Building segments: From a customer perspective. Market Research – Article 2

Market research can be big help to creating sustainable and profitable growth and adding depth to our offerings in the marketplace. As I stated in the initial article in this market research series, the digital world makes this easier to accomplish than ever before. The key is to not overreact (not act on false positives or negatives, which is a major issue with the rapidity with which we can collect data today) but to use the information to make informed decisions once you have enough of a data set to do so.

When you have a good understanding of your company philosophies, objectives, and strengths, you should have enough information to ask the right questions as relates to improving your organization’s situation. This is often harder than it may appear, as management teams are not always on the same page, and perspective is often a matter of job function. Getting past this can be difficult at times but putting the focus of the overall organization first is critical at this early stage. Later, the time to refine for your specific needs becomes more of a priority.

A SWOT Analysis (Strengths, weaknesses, opportunities and threats) is a good starting point to get to this point as that process can lead to many of the questions that you might want to answer through market research. (For more on SWOT, look at this article from Dan Shewan in the Wordstream Blog as a starting point).

The key to a SWOT Analysis is that it helps you to know what you know at that point in time, and just as importantly, what you do not know or at least have questions about. This latter aspect is what leads to the questions we would like to answer and explore with market research. For example, I may discover in the process of building a SWOT analysis that there is very little barrier into the market that we currently serve. This is a very real threat. You might brainstorm and come up with ways to amazing execution or build a customer community that is very desirable to belong to. This may be easier to do than throwing up legal barriers, achieving economies of scale that cannot be matched, or developing patents and copyrights.

Hopefully, this SWOT process will generate some thoughts in this area or create questions that can be answered through some research. Some of the things that you can learn about your company, the industry, the market, the competition and the consumer. In this article, we will focus on the consumer, and building customer segments or target audiences.

There is a great deal of data that we would like to collect from people, both people who are our current customers and those who might someday become customers. In most cases, it is easier to collect information from existing customers, especially if they are visiting us digitally. Quantitative measures related to our site and our social medial presence are readily available to us. However, often, these measures do not provide the complete story. Engagement metrics, as collected, tend to be quantitative, and more often that not, we need to know more than time on page or number of pages visited or shares on social media.

Sometimes we will need to go more qualitative and we will need to ask. For those who love us, we often will get unsolicited reviews and comments, but we should also collect information from and respond to those who are not very happy with us at the moment. This data can absolutely help us to find the right target audience to be going after when used in conjunction with quantitative data.

The upshot is that we want to start using this information to build tentative customer segments. So, let’s start with “What is market segmentation?” According to DSS Research (2018):

“Market segmentation describes the division of a market into homogeneous groups which will respond differently to promotions, communications, advertising and other marketing mix variables. Each group, or “segment,” can be targeted by a different marketing mix because the segments are created to minimize inherent differences between respondents within each segment and maximize differences between each segment”. (DSS Research, 2018).

As you can see, in the sense we are talking about market segments, these segments represent people, and people grouped into recognizable and understandable groupings. What are some of the ways that people are grouped, as ultimately, we want to know who they are and build some profiles around these segments.

Most people view segments as breaking into 3 or 4 overriding groups. There is some discussion as to whether geography represents its own group or not. Many experts who discuss segmentation often view geographic aspects to be its own parameter, and in many respects, it is. This is especially true if you are a global marketer and must view and compare various country markets. But is it also an important demographic designation in my opinion, and in any event, it is easily measurable.

Demographic Segmentation is a key starting point, but it is just that… a starting point. Demographics are metrics that help us to identify and define, but not necessarily to understand the audience we seek. Understanding the psychology of the consumer (overall and situationally) is important, and behavioral and psychographic segmentation (see below) is also needed to help us understand the segment, how they behave and why they respond to or brand like they do.

There is no doubt that it is certainly helpful to know that our product is strongly favored by men (65% to 35%) who are in the 35-54 age bracket (57%) and live in the Northeastern US (48%) and have an income range of $75,000 to $99,000 annual earnings. Other parameters may include occupation, ethnicity, marital status, family size and any other number of measurable parameters that may help us with understanding where a person fits within a given society. You will notice that I also included a geographic parameter in there, as this is part of a demographic profile (my opinion).

But if we have only 15% of this group, as an example, we certainly need to know more than this. Approaching this group without more information means that we are possibly making inappropriate contacts 85% of the time. This is where some of the additional dimensions of information that we collect can become very important. So we may know that we appeal to females in the 18-34 age bracket. But the question is often “why?” This is where behavioral and psychographic segmentation come into play.

Behavioral Segmentation creates segments according to behavior (loyalist vs. sometimes buyer, as an example). In this category, purchase level and frequency matter for existing customers, as well as loyalty factors, overall spend and lifetime value, timing of purchases and if they occur due to specific occasions or situations. In terms of behavior, where the purchase is made (distribution channels and end points), when the purchase is made. payment terms, product combinations, communication methods (media channels and timing of messaging) and other factors can also come into play. For example, if people only purchase your product for gift giving occasions and possibly as gifts for specific people, this is an important behavior to understand. We see this a great deal in jewelry, and it is difficult to drive sales at times outside of special occasions such as Mother’s Day, birthdays, anniversaries or holiday gift giving.

We may find that there are several groupings of usage level of our product, both in terms of frequency and over time. Determining more about each of these groupings would be important.

In another example, we may find that consumers that match your criteria often do not respond and behave the same on mobile as they do in the analog world, or even while on a laptop computer. I may also react differently if I am at home, at work, at a party or walking about in town or in the mall. This is another spin on the situational aspect of segmentation. For example, we know (today) that more searches are done on mobile than on desktops. But even with all of the searching, the fact remains (today at least) that people are still very leery to buy with mobile. This is gradually changing, but surprisingly, it has lagged most other aspects of mobile growth.

We learn a great deal about a consumer’s behavior though our internal customer records as well as is through tracking the consumer’s behavior across platforms and over time in order to build a customer journey. This is one of the realities that marketers are getting better and better at and the technology is a great aid to this. Most of what we collect here is behavioral data and can help a great deal with understanding our customers when combined with demographics and psychographics.

Psychographic Segmentation attempts to cover consumer attitudes, values, behaviors, emotions, perceptions, beliefs, and interests. The key here is that these factors are often intangible in nature and may require a significant qualitative primary study to uncover. But the rewards are often significant to building strong customer profiles that lead to ideal levels of engagement. It is amazing what we sometimes find when we delve into this area and performing this aspect of research is one of the best areas for improving the positioning of our brand. This is the area that will tell you what your loyalists love about you, what some hesitations might be with some others who do no use your brand and additional pain points (that are relevant to you) that you may not be aware of.

Psychographic research, however, often requires the greatest dedication of resources, as it is usually qualitative (focus groups, one-on-one interviews and extensive online questionnaires. Social media can also be helpful in this regard.) Eventually, the goal that we would hope to achieve would be to build out Personas (no more than 2 or 3 for most organizations) and test results of our marketing against that profile.

Pulling it together: How this can help…
Doing all three of these well can be a major assist in determining your actual market size. Demographics is usually the easiest to uncover. There is often a great deal of data that has been published by the government, trade groups and others that contain this information. Behavioral and Psychographic can be tricky at times because in some instances, it is a measure of how the consumer relates to you specifically and not necessarily how they relate to the rest of the world.

The key here is to compare how your psychographic and behavioral segments compare to the demographic segments they belong to, size-wise. This is only a starting point that will need to be tested and refined (and likely resized), but it is a reasonable place to start. Through working on all three of these approaches is how we can best determine if the market segment(s) is large enough to be profitable, relevant to us, reachable by us and distinct enough that we can articulate this segment throughout the entire organization.

For example, if your very loyal group is split across a given demographic (geography, age, gender, income), you need to compare how that demographic compares to the overall demographic for the market (something that should be published and available) and this should give you a starting point for formulating the possible size of the opportunity for you specifically.

The reality is that I may find that the target segment is not large enough, or it is large enough, but the constraints on the segment will make it unprofitable. If done well, our research will hopefully point us in additional directions. It’s important to not build segments that are too large or are too small and doing a little math here can save a great deal of heartache down the road.

In the upcoming articles, we will discuss the best methods for collecting the data digitally and in the real world, and how to do hypothesis testing and run pilot studies that support or refute our hypotheses, as well as how to identify the competition (and how to define it) and competing products.

DSS Research. (2018). Market Segmentation Techniques. Retrieved from:
Shewan, D. (2017, December 20). How to Do a SWOT Analysis for Your Small Business. Retrieved from:

Leave a Reply

Your email address will not be published. Required fields are marked *