What are good Criteria for Defining Customer Segments?

The process of defining your customer segments can feel cumbersome, when you want to develop your product.

It certainly did for me. Plus, there is so much wrong about how customer segments and personas are used. You can easily get lost in different kinds of demographics like age and gender or firmographics like number of employees or annual recurring revenue.

You might wonder how customer segments and personas relate. Personas are exemplary representatives of the customer segment to be able to build more empathy. You give them a name and an avatar to reference them easier.

This article is about the importance of a good customer segment definition.

Why we need customer segments in the first place

To evaluate how good the criteria are that we use to define our customer segments, we first need to know what customer segments are there for.

When we create a new product, we first make sure, that customers become aware of if and choose it over its alternatives.

So, our first challenge is our fight for attention. We can win this fight with a very specific marketing message. It must be easy to understand and highly relevant. We can achieve this by understanding the problem of our customers well and getting specific enough with our targeting.

Speaking of targeting: In order for customers to perceive the message, we must first bring it in front of them. We need to know which criteria we can use to target them.

Last, but definitely not least, our product must create more value than the competition. As there is a solution to almost every problem out there, it becomes harder and harder to build the best one. The last resort is to better solve the more specific problem of a smaller submarket.

To be successful as a company marketing and creating this product, we must be on the same page. This is where a well-defined customer segment comes to the rescue. Defining these customer segments poorly can lead to very weird discussions about what our customers need.

When two people think of different customers and argue about their problems, a lot of emotions can come up.

Defining Customer Segments with irrelevant criteria leads to bad results

Customer segments are defined by different criteria. One famous example on the internet is this:

Our target group is:

• male
• Born in 1948
• Raised in the UK
• Married Twice
• Lives in a castle
• Wealthy and famous

This is a very specific customer segment, isn’t it? Well, here are two representatives of this segment:

This is nuts! Prince Charles and Ozzy Osbourne?

How can we craft a marketing message, which resonates with these two guys? How can we tailor a product of higher value than the existing alternatives to their needs?

This sounds like a bad customer segment definition, and for many products it is. People in this customer segment can have so different world views, lifestyles, and jargons.

To evaluate how good the customer segment definition is, we need to put it in relation to a product

Customer segments have to be evaluated in context

While Charles and Ozzy seem to have nothing in common, there might be products which are highly relevant to both of them. They are older males who have enjoyed British food for over 70 years. And they are quite solvent.

So when our product is a new luxury haemorrhoids cream, this segment might hit close home.

Rapid relief of pain & itching – Enjoy your second life in your castle again!

There are other products or services, where this customer segment isn’t as bad as it sounded without any context. E.g., a divorce lawyer or British country style gun cabinets…

And I will add that Ozzy Osbourne will stand out in any customer segment.

Nevertheless, what can we learn from it?

Evaluating the quality of your customer segment criteria

Remember the purpose of the customer segments? Highly relevant to our customers. Who are our customers? The people to whom we can add the most value (and who are willing to pay for it).

These criteria just help to “target” them. This means each of the criteria has to correlate with the problem we solve (or with the desire, we nurture) or other parts of our business model.

Let’s check our example of the haemorrhoid cream:

• male → probably relevant for marketing messaging
• born in 1948 → while maybe too specific, older people are more prone to developing haemorrhoids.
• Raised in the UK → this sounds quite cultural, but I guess living in the UK is relevant for distribution of your product
• Married Twice → Did they have a stressful life?
• Lives in a castle → probably irrelevant and should be deleted, unless it’s cold there
• Wealthy and Famous → They have money for a luxury brand and might pay extra for fast results

We should alter the criteria for our customer segment here. But one thing is notable here: There doesn’t have to be a causation between the business model and the criteria itself. A correlation is sufficient, as they not only help with empathy, but with targeting too.

This leads to the last requirement for our criteria, some of them must be actionable. In order to target customers, e.g., in a marketing campaign or for outbound sales on LinkedIn, we need criteria to filter for our target market.

Double checking your critera

To summarise, you can check your criteria with the following questions:

• Does every criterion at least correlate with your business model (problem you solve, obstacles people have, distribution channel you want to use)
• Are there multiple customers in your segment with vastly different problems? Aren’t they outliers like Ozzy?
• Can we define additional criteria to create a segment with the majority being our target customers?

Often times we have the urge that our customer segment is too small. More often than not, this is not the case. Your product and marketing messaging will resonate with people outside your customer segment.