The secret key to growth: segmentation

Although segmentation has existed as a concept for almost a hundred years, it remains an underused tool for growth. The first article on differentiation and segmentation was written by Wendell R. Smith in 1956, though the idea of differentiating based on customer needs had already emerged in the 1930s as competition intensified.

Segmentation means dividing a customer base into smaller groups based on different characteristics: age, gender, geographic location, needs, preferences or behaviour. Which attributes to use in segmentation depends on the industry, the company, and its products and services. Segmentation is often based on "easy" attributes such as age or gender. Yet as early as 1964, it was noted that demographic factors alone are not sufficient: segmentation should also be based also on attributes related to behaviour and values.

Strategically, segmentation is one of the first steps towards successfully positioning a product or service..

B2B and B2C: how does segmentation differ?

Although the basic principles of segmentation are the same regardless of business, type the practical approach to B2B and consumer segmentation differs. The determining factor is the number of customers: in consumer business, customer volumes are typically so large that segmentation can be carried out quantitatively. In B2B, on the other hand, the weight of individual accounts for the business can vary considerably, and there is often insufficient mass for quantitative research. In these cases, segments can be validated through qualitative interviews, for example.

Regardless of the type of business, segmentation should be built in close collaboration with sales and executive leaders, and in a way that aligns with the sales strategy and account management models. It affects not only the sales strategy but the whole company's strategy: who do we serve, and how much do we invest in each customer segment?

How to get started with customer segmentation?

Segmentation, and identifying growth opportunities through it, proceeds in stages:

1. Gather existing hypotheses about customer segments and growth opportunities.
2. Ensure growth objectives are clear and that leadership is committed to them.
3. Form an initial understanding of segments using qualitative customer insight.
4. If customer volumes are sufficient, validate the hypotheses with a quantitative survey; alternatively, validate qualitatively.
5. Analyse the results and define the final segments.
6. Make the decisions related to the growth strategy and, if possible, attach segment data to customer records.