To answer this question, let’s break it down into smaller parts and address each one.
- How to define user segments:
Defining user segments involves identifying groups of people with similar needs, preferences, or behaviors. This can be done through various methods, including:
– Demographic segmentation: dividing people based on age, gender, nationality, etc.
– Psychographic segmentation: dividing people based on their values, interests, lifestyle, etc.
– Behavioral segmentation: dividing people based on their actions, such as purchase history, browsing behavior, etc.
However, demographic segmentation is often considered too broad and not very effective. A better approach is to focus on specific pain points or needs that a group of people share.
- Criteria for identifying customer segments:
A good customer segment should be:
– Homogenous: people in the segment should have similar characteristics
– Targetable: the segment should be easily identifiable and accessible
– Self-referencing: people in the segment should recommend products or services to each other
- How to prioritize customer segments:
Prioritizing customer segments involves evaluating their attractiveness and business strength. Segment attractiveness can be measured by factors such as compulsion (how strong is the need), size, growth, competitors, and entry barriers. Business strength can be measured by factors such as capability, credibility, distribution, and alignment.
Segments that are both attractive and easily winnable are the best bets. As a second priority, choose either the most attractive (big bets) or most winnable (minor optimizations) ones. Ignore the rest.
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A 4-step customer segmentation framework:
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Find a unique need or pain point shared by a group of people
- Understand what people in this group value the most
- Discover how much these people are willing to pay for things they value the most
- Prioritize customer segments by comparing segment attractiveness with your business strength
When in doubt, subsegment further. It’s very rare to define too narrow a segment. More often than not, people define broad, unactionable segments.
By following these steps and considering the criteria mentioned above, you can create effective customer segments that help you tailor your product or service to meet the specific needs of your target audience.