Defining a target group and breaking it down into segments is one of the first things you will need to address during the early days of your startup. Not only does it help you build a better product, but it also narrows down your marketing efforts.
And while customer profiling and segmentation seem obvious to most, many struggle to do it effectively. A lot of business leaders are out of touch with their audience since they spend most of their time building the product. They fail to understand their wishes and needs and struggle when it comes to marketing.
This results in a gap between the two parties. Since companies are unable to create a bond with their audience, the latest will search to fulfill their needs elsewhere.
To avoid finding yourself in this difficult situation, it is important to know who you are trying to help. The following chapters will outline the process you need to follow to create a customer profile and further delve into segmentation practices.
Customer profiling and segmentation - What's the difference?
To better understand the differences and similarities between the two terms, we will need to compare them side by side.
Customer profiling vs segmentation
Customer profiling, is the process of defining the ideal customer(s), based on a set of unique characteristics. This includes information on their demographics, behavior patterns, geographic location, and interests. The most popular way of defining your customer profile is by creating buyer personas - semi-fictional characters that will be explained in further detail in the following chapters.
Customer segmentation, on the other hand, is all about splitting your existing customer pool into more specific subgroups. Each of these smaller groups shares unique characteristics based on information collected from existing data. The data is often gathered through email marketing and CRM tools (more on this below).
In short, utilizing customer profiling and segmentation helps companies understand who they are selling to. By combining the two practices, businesses are able to make better decisions, provide more personalized customer support, and increase customer loyalty.
How startups can benefit from customer profiling and segmentation
- Early-stage companies can build, test, and launch products that identify with their audience.
- Marketers can create targeted promotions for a particular segment of their customer base.
- B2B companies can create personalized sales pitches that convert better.
- Product development team(s) can build several product variations that serve different segments.
- Marketers can reposition the product in a different market to differentiate the brand from its competition.
- Founders can establish cross-departmental alignment; marketing, sales, product development, and customer support are all addressing the same customer profile(s) and are thus able to communicate more effectively.
How to create a customer profile
A product or service can have more than one ideal customer. Obviously, the more specific and targeted you are in your approach, the better your results will be. In this chapter, we will outline the steps you need to take to create a buyer persona that reflects the profile of your customer.
Step 1. Brainstorm and research
Brainstorm and research go hand in hand during this first step of the process as they will lay the foundation for the work that is to follow.
Organize brainstorming sessions
When it comes to brainstorming, you'd want to host short meetings with your team to discuss all the potential applications of the product you are building:
- What problem does the product solve?
- Who has this problem and how can they benefit from its resolution?
- From all the options, where do we see the most buying potential?
Let your mind roam free and try to create an abstract idea of your ideal buyer. You don't need to dig very deep at this point.
Confirm through research
Once a general idea is built, it's time to do research. This process may be a little less exciting but will help you solidify the assumptions made during the brainstorming session.
Explore target group communities
Search for social media communities and forums where your audience interacts and see which channels used most often. It might be wise to explore the most engaging posts to get a better understanding of the customer pain points.
Assume you are selling commercial coffee machines. What you would need to do here is try to discover the most prevalent challenges, as well as the elements that are most important. In other words, you are trying to better understand what your audience wants. The answers will help you define the ideal customer even further (e.g. Baristas of mid-sized cafes prefer coffee machines with three groupheads).
Explore your competitors' content
Check what your competitors are writing about and try to understand what type of customers they are targeting. Then, use SEO tools like Ahrefs to better understand how their strategy is performing.
After exploring your top competitors, you notice that different brands target different audiences. Company A is targeting coffee enthusiasts and baristas, while company B is focused on cafe owners. After analyzing their traffic and performance, you notice that company B is performing better than company A. It might thus be better to target an audience that is similar to your best performing competitor (company B).
Find the gaps and fill them
What do other companies fail to see that you could (hypothetically) use to position your product? In order to navigate your way through all the existing information, you will need to have a high level of expertise in the industry you are serving.
After exploring your top competitors and skimming through social media groups, you notice that a large number of cafe owners dislike the way portafilters are currently cleaned. According to them, the loud knocking noise irritates the customers. Knowing this, you could add a rubber sleeve to the handle, which in turn will decrease the noise (address the pain point) and satisfy the ideal customer.
Step 2: Identify customer goals
Your potential customers are buying your product(s) to achieve one or more goals. These can be specific targets (e.g. making 4 coffees simultaneously), or abstract fulfillment (e.g. make customers happy). If you are not very experienced in the niche, it might be best to do some qualitative research through interviews with industry experts
Profiling and segmenting example: From your previous research, you know that the main purpose of your potential customer is to buy a great coffee machine. But this is very broad and abstract, so more information is needed. After talking with several mid-sized cafe owners, you break down the main goal into smaller ones that look as follows:
- Goal 1: Provide a coffee that tastes great; unlike the modern, fully automated coffee machines.
- Goal 2: Clean the machine easily, without wasting time or using specialized equipment.
- Goal 3: Serve customers as fast as possible to maximize their profit. Having a better understanding of your customers' goals, you can now ask the most important question: Can my product help the target audience achieve one or more of these goals?
If the answer is yes, you have a product-market fit and are ready to create your buyer persona.
Step 3: Create a buyer persona
As we mentioned above, a buyer persona is a fictional character that represents the ideal customer. They are very useful when it comes to customer profiling and segmentation.
When creating a buyer persona, try to be specific. Use demographic and psychographic criteria to describe them in detail. Here is an example of how the buyer persona of the commercial coffee machine brand would look like:
As you can see, the buyer persona has a particular age, sex, and even a name for reference.
- Age: 38 - The age represents the generation of the buyer persona. Different generations use different communication channels, and generally prefer a particular tone of voice.
- Mid-size cafe owner - This information limits all promotional strategies to entrepreneurs of their financial status. A small cafe owner would probably choose a cheaper option, while the owner of a franchised location will have to buy a specific machine.
- Has excellent knowledge of coffee - As an experienced barista, the cafe owner will be looking for a very specific type of information online. When you define the level of industry expertise, you know how to adjust your marketing strategies and the content on your website.
- Values quality more than quick profits - One of the above goals was to provide a coffee that tastes great. While there are many low-priced machines that produce average coffee, this particular customer is willing to spend a little more if it means that the production process is superior.
- Likes to read industry news and participates in barista contests - This piece of information can further narrow down your marketing efforts. For example, knowing that your potential customer participates in barista contests, you could organize your own contest or sponsor the best baristas in a particular geographic area.
Now we know who "John" is and why he is important. The more detail you add to the description of your buyer persona, the easier it is to decide how your marketing strategy will look like.
How to segment your audience
As soon as you start to build a customer base, you will notice that not every "ideal" customer is the same. This is where segmentation becomes useful. By breaking down your list of (potential) customers into smaller sections, you will be able to send more targeted promotional strategies.
Customer segmentation criteria
The criteria for segmentation can vary. Usually, segments are made based on:
- Geographic location
- Buying behavior
Customer profiling tools
One customer can belong to multiple segments, all of which are defined and organized with the help of CRM software (like Salesforce and Retail CRM Cloud), or email marketing tools (like Mailchimp or Mailerlite). When it comes to startups, email marketing tools will most likely be your choice of preference. If you already have some basic knowledge of Mailchimp, you can check this video to get started:
Example of customer segmentation
In our previous examples, we identified "John" as the buyer persona of a commercial coffee machine brand. Following the development of its marketing strategy, the company starts to attract their "ideal" customers and make its first sales. After a while, the team decides to analyze the buying behavior of all their subscribers and split them into three categories:
The three segments above are split based on buying behavior, and look as follows:
- Inactive potential customers - This is the group of people who signed up to a newsletter but neither opens their emails or purchases products. They have lost interest in the brand, and are probably in the list due to prior contest participation or as a result of a lead magnet download. These customers will need to be addressed separately, using a reactivation campaign.
- Active potential customers - These customers are interested in your emails but have not yet purchased your product. They either feel hesitant or explore different options in the market. The brand will attempt to convert them using an irresistible offer, like a large discount or a free gift with their purchase.
- Customers - The actual customers - those who purchased a coffee machine - will need a different form of communication and marketing promotion. Since they already bought the coffee machine, they would probably benefit more from offers of related products, like cleaning tablets, push tampers, or coffee bean grinders.
Segmenting based on buying behavior is very common when it comes to companies that emphasize email marketing. If you are building a digital product, behavior-based segmentation will be very useful, especially if your product has a freemium model (or a free trial).
Customer profiling and segmentation is essential for startups that want to build a loyal customer base. Following the steps above, you should now understand that both buyer personas and segments are used to build more targeted offers for your audience. And there are many reasons why you may want to do this:
- 91% of consumers are more likely to shop with brands that provide offers that are relevant to them.
- 72% of consumers only engage with personalized messaging, no matter which communication channel is used.
If you are part of an early-stage startup, don't wait on this one. Gather the team and make sure everyone is on the same page when it comes to your ideal customer. Doing so will increase the chances of long-term success.
Frequently asked questions
How do you know if you have a product/market fit?
Product/market fit happens over an extended period of time, when testing your MVP product with different segments of your target audience. The first version of your product will most likely not be the final one, and knowing where to improve will require feedback from users and extensive data collection. So, how do you get product/market fit? It’s simple. When the market is fully satisfied and accepting of your product. For further reading and learning how to go about this continuous testing process, make sure you read The Lean Startup, by Eric Ries.
What does market fit mean in the context of audience segmentation and profiling?
Product/market fit means that a certain segment (or targeting customer profile) accepts the latest version of your product and is fully satisfied with it. By understanding what is customer segmentation and profiling, you will be able to split your audience into different categories and create buyer personas, which will be used to further specify your product offering depending on the person you want to attract.
Why is product/market fit important when it comes to segmentation strategy & profiling?
Customer segmentation profiling helps a company better understand which part of the audience has the highest preference for a particular product. In many ways, finding a product/market fit happens before the segmentation process starts.
- Defining your product’s potential in the market depends on industry-wide data and the profiling only comes afterwards, when more internal data is collected.
- Without first exploring the potential of your product, you would not be able to segment your audience afterwards.
What are some additional customer profiling and segmentation tools?
When talking about customer profiling segmentation, there are two types of tools that can be helpful. As we described above, these are (1) CRM tools and (2) email marketing tools. Both of these types of software collect data from existing and potential customers, allowing you to better understand who they are, what they do, and what types of products they choose to buy. Based on this information, you are able to create segments. Here are some more tools you can explore:
- CRM tools include Salesforce, AgileCRM, Hubspot, and Commence CRM, etc.
- Email marketing tools include SendInBlue, GetResponse, AWeber, Omnisend, ConvertKit, etc.