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, 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, taking breaks in between to recharge your mental batteries. Then look at your answers, cluster any groups that naturally go together, and prioritize where to focus your energy.
The Four Filters
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 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.
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.
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.
And last, most mature categories come with their own built-in expectations. If your business doesn’t meet those expectations, you have to 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 market itself as a place for in-person socializing and personal connection, free from digital distraction. Or it could invest in wi-fi.
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.