valuable if your offering has limited reach or regional/cultural appeal.

How are trends changing the market?

Think about trends that will make segmentation variables more or less valuable. For example, in the US the Hispanic population continues to grow. One obvious implication is that there will be more Hispanic consumers? But it is important to also think about less obvious affects. How will this create societal shifts that affect what it is that you do?

Step 2. Think about segmentation variables related to how the market relates to your product service.

These variables describe how a customer might relate to your offering. There are a number of dimensions that can be considered. For a business, six common ones are:

• User type – based on the context for using the product (e.g. a computer buyer might be a student or a business professional)
• Usage – based on amount of product/service use (e.g. a sports team serves season-ticket holders versus occasional fans differently)
• Benefits – based on users perception of why a product is valuable (e.g. a fast-food patron might go through the drive-through for convenience while another will dine in the restaurant for the experience)
• Price sensitivity – based on the trade-off between price and quality (e.g. an airline partitions sears into first class, business class and economy/coach)
• Application – based on the intended type of usage (e.g. a truck may be used by one segment for hauling and by another for recreation)
• Loyalty – based on commitment to the organization providing the product/service (e.g. buying a certain clothing brand versus buying for price)

It is worthwhile to think about what equivalent dimensions might be for a church or ministry, again focusing on how the user relates to the church’s offerings. Here’s a quick list of things I’ve thought of. I’d love to hear what you think and maybe discuss the merits of different dimensions in the comments:

• Need for spiritual healing (i.e. those who have been seriously hurt by their own and others’ sin and need the healing power of Jesus)
• Poverty level (i.e. lacking some resource that the church community can provide. [I think of poverty as different than just lacking financial resources. I discuss it further in this post from my family blog if you'd like to learn more])
• Worldview (i.e. the beliefs, values, and experiences that shape a person’s views on things)
• Triperspectival hermeneutics (i.e. based on an understanding of which perspective a particular person tends to. Check out David Fairchild’s great post on triperspectival hermeneutics on his blog.)
• Passion for the supremacy of Christ (i.e how much of a person’s life has been given over to Christ as their Lord and Savior)

Please add to this list, I’d love to hear what you think in the comments.

Step 3. Categorize your target audience based on the most appropriate segmentation variables.

Once you’ve brainstormed different variables that describe your customer groups, select the ones that are going to be the most useful to you. Note that you don’t have to neatly assign customers into specific customers. There will probably be overlap between characteristics. There will also be customers that don’t fit nicely into any category. That’s okay. Our goal is to develop categories that help us define unique ways to reach the customers in that category.

Conclusion

You now should have a better understanding of who your customers/audience are and the characteristics that will and won’t help you to relate to them.

The next step in the strategic segmentation process will be to understand your customers’ motivations. I’ll cover that in the next post.

Of course, I do strategy work for a living. I’d love to work with you to see how strategic segmentation or other strategy techniques could improve your ability to serve your customers. If that is something you need, feel free to contact me.

For now, I’ll leave you with some general questions that David Aaker asks that will help orient you toward an useful segmentation.

Who are your biggest customers?
Who are your most profitable customers?
Who Your most attractive potential customers?
Do the customers fall into logical groups based on needs, motivations, characteristics?