The ultimate guide to audience segmentation

More often than not, when we ask the question, who is your ideal customer or customers, the answer is predominantly ‘everyone’. Some businesses will have developed target audiences to varying degrees of segmentation, and to varying depths of profiling.

Now, each industry, business, product and service is different. Some can thrive with just the very basics of segmentation, while most will require some levels of sophistication. To effectively communicate, engage and drive action, getting your audience segmentation right often acts as the foundation for success.

What are the steps to segmentation?

At some point in our lives, we have eaten or at least seen a mandarin. The sweet citrus orange that starts as one whole piece of fruit, but then once peeled can be split into segments. Well, imagine your target audience is a mandarin, we will use the following steps to split it into distinct segments.

Some we will eat, some we will nurture to grow more and some we will forget.

Step 1. Define your target audience

This is possibly the most commonly known and implemented phase. Here, you identify a broad group of people, industries or businesses you want to reach. For example, a broad target audience could be ‘business owners’, ‘adults, ‘tourists’ or ‘people with a smartphone’.

These are typically large groups of people or businesses.

However, we need to narrow these down to ensure that we focus on the most valuable customers / segments.

Step 2. Define your segmentation criteria

Not every customer is created equal. Some are hard to serve, some will never buy, others will not benefit from your product or service. So, it is important to identify segments based on shared characteristics or behaviours.

The challenge here is selecting criteria that is logical and actionable for your business or industry.

Here are some of the most common criteria you could use:

• Age, gender, location, income and education (demographics)
• Industry, company size, job title (firmographics)

But if you want to cut deeper, there is more sophisticated criteria available too:

• Personality traits, attitudes, values, beliefs, lifestyle, interests (psychographic)
• Customer journey stage, brand interactions, usage patterns, benefits sought (behaviour)

However, these are not the only tools you have in your armour. If you can measure it, you can segment with it:

• Device usage (mobile, desktop, tablet, app)
• Climate (hot, cold, humid, dry)
• Potential (grow, stagnate, decline)

And the list goes on.

Picking a criterion that makes sense, is key though. If you cannot measure it, it’s likely that your segmentation will not cut precisely, leading to mixed results.

Gathering data may be as easy as collecting relevant information from your databases, sales records, marketing reports or past surveys.

Sometimes you may need to conduct research. This is especially important when you’re looking to use psychographics or behaviour patterns to segment.

Step 3. Segment your audience

While the target audience is one whole, it is possible to have many audience segments. It is vital that each segment is unique with distinct characteristics based on the criteria you selected.

So picking up on the earlier examples we could end up with something like this.

Example Target Audience #1: Business Owners

Audience Segmentation Criteria: Industry

• Professional Services
• Construction
• Health and Wellbeing
• Hospitality

Example Target Audience #2: Adults

Audience Segmentation Criteria: Life stages

• Students
• Working Mums
• Retirees
• DINKs (double income no kids)

Example Target Audience #3: Tourists

Audience Segmentation Criteria: Lifestyle

• Backpackers
• Luxury travellers
• Adventure seekers
• Nomads

Example Target Audience #4: Smartphone users

Audience Segmentation Criteria: Benefits sought

• Entertainment
• Connection
• Education
• Online business / commerce

While the examples above only show four segments, you will likely end up with many segments. The list of segments could go on and on.

The key here is distinguishing between each segment with a feature, data point or information available to you.

Many of these segments may not be a priority for you, but don’t worry about that now. In the next step, you will define your primary targets.

Step 4. Decide which segments to target

Not all segments are equal. Some will be easy to serve, some will be hard. Some will have a significant propensity to spend, while others won’t. Some will have their needs met by your competitors, but others will be looking for alternatives.

At this stage, you will get laser-focused on which segments you will focus on and which you will ignore.

To help you do this, you should first identify the most attractive segments. As money talks, you must evaluate which segments are most likely to buy and how often (frequency) with a good margin (price sensitivity).

You could use the Customer Lifetime Value (CLV) formula to help you analyse the attractiveness of your segments:
CLV = (Average purchase value) x (Number of purchases per year) x (Average customer lifespan)

After this calculation, a number of segments are likely to be in the front running, so you should identify patterns and trends for each segment. Look for insights into each segment’s specific needs, preferences and motivations.

• Do any of the segments have unmet needs your product or service can fulfil?
• Is there a feature or benefit that the customer highly values that you can deliver better?
• Or, do you simply understand how to reach this segment better than the others?

Aligning your segments to value propositions you can deliver on, will help you go further in Step 5.

But, if you’re still stuck with a lengthy list of possible segments, perhaps go further and evaluate your competition’s market share or penetration into these. Working out if one segment is fiercely loyal to a competitor may change your opinion on whether they are a primary focus for your resources.

Step 5. Develop audience profiles

If any step was going to be missed, it will usually be this one with many marketers jumping to campaign planning after Step 4. However, without this step, messaging can become vague, impersonal and show a lack of understanding of your customer.

So, at this final step, you need to dig a little deeper and answer ‘who am I speaking to and how do I get them to care?’.

Remember you’ve already nailed the characteristics of the segmentation, so here we ask questions to build a more colourful profile, such as:

1. How do they currently see themselves?
2. What do they want to feel?
3. What kind of person do they want to be seen as?
4. What is stopping them from buying from you?
5. What have they been raised to believe about using your product or service?
6. What have their past experiences made them believe?

By layering your original characteristics with the audience’s psychology, you now know how to identify them and what makes them tick. Paul MacLean’s Three-Part Brain also provides an excellent overview of understanding our subconscious, which we’ve written about previously.

Want to learn more?

When done correctly, audience segmentation can lead to more targeted and effective marketing. Your messaging is hyper-personalised to the needs of your audience segment, and they respond better because they feel seen. Your budgets go further because instead of scattergun marketing, you only spend on those that bring maximum value to your business.

The benefits are plenty, but their implementation is rare.

If you’d like to learn more about our Marketing Blueprint Program, click here and we’ll guide you through this process.