How can data analysis improve market segmentation?

1 Identifying segments

The first step in market segmentation is to identify the potential segments that exist in the customer base. This can be done by using various criteria, such as demographic, geographic, psychographic, behavioral, or attitudinal variables. However, using too many or too few criteria can result in either too broad or too narrow segments that are not meaningful or actionable. Data analysis can help businesses find the optimal number and type of criteria to use by applying statistical techniques, such as cluster analysis, factor analysis, or discriminant analysis. These techniques can group customers into clusters based on their similarities and differences on multiple variables, and reveal the key factors that differentiate each cluster.

2 Profiling segments

The second step in market segmentation is to profile each segment by describing its characteristics, needs, preferences, or behaviors in detail. This can help businesses understand each segment better and design more relevant and appealing offerings for them. Data analysis can help businesses create comprehensive and accurate profiles for each segment by using various methods, such as descriptive statistics, cross-tabulation, correlation analysis, or regression analysis. These methods can summarize the data for each segment and show the relationships between different variables within or across segments.

3 Targeting segments

The third step in market segmentation is to target the most attractive and profitable segments for the business by evaluating their potential and feasibility. This can help businesses allocate their resources and efforts more efficiently and effectively. Data analysis can help businesses target the right segments by using various tools, such as scoring models, decision trees, or optimization models. These tools can rank the segments based on their expected value, profitability, growth, loyalty, or risk, and suggest the best combination of segments to pursue.

4 Measuring segments

The fourth step in market segmentation is to measure the performance and impact of each segment on the business by tracking and analyzing key metrics, such as sales, revenue, margin, retention, satisfaction, or loyalty. This can help businesses monitor the results of their segmentation strategy and identify the areas of improvement or opportunity. Data analysis can help businesses measure the segments by using various techniques, such as dashboarding, visualization, or hypothesis testing. These techniques can display the data for each segment in an interactive and intuitive way, and test the significance of the differences or changes among segments.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?