Can You Get Away Without Customer Segmentation?

Pie chart with segementsIn a recent blog post, we described how to create, use and adapt customer segments as part of a Lean Startup approach. Since then we received a few requests asking whether it would be possible to get away without it. After all, all that research and talking to prospects and customers takes up a lot of time. Let’s have a look at what you might miss out without customer segmentation.

The Problem

There are about 7 billion people on this planet. Unless you find some Martians or other beings in outer space, this is the maximum number of humans that you can sell your product or services to. Add to that the hundreds of millions of businesses, government organization, charities, churches, non-profit and other organizations. Wait a second. We just created segments. Without segments we wouldn’t care whether we are selling to individual consumers or to organizations.

And that is where the problem starts. If you don’t know (or don’t care) whether you are marketing or selling to an individual consumer or to an organization, then how would you approach your target market? Perhaps you run ads in social media, on TV, the remaining print media or other more classic approaches. The problem is, that if you don’t know who you sell to, your message would need to be a catch-all. As a result your message will be diluted. The audience, regardless of whether it is the individual consumer or an organization, won’t realize that you are talking to them. Your credibility will be impacted as well.

How can you make your message more effective?

It all starts with a problem for which you have a solution. You need to validate that this problem really exists, and that it causes enough “pain” so that people are looking for a solution. You need to validate that your solution is not only a viable solution for the problem but that it is a better solution than all the other options, including not doing anything about it at all. If you don’t know about the problem and you don’t know about the solution, then what would you talk about with your customers?

Next, you need learn more about the group of people or organizations that have this problem and see your solution as the best option, and – this needs to be validated as well – they are willing to pay for it. Perhaps you will find that your solution works best for consumers, but that is still too broad. Perhaps you need to narrow it down to dog owners, perhaps people who own a particular breed of dogs or size of dogs. Your product may be compelling to all those who own a golden retriever. You will need to know whether the golden retriever population is higher in particular countries or parts of the country. For example huskies are a breed that is less suitable for a very hot climate.

Once you have this and probably even more detailed information, you might think that you are finished already. Let’s assume you have a product that works for dog owners. Do you have enough money, time and people to then engage with potential customers all over the world? Unless you have millions (or perhaps billions) of dollars in your marketing budget, you will need to identify in which geography you want to start marketing and selling your product. It is easy to see that marketing a dog product to someone who lives in a city like London is quite different to selling the same product to a gigantic sheep farm in Australia.

Depending on who you target with your product or service, your message will be more effective if you cater more to their specific needs and preferences. The Lean Startup approach, which includes a large amount of validation (or feedback loops), is intended to learn as much about your target audience as possible. With customer segments you will be able to focus your scarce time and money on a small fraction of the overall market. Your message becomes clearer and more effective. Nothing keeps you from adding more segments over time as you see fit. Again, the Lean Startup approach fosters this kind of learning and adaptation based on data and analysis.

The Answer

Yes, theoretically you could get away without customer segmentation. How successful would you be? Give it a try. However, if you want to build a successful business, it pays off to create segments so you can focus your scarce resources on the most promising segments. You can always adapt or add more segments later.

Posted: Monday, August 4, 2014 12:31:07 AM UTC