Find the difference that changes the decision

“We need to segment our customers” sets a clear direction for a brief. But further clarification is often critical to delivering what the business needs. Built into that sentence are two assumptions: that customers are the thing we need to understand differently, and that dividing them into groups will help solve the business problem. 

Sometimes both are right. Sometimes they are not.

Start instead with the decision the business is trying to make.

Start with the decision

Different growth questions demand different views of the market.

A business trying to acquire new customers may need to understand which audiences represent the greatest opportunity. A business looking to increase usage or stretch the brand beyond it’s core category may learn more by examining different needs or occasions. A business deciding how best to grown and evolve its portfolio may need a view of international markets or opportunity spaces rather than people.

There shouldn’t be any dogma about what a segmentation has to look like. The structure should be the growth question the business is trying to solve.

Starting with that question also helps avoid a common trap: allowing the easiest thing to observe to define the problem. Existing customers, transaction histories and behavioural data may be readily available, but they each provide a single perspective on the opportunity. They should not automatically determine how the growth question is framed.

The strategic question should determine the structure, not the other way around.

Your next growth segment may not be an audience

Segmentation has become closely associated with groups of people, often brought to life through audience profiles or personas.

But its more fundamental purpose is to identify meaningful differences within a market and structure them in a way that helps the business make choices.

Depending on the question, the commercially valuable difference might sit between audiences, needs, occasions, missions or markets. An audience segmentation remains exactly the right answer when differences between people are what should drive the decision. It just should not be the default answer.

This broader view can change where a business looks for growth. A category that appears relatively homogeneous when viewed through customer characteristics may look very different when organised around the occasions people are buying for or the needs they are trying to meet.

The objective is to find the structure that reveals commercially meaningful differences.

Not every difference deserves a strategy

That word, meaningful, is at the centre of every usable strategy and it’s definition will be different depending on the organisation, decision-making culture and obviously, the objective.

Markets, categories, people, occasions contain almost endless variation, and sophisticated analysis can reveal more granularity than ever. But a business does not need a strategy for every observable difference.

A simple question can help provide guidance:

If these groups are different, would we actually make a different decision?

Would we prioritise one area over another? Develop a different proposition? Invest differently? Choose to pursue one route and leave another alone?

If the answer is no, the distinction may be interesting without being strategically meaningful.

Good segmentation therefore requires judgement about which points of complexity are worth preserving and which can safely be simplified. The goal is not to build the most detailed possible model of reality. It is to identify the differences that genuinely change what the business should do.

Build a useful map of the opportunity

Any segmentation is ultimately a simplification. Markets, customers and demand are messier than a handful of groups can ever fully represent. But a successful segmentation must be a commercially useful simplification.

A useful framework makes the opportunity manageable enough to compare, prioritise and act on. It gives leaders a clearer view of where growth could come from, helps concentrate attention on the differences that matter and provides a common map for moving forward.

The quality of that map begins with the question it was designed to answer.

So before asking how to segment something, start with what the business needs to understand or decide. Then identify the meaningful differences that will help make that choice.

Sometimes the right segments will be groups of people. Sometimes they will not.