Segmentation: Good Things Come In Small Packages

If you treat all of your customers as average, you'll satisfy none

A while back GapCo—a local pizza place—had a special seasonal pizza.
It was called ‘The Pretty Pickle’ and I swear it tasted exactly like a cheesy dill pickle.

I love pickles and this was an immediate favorite among 1/3 of my friends.

On the other hand, it was a polarizing pizza: The other 2/3 of my friends hated the taste of it.

My Friends’ Pizza Preference Pie Chart

The chart above shows my friends’ pizza preferences.¹

If I were a popular democracy absolutist, I would have everyone vote on what pizza they wanted and pick the most popular one.

Even though this would pick the kind of pizza that the plurality wanted, the one-size-fits-all approach can leave everyone feeling kind of 🫤

Despite picking the most ‘popular’ option, we failed almost everyone.

Segmentation Solves Mediocrity

Imagine that in the same scenario, we offered to order multiple smaller pizzas instead.

Three friends and I could split a Pretty Pickle while the other eight might share a pepperoni and cheese.

Each person could pick their preferred flavor, and we didn’t need to order 12 separate pizzas.

By breaking the whole group into relevant segments, you can see dramatically different patterns than if you only consider the group as a whole.

For a visual of this kind of situation, check out the graphic below from this post on Towards Data Science.

(left) Two segments analyzed separately showing a positive correlation (right) The same dataset analyzed as a whole, showing a negative trend

In summary, don’t treat every customer as if they were the average of the whole group. Find ways to treat customers with the most granular personalization that makes sense.

In this post, we’ll be diving into what segmentation is, why it’s important, and how to get started segmenting your customer base.

Defining the Basics: A Primer on Segmentation

Segmentation is a fundamental concept in business that consists of dividing your target audience into distinct groups or segments based on shared characteristics, behaviors, or preferences.

By diving a whole market into meaningful subgroups, you can create highly personalized products or marketing that resonate with each segment, ultimately increasing customer satisfaction.

Why Is Segmentation Important?

Segmentation isn't just a nice-to-have in your marketing toolbox; it's a necessity. Here's why:

1. Relevance: Segmentation allows you to send messages that are relevant to the specific needs and interests of each group. People are more likely to engage with content that speaks directly to them. For example, if I own an EV and my dealer wants to engage with me, they should send battery maintenance tips. They shouldn’t send oil change discounts.

2. Personalization: It enables you to tailor your content, product recommendations, and offers to individual segments, making your marketing efforts feel like a one-on-one conversation.

3. Efficiency: Segmentation helps you allocate your marketing resources more efficiently. Instead of broadcasting a generic message to a broad audience, you can focus your efforts on the segments most likely to convert.

4. Higher Conversions: Personalized messages tend to result in higher conversion rates. When you address your audience's pain points and desires directly, they're more likely to take action. I’ve talked about Autozone’s successful email personalization before. They have good conversion techniques.

5. Customer Retention: Segmentation doesn't stop at acquisition; it's also valuable for retaining customers. You can create retention campaigns that address the unique needs and challenges of different customer segments.

Types of Segmentation

Segmentation can take many forms, and your approach should align with your specific marketing goals and target audience. It would make sense for a clothing store to think about their customers by physical size while a tech company might think about their customers by increasing tech-savviness.

Here are some common types of segmentation:

1. Demographic Segmentation: Groups are divided based on demographic factors like age, gender, income, and education level.

2. Geographic Segmentation: This categorizes audiences by location, which can be as broad as global or as specific as ZIP codes.

3. Psychographic Segmentation: This looks at the psychological traits, values, and lifestyle choices of your audience. Are they adventure seekers, frugal shoppers, or environmentally conscious?

4. Behavioral Segmentation: Here, audiences are segmented based on their past behaviors, such as purchase history, website interactions, or response to previous marketing efforts. This combines well with psychographic information for powerful insights.

5. Firmographic Segmentation (less common): In B2B marketing, this type categorizes businesses based on factors like industry, company size, and revenue.

Read more about kinds of customer data in this post below:

Segmentation Best Practices

To effectively implement segmentation, consider the following best practices:

1. Start with Clear Goals: Define your marketing objectives. What are you trying to achieve with segmentation? This clarity will guide your efforts.

2. Collect Quality Data: Segmentation relies on accurate data. Invest in data collection and management to ensure the information you're using is up to date and reliable.

3. Regularly Update Segments: As your audience evolves, so should your segments. Regularly review and adjust your segmentation criteria to stay aligned with your audience's changing needs.

4. Test and Refine: Don't assume your initial segmentation is perfect. Test your campaigns and analyze the results to make necessary adjustments.

5. Avoid Over-Segmentation: While detailed segmentation can be beneficial, it's possible to overdo it. Too many segments can make your marketing efforts overly complex and challenging to manage. It doesn’t help you at all to have a segment devoted to “Middle-aged men in the Bay Area who like dogs and compulsively check Scientific American” unless you actually have content and a journey specific to that group.

For more in-depth information on these items, check out the linked articles within each category.

Conclusion

“The Average Human Has One Breast and One Testicle”

—Des MacHale (Mathematician)

When doing both business analysis and marketing planning, you shouldn’t treat your entire customer base as a monolith.

Different parts of the group have different wants, needs, and motivations.

Your marketing and strategy should reflect those differences.

You’ll often hear “Don’t miss the forest for the trees,” but remember not to miss the trees for the forest either.

---

Check back in for future posts about different segmentation processes and how to implement it within your company.

1. For a full accounting of all the reasons why pie charts are bad, see this post here