Building Customer-Focused Products: An Insider’s Guide to Market Research, is a series compiled by product owners with decades of experience in creating and launching successful subscription products.  The series is full of specific tips, checklists, examples and tools as well as best practices and foundational knowledge that will help you select the suppliers that are the right fit for your business.

This series is written with the beginner in mind.  The content is explanatory and foundational, designed to give someone new to product leadership the practical tools necessary to build a product in a timely and efficient manner.

Building Customer-Focused Products: Market Segmentation

What is Market Segmentation?

Market segmentation is the practice of dividing existing customers or prospects into groups based on some set of commonalities. The main goal of segmentation is to identify where the greatest opportunities and risks are in your business.  Examples include segmenting individual subscribers by age, income, education level and sex.  Business subscribers are often segmented by line of business, title and job function of a subscriber.  Any type of customer could be segmented by type of subscription, length of time subscribed or geographic location.

As subscription businesses, we serve many markets.  We serve buyers – who may be providing a service (such as libraries) or gifting a subscription to another, subscribers who buy and use our products, and advertisers.  The metrics and recommendations in this article can largely be used to research any type of market, although the examples throughout focus on the Buyer + User.

What Can Market Segmentation Achieve for Your Business?

• Customer segmentation has the potential to allow marketers to address each customer in the most effective way. Using data available about your customers (and potential customers), a customer segmentation analysis allows marketers to identify discrete groups of customers with a high degree of accuracy based on demographic, behavioral and other indicators.
• Market Segmentation tells you how big a current or potential market is in terms of the number of people or businesses in it, which you can use to make assumptions about revenue potential.
• Market Segmentation can provide characteristics, such as age, that will indicate the best way to market to that segment (e.g., mobile-enabled offers for subscribers under age 30).
• Market Segmentation enables you to manage and track your business smartly, effectively and supports your efforts to focus on your most profitable market segments.

Must-Know Customer Segmentation Questions

“Who are your best customers?” is a logical question for investors, board members or even new hires to ask. But – what makes a customer “best?”

Is it that they’ve been subscribers for a long time, or that they just spent a lot on a special product we offered?  What if they’re our top customer in terms of how much they spend every year, but have been reducing that spend every year for the past five?

The best way to solve this dilemma is to be prepared with one of the answers – ideally the one that gives the most meaningful (if not the most positive) information about your business.  If you have the time and inclination, run several options, but don’t think you must.

Those asking the question are usually looking for a directional answer, and proof that you’re on top of your business. Deliver a concise, confident response and you win

While you may be asked incredibly detailed questions about your market, the following are the questions you’re most likely to be asked, and most expected to be able to answer:

How Do I Get Market Segmentation Data & Information?

It’s easier than it sounds!  The following is a step-by-step workflow to gather the answers to the questions above:

1) List your data sources.  Make a list of all the systems you have for prospecting and keeping track of customers. This may be systems you use for subscription billing, accounting and any marketing mailing lists you have.  Paper files will be hard to work with, but if you have even a bunch of Excel spreadsheets you can coordinate data fairly easily.

2) Gather the data. To do this, you should perform an “Export” of the complete list of the businesses or individuals in each file, along with all the data that goes with each record.  Choose to export to Excel if possible, and to a .csv file otherwise.  Not sure how to do this?  Investigate your online system help tools or get in touch with their support team.

Tip:  Be sure to perform this process separately for subscribers and advertisers!  You may want to know how many of your advertisers also subscribe, or vice versa, but not now.

3) Consolidate Data/Step 1: Bring Data Into Separate Sheets/Tabs in One Excel File. Files from different systems will each open a new Excel document and export the data there.  You will need to cut-and-paste the data from each file into separate tabs in a single Excel document.

4) Evaluate Data.  Review each sheet of data to see what you have, and how it’s configured.  You may have the subscriber’s name in each spreadsheet, but it could be collected in two separate cells as First Name/Last Name, or both first and last name could be in one field.  You may have an exact age for an individual (or number of employees for a business) from one source, and a range from another.  You may also find that there are garbled, incomplete or nearly blank records.  Get a sense for what you’re working with, then proceed.

5) Lay Out Your Master Spreadsheet.  Now that you know what data you have available, you should create a master sheet/tab in your Excel document.  This is the one where you’ll consolidate all your data into one “360-degree view” of your customer.  Based on what you learned in your investigation so far, create column headings based on a balance of the data you want to include, and how easy or difficult it will be to put it in the order of the columns you create.

Tip:  Make sure you have one column for Last Name or Business Name, in order to find and consolidate duplicate records later in the process.

Only after you’ve 1) gathered all your data sources into Excel, 2) reviewed what data you have to work with, and 3) understand what data you want to use in your evaluation do you begin consolidating the data into a single spreadsheet.

6) Consolidate Data/Step 2: Reconfigure Data on Each Sheet. Beginning with the first spreadsheet of exported data, reconfigure the data columns to best reflect the columns of your master spreadsheet.  Complete this work for each data source spreadsheet you have.

7) Consolidate Data/Step 3: Remove Duplicates and Consolidate.  Now that all the records are in a single Excel sheet, you’ll need to combine information that pertains to one subscriber from your many sources into one record (or row in Excel).  To do that:

1. Sort the spreadsheet by Last Name or Business Name.
2. Identify duplicates.
3. Consolidate information from duplicates into one row.
4. Delete the other duplicate rows.

Now, you’re ready to sort and filter these records using Excel tools, to discover the most significant characteristics of your current subscriber base.  But what if you don’t have any data on these customers other than their mailing address – maybe even just their email address? We address that next.

How to Find More Information About Your Customers

Here are three ways to get the information you need to understand who your customers are:

• Look it Up.  Google your customer and look at Facebook, LinkedIn or White Pages to get limited information on age and family situation, or go to a business website to get the number of employees and type of operations.  While cheap in terms of money this is, unfortunately, an extremely time-consuming way to gather information. This is perfect for a small data set or perhaps an internship project.

• Send a Survey.  Survey Monkey is an easy, free tool to create a customer survey.  There are many ways to use Survey Monkey, but in this case, a quick “we want to know more about you!” survey to customers for whom you have email addresses would be the cheapest and fastest way to get important demographic data.  (See our Customer Survey’s Done Right article for more information on creating surveys and survey tools.)

• Money Well Spent:  If you have $1-3 per customer to spend, consider adding to your own customer data with details from an information firm such as Dun & Bradstreet (if you sell to businesses) or Acxiom (if you sell to individuals).  This is the fastest and most accurate way to learn important details about your markets that will help direct your marketing efforts and understanding of who your best – and most at-risk – customers are.

Examples of Information Available from Information Services Companies:

Tip:  Don’t forget to track acquisition sources for use in your segmentation.  For example: Keep track of whether a subscription was bought as a gift!  This information is very valuable – you can market not only to the gift-giver market but also to the gift-receiver market.  So you may market your fantasy football league to men aged 18-34, but also to women of those ages (or about 25 years older, with sons) to give as a gift.

Market segmentation is critical for understanding how your business, your programs, your products are working.  It doesn’t take a big budget and it doesn’t require a PHD. It does require that you start and the best companies figure out what they want to track and monitor changes over time.  They key thing is, to get started!