How to Conduct Customer Segmentation in 6 Easy Steps

customer icons segmented into a pie chart

Catering to your entire target market the same way isn’t the most effective. It’s a bit like giving a one-size-fits-all t-shirt to people of all shapes and sizes. 

At the same time, identifying the unique needs of every individual is an impossible task.

It’s not like you can just send a personalized message to every potential customer (unless you have infinite time and resources). 

What many businesses need is something in between for targeting their audience. This is when you should conduct a customer segmentation analysis.

In this blog post, our market research company shares our process for accomplishing market segmentation in 6 easy steps.

What is Segmentation? 

This term can be defined as dividing a market into groups of individuals with shared characteristics.

Common customer segmentation examples include:

  • Demographics
  • Geographies
  • Competition
  • Behaviors

We cover these more in the video below.

The idea is to create segments that feature members who are as similar as possible to each other but different as possible from members in other segments.

If successful, you end up with distinct segments for customized marketing messaging or future research studies. A handful of segments are more manageable than individuals but much more effective to target than the whole market broadly.

Segmentation can have huge benefits for a company’s marketing efforts.

For instance, a recent study found that 77% of marketing ROI can be attributed to targeted campaigns. How is this relevant? In order to target the right audience, segmentation is needed. 

Below we’ll go over 6 high-level steps, and how they relate to the importance of market segmentation

Recommended Reading: What is Segmentation?

Step #1. Define Objectives

The critical first step of any market segmentation study is to clearly define the objectives of the research. 

Some important questions to ask as you begin include:

  • What is the market you are looking to segment? 
  • By which parameters are you using to segment the market? (i.e. behaviors, attitudes, psychographics, demographics, firmographics)
  • Will the segments be applied to a larger population? 
  • Are you hoping to use segments for marketing efforts?
  • What type of market segmentation analysis is the best fit for your needs?

Don’t worry if you can’t answer all these questions off the top of your head. These are all details that can be sorted with the help of a trusted market research partner, like Drive Research

Once the objectives to conduct market segmentation are squared away, you have a guide to help ensure your design is set up to meet your goals.

💡 The Key Takeaway: To go into a successful market segmentation study, simply having key objectives lined up can make the process worlds easier. 

Step #2. Draft Survey With Key Questions

The next step is creating the inputs for the segmentation. In other words, you must draft the right questions in an online survey to best segment the market.

The questions that feed segmentation usually come in the form of scales or trade-off exercises. 

For example, survey respondents may be asked to run through a series of 5-point scales on how important various attributes are to their decision-making on a product. 

If it were trade-off exercises (also known as MaxDiff), respondents might be shown a random set of product attributes and be asked to select which attribute is most important and which is least important.

This is repeated until respondents have seen each attribute once, if not more.

Both sets of data may be used to segment a target market by looking at how respondents answer each of these key questions/exercises. 

What you want to end up with is a numerical value associated with each attribute for every respondent. This standardizes the data and allows you to make direct comparisons between segments in the analysis phase later on.

You also want to be sure to include a wide range of demographic questions in the survey such as:

  • Age
  • Gender
  • Household income
  • Ethnicity

This data is not often used as an input in the segmentation, but it can be reviewed after the segments are established to paint a fuller picture of each segment. 

Here are 18 examples of demographic survey questions for better segmentation.

💡 The Key Takeaway: Drafting your segmentation survey questions so that you have a numerical value associated with each attribute for every respondent. Doing so you'll be able to make direct comparisons to each customer segment.

Step #3. Collect Data for the Survey

Data must then be gathered when you conduct customer segmentation, as you might for any other online survey. Field the survey by targeting respondents within your target market. 

However, it is crucial to allow any members of the target audience into the survey if you plan to use the segments beyond this study.

Applying the segments afterward to an audience that was not consistent with the study sample may be problematic. 

That means the same screening criteria must be used if you want to see how respondents in other studies fall within the segments. 

To put it plainly, you want to make sure your segmentation study sample can be compared apples-to-apples with your full market.

On another note, also be sure you have measures in place to weed out any poor-quality respondents. Cutting out any noise from illegitimate responses will boost confidence in the final segments. 

💡 The Key Takeaway: Targeting respondents within the desired market is necessary for a successful study. Additionally, ensuring your data can be compared successfully is also crucial. 

Recommended Reading: Your Survey Fieldwork is Complete, Now What?

Step #4. Conduct Analysis to Create Segments

Once you have your data, it's time to group your customers into market segments.

Survey answers to the key input questions (scales/trade-off exercises) are analyzed to bucket respondents into a set number of segments. 

The ideal number of segments for a typical study should fall in the range of 5 to 8 segments. More than 8 segments can be overwhelming to manage and fewer than 5 may be lumping too many respondents together.

Each created segment will feature respondents who answer the key questions as similarly as possible. 

Concurrently, respondents in one segment should answer key questions as differently as possible from respondents in another segment.

There is no such thing as a perfect outcome in segmentation, sadly. 

Some respondents may be difficult to place because they fit equally well into multiple segments. While some of this is inevitable, always try to find a segmentation solution that minimizes ambiguous segment membership as much as possible.

💡 The Key Takeaway: Eliminate expectations of perfect results, as this rarely happens in segmentation. Set reasonable goals, and shoot for 5 to 8 segments. 

Step #5. Review Segmentation Results and Adjust as Needed

Congrats! You have created segments – but you’re not quite done yet. 

Finalizing segments can be an iterative process to really nail it down. Inputs may need to be adjusted, like the number of anticipated segments or key questions included.

Computers can do the heavy lifting when it comes to creating the segment outputs, but at some point a human touch is necessary. This is when segmentation is revealed to be both an art and a science.

Compelling segmentation always tells a good story with the results. Each segment should have a clear identity.

For example, you want to at least be able to say Segment X places high importance on a few attributes and low importance on a few different attributes.

Equally important, the attributes with high and low importance should not contradict each other.

Each segment also needs to make sense in the context of all the other segments.

The segments must be easy to understand and differentiate. You must also ask yourself, “Could these segments collectively exist within the target market?”

If you (or your client) are happy with the final results, it’s now time to put the segments into action.

💡 The Key Takeaway: Making sure segments are clear and concise is also an essential part of the process. What’s more, it’s also important to make sure that the segments fit in with one another. 

Step #6. Build out profiles, personas, and comparisons for final segments

Your last step is to turn the segments into something useful for your business.

Market segmentation in consumer behavior can reveal deep insight into business strategies and practices.

Additionally, this may involve developing detailed profiles that break down all the survey data by segment. This reporting highlights the differences nicely between segments for easy comparisons. 

These profiles can be referenced when developing new marketing messaging, identifying what matters most to each segment and how they prefer to be reached.

Personas may also be created that bring the segments to life. 

These customer personas act as archetypes for each segment, describing what an average member thinks, feels, and does. They can offer a much simpler way for non-researchers to digest the results and talk about segmentation since they tell a story.

Another output of market segmentation may be a typing tool. 

Essentially, this is an algorithm that helps you classify someone from your target market into one of the segments.

It is a useful shortcut to estimating the behaviors, thoughts, and feelings of any given respondent in a future study.

It might look like an abbreviated series of questions that can be plugged into any future survey with the same screening criteria as your segmentation study. The questions focus on only the most important attributes that were differentiators for each segment.

Qualitative recruiting is one of the best applications of a segmentation typing tool. Read a case study about its usefulness here.

Any of these outcomes are sure to help you get the most out of market segmentation.

💡 The Key Takeaway: What’s segmentation if you can’t use it to perfect your business strategy? The levels of market segmentation can give you detailed insights into your audience, allowing you to hone in on target areas. 

Contact Our Customer Segmentation Analysis Company 

Did we convince you of the importance of market segmentation? We hope so. It’s a fantastic way to understand audience demographics, which can result in enhanced business practices. 

Drive Research is a market research company based in New York. Our team of research pros has years of combined industry experience in customer segmentation and can craft a project based on your unique needs. 

Want to know more about our market research services? Reach out through any of the four ways below.

  1. Message us on our website
  2. Email us at [email protected]
  3. Call us at 888-725-DATA
  4. Text us at 315-303-2040

tim gell - about the author

Tim Gell

As a Research Analyst, Tim is involved in every stage of a market research project for our clients. He first developed an interest in market research while studying at Binghamton University based on its marriage of business, statistics, and psychology.

Learn more about Tim, here.

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