Nobody thinks they need segmentation work
I met with a business owner who told me, “We know exactly who our customers are.” Awesome.
That's what you want, right? To know exactly who your target market is?
But then his next statements suggested maybe he didn't know who his customers were. Because he told me that they weren't really sure what the right price point was.
That was in the logo design business years ago.
I met with a business owner who told me, “We are having trouble with our marketing messages.” Bummer.
That's not what you want, right? To think your messages will work, only to find out they're not?
But when I asked him to define the segment of the market he was focused on, his answer was, “everyone.”
That was in the email marketing space a couple of years ago.
I met with another business owner just a few weeks ago. A friend. “We don't need segmentation work.”
I protested. Because already I had heard enough during the day to know it was required.
But within two weeks, we met again and he said, “It's all segmentation, isn't it?”
Those are words I like to hear.
Segmentation is a tool that helps you
Segmentation is a tool that helps you with:
- Targeting – You need to be able to determine which subset of potential customers are the ones you want. Everyone wants perfect customers. The easy way to figure out which kind of customer is perfect for you is to know that you've found the perfect subset. And that subset, that targeting of a specific group of people, is a by-product of knowing how you broke up the entire set of potential customers into groups. Then you can pick which groups are a good fit for you, and you can walk away from the unprofitable ones.
- Pricing – Different segments will value what you do differently. Once you understand which segments you're going after, you can make sure that your pricing aligns with what makes sense to each segment. It allows you to align your price with their perceived value, and that's a huge deal because it gets you moving away from straight costs.
- Positioning – Different segments have different competition because they have different alternatives. This means you need to position yourself well in each segment, but that means you have to know what those segments are, and who your competition is within each segment.
- Promotion – How you promote your product, and how you pitch it – from the words to the images to the places where you spend money – all change based on your target. If you don't know which segment you're going after, you can't determine where your targets hang out, and that means you're left with broad messaging rather than laser-like focus.
- Product – When it all comes down to it, even what your product does (it's features) are a by-product of what segment you're going after. Because you want to solve a problem. And different segments have different problems.
How do you define a segment?
So if segmentation is critical, how do you define one? Right? I mean, after all, can it be any group of people – like people who all bought my product on Monday? Is that a segment? What about people who bought my product after watching a commercial? Is that a segment?
No. You can't just pick groups of people that have some activity in common and call them a segment.
But that's because you have to understand the purpose of segmentation.
Segmentation is the classification of customers (and prospects) using defined characteristics that allow you to easily find and categorize people, while helping you understand and predict how they may act.
1. You have to use defined characteristics that you can use to find these folks.
If I tell you that my segment is people who have troubled relationships with their mother, that's going to be pretty hard to assess, right? It's going to make my search costs to find them very high.
You need to use a set of defined characteristics that you can look for. It might be demographic or geographic – like men between 40 and 60, or single women living in Alaska.
2. You have to use criteria that helps you understand and predict how they may act.
If I tell you that I'm selling hair coloring treatment for men, I need to use criteria for my segmentation that helps me determine if customers will be a good fit.
Bald men is a great segment. Not because I can sell to them, but because I can predict that they don't need my product.
Older men with gray hair, also a good segment. And even people who care about their look (presentation) may be good fits.
But knowing if they have children? That's not helpful to me in understanding or predicting anything. So it's useless criteria for a segment, in this case.
Make sense?
Sometimes the criteria isn't demographic or geographic (like mentioned above). Sometimes it's behavioral.
If a person took an action, are they more or less likely to take an action I care about (like buying my product)? Either way, if there's a correlation (either to purchase or to never purchase), I'm going to be a happy camper.
3. You have to make these segments large enough for useful classifications of customers.
If I say that my target market is people who all write code for a living, who live in San Diego, who specifically only work with WordPress, who currently sell a commercial WordPress plugin, and who have been to at least one WordCamp – guess what?
That segment may be awesome when it comes to positioning, promotion, and pricing, but it also only helps me with about 12 potential customers.
Segments can't be small if you want to use them to help your business. But they can't be so big that you end up treating dissimilar people similarly.
What can segmentation help you with?
So by now I'm hoping I've made the case that you need segmentation as a part of your regular marketing work. I'm hoping you're thinking, oh crap, I better get on this.
I'm hoping you're thinking I really need to talk to Chris.
But let's assume you're like my friend the other day who told me he didn't need segmentation work at all.
Let me tell you what I told him.
- Segmentation can help you determine which clients you don't want to lose.
Not every customer is worth your time and energy. Some will spend more money with you. Others won't. Don't you think it's worth knowing which is which? There's a way to get pretty accurate predictions, if you've collected the right data. But what if you're not even collecting that data? - Segmentation can help you predict which customers will buy from you again.
Have a great copywriter? Did you know that certain customers are ready to buy from you again, if you only used that talented copywriter to create an email campaign to convince them it was time to act? But how will you leverage their talents if you don't know who to send the emails to? - Segmentation can help you know if a particular approach / strategy will work in keeping them.
You likely have several different ways to save a client, right? You can do extra work for them, give them discounts, or even call them or get on a plane to meet with them. But which one should you use? And should you reserve the flying one to only those who will net you a certain amount of revenue? Sure. But only if you've done your segmentation homework. - Segmentation can help you have several price points so that your overall profit margin is higher.
If you buy an airline ticket right before you fly, and you fly back on a weekday instead of a weekend, I have a reasonable certainty it's business travel and not vacation travel, right? And that means I can charge you more, right? It's true. That's how it works. And because of that, I can drive better profit margins from segments that are less price sensitive. But I can't do that to Southwest passengers, can I?
What data are you collecting?
Almost every coaching engagement starts the same way for me – which are your most profitable and least profitable customers?
This assignment can take a company a few hours, a few days, a few weeks, or a few months. And it's always the same thing – it totally depends on what data they've been collecting.
So let me end by simply telling you this – collect ALL THE DATA.
- If you have demographic data (age, gender, family size, education, profession, etc), collect it.
- If you have geographic data (continent, country, state, city, population of city, weather), collect it.
- If you have behavioral data (visits, usage, loyalty, purchase incidents), collect it.
Because trust me, if you have it, it can be used to help you and your business.
Whatever business you're in.
Because here's what I believe to be true – just about everyone has the same need to do more and better segmentation work for their business.