If you’re a new business, it’s common sense to begin a discussion about your business model by evaluating your customer segmentation strategy and determining the value proposition for each segment.
When I worked with an Accelerate Baltimore class of companies this was one of our first discussions. But, as I advised these entrepreneurs, reevaluating your customer segments and corresponding value props isn’t a one-and-done proposition. Rather, it’s a jumping off point for your organization as you set strategy – either at the beginning of the year or when an internal or external shift causes you to sit back and re-think things.
I think the best way to approach strategy and planning, with an eye toward being relevant and valuable to your customer base and prospects, is to see how others are applying customer segmentation concepts in the real world, in real time.
Here are three examples of how organizations used customer segmentation for greater success:
Segmentation Success Example #1: Describe and segment your target so you can FIND them.
A start-up company I’m working with is developing an app for tracking nutritional data, accessing recipes and building community. When they first articulated their customer segments, they defined them by the characteristics and attributes of the segment instead of by demographic information. For example, they stated that they were selling to people who were interested in understanding how their food intake translated into good nutrition, and they were targeting people who wanted to create healthy, balanced meal plans.
My initial reaction was, “that’s everyone and no one at the same time.” I mean, who doesn’t want to eat healthy, balanced meals? But how do you find that person and create a strategy to reach them?
After digging a little deeper into the attributes and characteristics related to customer demographics, the company was able to segment their target customers into three segments: nutritional counselors, private trainers and, finally, women 30-55 who subscribe to food and exercise magazines.
This more precise and useful segmentation helped the company understand how to find their target customers, and how to articulate value.
Segmentation Success Example #2: Focus on a VERY SPECIFIC piece of your broader target.
Typically, entrepreneurs focus on larger-than-life problems and solutions. In fact, it’s a standard mantra for a venture capitalist to say, “Show me that this is a billion-dollar market.” While proving you have a large potential market can be important, sometimes it makes more sense to take the counter view and dive deep into a very niche opportunity.
Stitch Fix, an online styling company that delivers boxes of clothing tailored to their customers, initially faced skeptics who thought the market wasn’t large enough for one more online retailer. The CEO was initially targeting women in their 20s and 30s who don’t have time to shop, but who want outfits to wear to parties, dinners and other dressy events.
It turned out, though, that Stitch Fix’s service actually appealed to moms in their 20s and 30s who want to look stylish, but who are too busy with kids and families to shop.
This deeper niche segmentation helped the business gain significant traction.
Segmentation Success Example #3: Answer the BIG QUESTIONS that keep you up at night at light speed.
A nonprofit was struggling to find the right mix of services to offer and training and education to provide. They were also balancing scarce resources – staff, funding and capacity. I advised the organization to begin by asking a very simple question, “Who are you trying to serve?”
Once the answer was clear, leadership was able to align the nonprofit’s offerings to each customer segment and the answers to questions about how to allocate resources also flowed directly from that answer. This very simple focus helped their strategy fall into place.
As I stated earlier, understanding your customer target is only a starting place. Further segmentation is where the real power is, and doing this will help you:
By segmenting initially, you’ll be able to see customer trends more quickly and clearly. For example, you might see new prospects that do not fit one of your current segments begin to engage. That event might trigger additional research that helps you identify a new and profitable potential niche.
Bottom line: If you lump everyone together, it’s not so easy to see where the real opportunities are.
