In the vast cosmos of business, growth shines like a distant star, beckoning companies toward success and prosperity. Amidst this celestial journey, businesses seek a guiding light to navigate the ever-expanding universe of opportunities. This guiding light is segmentation. Like the North Star or Southern Cross, it leads businesses to prioritize their efforts, allocate resources strategically, and chart a course toward sustainable growth and profit as found in a Bain & Company study, 81 percent of executives say market segmentation is a critical element for increasing profits.  Yet only 25 percent of the respondents believe their companies use it effectively. From the same study, over a 5-year period, organizations with great customer segmentation had 10 percent higher profit than organizations whose segmentation missed the mark.

Even large companies fail at segmentation, losing millions and billions of dollars. This is not a “where man has never gone before” scenario. Over the course of 25 years, we have helped many companies de-risk segmentation initiatives. This edition of What’s Your Edge is focused on helping you do the same.

Segmentation enables you to divide the vast market galaxy into distinct clusters, each representing a set of specific target markets and customers. There are many merits to segmentation, these three are the most notable:

1. Improving Customer-Centricity: By understanding the distinct needs and preferences of each segment, companies can tailor their Marketing, Sales, Product, and Customer Success efforts to engage and better serve their prospective and existing customers.
   
2. Fueling Growth Trajectories: Segmentation serves as the cosmic fuel that propels businesses toward growth. Companies can ignite their growth trajectories by focusing on the most promising segments, maximizing revenue and market expansion.
   
3. Staying Stellar Against the Competition: You’re not alone in the universe. Segmentation empowers your business to stay ahead of the competition. It enables you to identify untapped opportunities, outshine rivals, and carve a unique niche in the market.
   

Imagine the business universe as an infinite expanse, with countless stars representing diverse customer groups.  You cannot reach them all. How do you decide which ones to pursue? That is the purpose of a segmentation model.

Unveiling the cosmic phenomenon of segmentation requires a systematic approach and the right tools. Let’s look at three of the most important steps to creating a systematic approach and model.

1. Identify Favorable Customer Constellations: Since it’s impossible to explore the entire galaxy, it’s best to begin by understanding what customers or markets have needs or opportunities you can meet and what constitutes a good customer for your company. This step requires you to derive insights from your data regarding customer demographics, needs, preferences, and buying criteria. Customers and markets that have needs that match your criteria for a good customer are you’re most viable opportunities.
   

• 
  
  • Let’s create a hypothetical example. Imagine your company offers an affordable AI API for software companies that have their software developed in JavaScript, Python, and SQL and use GitHub for software development and version control.  You offer implementation support and tools, a developer community, and are hoping to license the platform. Your company is also seeking implementation partners and considering how your company might white label your offer.
    
  • After completing your research, you identify at least five verticals, each with at least 100 prospective customers, that would benefit from integrating AI into their software to improve customer experience and outpace the competition and meet your criteria.
    
  • You have identified favorable opportunities. Now to the next step.
    
  
  

2. Determine Access Routes: Once you have an idea about which customer constellations present good opportunities, your next step is to determine whether you can actually reach and engage with them. That is, are they accessible to you. In thinking about it, you decide accessibility might be based on whether you have existing partner relationships in the verticals, the amount of domain expertise your organization has in the verticals, whether you have any existing customers you can point to, and whether any competitors are entrenched in any of the verticals and if so to what degree and how hard or easy it might be to challenge them.
   
   • In our example, after researching each of the potential vertical clusters, based on the accessibility analysis, you determine that you have the best chance of accessing three of the verticals.
     
   • Now that you have a general idea of which constellations to pursue, it’s time to home in on the stars.
     
   
   

3. Discover Stellar Customer Clusters: While in the same vertical, prospective customers in each vertical are not identical. After you’ve identified the potential verticals, the next step is to gain additional insight into the specific prospective customers.  You want to group these prospective customers within your verticals into distinct and unique clusters based on shared characteristics and needs.  Even though the verticals are different, you might find similar clusters of customers within the three verticals. This step will enable you to do more precise targeting and personalization.
   
   • In our example, we might discover four common customer clusters across the verticals. For our purposes, we’ll name these four clusters:
     
     • In-House Development Teams that are seeking an AI solution that provides robust APIs, integrations, and tools to extend and will help customize software to fit their unique requirements.
       
     • Independent Software Vendors (ISVs) who are looking for an AI API platform that offers white-labeling capabilities, flexible licensing models, and support for third-party integrations to enhance the value of their products.
       
     • Consultancies and System Integrators seeking an AI API platform that allows for easy customization and integration with existing systems.
       
     • Freelance Developers and Startup Companies who are looking for an AI API platform that offers affordable licensing options, a supportive developer community, and tools to rapidly prototype and deploy solutions.
       
     
     
   
   

You analyze the number of prospects in each cluster, the potential of each cluster in terms of revenue growth opportunities, and the market impact, and decide to pursue the first three.

Wonderful. You have a systematic approach and you have developed a segmentation model that you can refine as needed.

These are the three primary steps in the segmentation process. Of course, that’s only the beginning of the journey.

Next up:

• Determining the recommender, influencer, and buyer roles and personas for each cluster
  
• Defining the customer buying journey
  
• Crafting tailored strategies, initiatives, and touches for each prospective customer in each segment that will attract and engage them and move them through the buying journey.
  

You’ll be able to gather data along the way as to how well the model is working and what changes are needed.

While there’s no guarantee that you will gain traction in the segments you choose, if you are facing a vast expanse of business possibilities, segmentation serves as the guiding Star, that will lead your company towards growth, success, market leadership, and beyond. By dividing the market universe into distinct and unique segments and identifying the best customer stars, your business can navigate through the cosmic challenges, targeting your efforts and resources precisely.

We have deep expertise in helping companies:

1. Build a model for current, and future, expansion evaluations.
   
2. Identify segmentation criteria.
   
3. Determine ranking and weighting for the criteria.
   
4. Choose the best expansion candidate(s) based on an accessibility/opportunity quadrant.
   
5. Identify and reduce brand, ecosystem, and competitive risks in the chosen expansion area.
   

Have questions about market or customer segmentation? We have great answers. 

Our Market and Customer Segmentation Workbook. Backed by 25 years of experience, this interactive and highly affordable workbook will help you:

• De-risk your segmentation strategies.
  
• Enable you to make confident and profitable segmentation decisions.
  
• Provide a model for current and future segmentation initiatives.
  

Buy Your Best-Practices Workbook