How Much Clarity Do You Have in Your Segmentation Strategy?

Note: See my previous post in a series on market segmentation: “Hypotheses Building: The Hardest Part of Segmentation“

If you have read OpenView Labs’s posts on market strategy before, you know that for our expansion-stage portfolio companies, we place utmost importance on having razor sharp focus on the right customer segment. In our work with the portfolio companies, go-to-market and product strategy development invariably starts with a review of the segmentation strategy, and judging from the number of vigorous discussions we have had on this topic, pinpointing the right segmentation strategy has never been a simple walk in the park for any company at any stage.

Articulating and Aligning Your Customer Segmentation Strategy Development

Having a good customer segmentation strategy actually requires that many building blocks be in place. In a previous post, I explored the challenge of building the right segmentation schemes by developing and testing hypotheses on the drivers of needs that differentiate one segment of customer from another. That is the key to building a truly effective segmentation scheme, but that is just the first step. To put this segmentation to use, these segments also need to be evaluated so that the most attractive segments for a company can be identified and then mapped against an action plan that allows the company to focus its resources in a meaningful way and win customers in those segments.

Throughout each of these steps, the company needs to not only understand its target customer segments inside out, but to have confidence in the data and research methods that support the segmentation choice, and be able to communicate its value proposition as clearly and consistently as possible to both its internal and external stakeholders — its employees, partners, investors, customers, and all relevant market players.

This is what I would consider having the desired “clarity” in customer segmentation strategy development. To really get to the bottom of this concept, let’s try answering a few questions around your segmentation strategy. This shouldn’t be difficult — the answers do not have to be exact, nor there are absolute right or wrong answers. Instead, these questions are meant to let you self-examine your strategy and evaluate your own “clarity” on your segmentation choice and strategy.

Can You Articulate the Following about Your Company’s Top Three Target Segments?

• Definition of ideal customer in that segments enough for you to understand who they are and what their problems/needs are
• A market value (true dollar potential) associated with each target market segment
• A description of each target market segment that indicates WHY they buy (or would buy) your company’s product
• A list of prospects or customers in each target market segment
• A list of competitors in each target market segment

 Can You Articulate the Following about the Other Segments in Your Market?

• Definition of customers in those segments clear enough for you to identify them
• A market value (true dollar potential) associated with each target market segment
• A rationale for why customers in those segments should not be in your top three segments

Additional Questions to Answer

• Did you use primary or secondary research to make your segmentation decision?
• How different are the top three target customer segments in terms of their needs?
• Do these segments make up more than 30% of the total addressable market?
• What percentage of customers in the top three segments can you identify using the definition described above?
• What percentage of customers in the top three segments is in your customer base or in your CRM?
• Do each of your product, sales, marketing and customers service departments adopt the same set of information on the targeted and non-targeted customer segments?

Elements of Your Go-to-Market Strategy You Need to Tailor to Your Customer Segments

• Messaging
• Target Audience
• Marketing Channels
• Sales Models
• Pricing Model and Level

Elements of Your Product Strategy You Need to Tailor to Your Customer Segments

• Product Bundle/Packaging
• Professional Service Level
• Customer Service Level

Not Done Yet: Two More Important Questions to Ask

Do you have segment-specific business goals for your company overall as well as for each business departments?

How often do you review and refresh your segmentation strategy?

Do you think these questions are helpful? Would you add anything else?