Every business at every stage must be able to answer two questions:
- What do you want?
- Who is your customer?
I’ve written about vision recently. Vision is essential because it focuses your attention. Where you focus your attention creates your world.
Knowing your customer is also essential. But surprisingly, in all their day-to-day busyness, companies can easily forget exactly who they are trying to serve.
The art and science of customer segmentation can get a bit complicated, but there’s a simple framework I’ve been using with enterprise, SMB, nonprofit, and startup clients for the past few years that seems to work well to sharpen thinking and provoke new insights.
If you’re an entrepreneur planning a new phase of growth, I suggest using each of the four filters below to identify your current or ideal customers. List the possibilities for each one, cluster any groups that naturally go together, and prioritize where and how to focus your energy.
The Four Filters
- Demographics
- Psychographics
- Occasions
- Categories
Demographics
Demographics cover basic objective data about your customers, including their gender, location, and economic status.
Almost all enterprises know this information cold. By contrast, many small business owners don’t articulate this precisely for themselves. But it’s useful to get really specific here; it narrows your focus and highlights things you might not otherwise see.
Tip: Everyone at first thinks their customer is “everybody.” Move quickly out of that trap.
Psychographics
Psychographics refer to your customers’ values, wants, and needs.
To be honest, many companies are terrible at this kind of segmentation. Asked to describe their target customers, they respond with some version of: “People with a vague spiritual ache that can only be met by our current offering exactly as it is today.” Their error in other words is projection, seeing others through an overly subjective filter.
Good psychographic profiling requires data—quantitative data—about how your customers experience the world from their point of view. Luckily, many people know how to do this kind of research, and if you’re in a mature category, there are often freely available reports that can help get you started.
If psychographic research is new to you, never fear, simply start with your best assumptions about what your customers value and find smart ways to test those assumptions.
Tip: Avoid projection. Get data.
Occasions
Some situations create their own customer segments, where the usual demographic and psychographic differences between people cease to matter as much. People standing in line at the post office tend to behave like people standing in line at the post office. Planning a wedding, searching for a divorce lawyer, or finding a last-minute table for four with no reservations are all occasions that generate their own set of predictable human behaviors. (Occasions are also sometimes referred to as “use cases” or “jobs-to-be-done.”)
If you’ve been running your business for a while, you probably have a good sense of how and when people come to use your services. Write down these different occasions, and try brainstorming some new ones.
Tip: Occasion-based profiling can often unlock some powerful new ideas about how to market your business or extend your product and service offerings.
Categories
And last, most mature categories have deeply entrenched expectations that, in a behaviorist way, create their own ready-made customer types. If your business doesn’t meet those pre-existing expectations, you must call out those differences and spin them as positives—or else commit to adding the services and features that your customers expect. Example: an urban coffee shop that does not offer wi-fi could explicitly or implicitly market itself as a place for in-person socializing and personal connection, free from digital distraction. Or it could invest in wi-fi because that’s what most customers expect.
Tip: Compare your psychographic targets to the expectations for your category. Anything that makes you different must be a plus to the customers you are trying to reach.
Christopher Scollo says
The “Occasions” aspect reminds me of the “jobs-to-be-done” concept of product marketing, in which the focus is less on who the customer is and more on what problem the customer is going to use your product to solve. Here’s a great explanation: http://hbswk.hbs.edu/pdf/item/6496.pdf
Mark Gibson says
Thanks Chris! Yup — a very similar idea. I’d forgotten about this article, but it’s a really good one. I love the anecdote about “hiring a milkshake.”
Two differences I can see… not sure if they are important or subtle…
1. I find the word “occasions” useful since it focuses attention on the extrinsic motivations for the jobs-to-done, as opposed to the so-called intrinsic ones. (Many organizations have long histories using traditional demographic and psychographic profiling — the switch in perspectives that shakes things up is to look at context as opposed to personas.)
2. The Christensen article on segmentation talks about research-driven insights, whereas mine talks about generating new strategic hypothesis. To keep things simple, I didn’t go into this in my original post, but clearly both activities are essential… an organization needs hypotheses to test about its segmentation, and then a way to test those hypotheses. The two activities fuel each other, but they are quite different, each with its own tools, processes, and critical questions.