Complete Guide on How to Conduct an Effective Customer and Segmentation Analysis

The purpose of undertaking customer analysis as part of a business plan is to examine in-depth the consumers most likely to purchase your product or service. Brands can establish different groups of customers and the needs of those customers. By understanding what motivates them to purchase, brands can build their business around providing solutions to those needs.

So, how can we define customer analysis?

What is customer analysis, and why is it important?

Customer analysis is the process of examining, understanding, and developing in-depth knowledge about the consumers most likely to convert into customers by purchasing your product or service.

Customer analysis is a critical component of market research and business strategy. The customer analysis process involves systematically collecting and examining data and insights about a company's existing and potential customers. 

This type of analysis aims to discover consumer purchase drivers and how an organization can effectively fill the gap with its product offerings. 

The goal is to identify and segment different groups of customers based on their unique traits, motivations, and needs. Organizations can explore demographics, psychographics, interests, behaviors, and other characteristics that make up a customer profile or buyer persona. 

What is a customer profile or buyer persona?

A customer profile (or buyer persona) is a dossier containing a detailed record of the ideal consumer interested in purchasing your product or service. Organizations use buyer personas to tailor their marketing strategies, product development, and sales efforts to better align with customer preferences and expectations. 

How can brands benefit from doing customer analysis?

Insights from customer analysis can help companies enhance customer satisfaction, target the right audience with tailored messages, uncover market trends, and make informed decisions, ultimately driving business growth and success in a competitive marketplace. 

Customer analysis empowers businesses to bridge the gap between what they offer and what their customers genuinely need, ensuring that products and services provide practical solutions to consumer pain points.

Stages of customer analysis

Customer analysis should move through three different stages.

1. You first need to identify who your current customers are. The more detailed understanding you have of your customers, the better. This one group of customers should then be split into subgroups with similar traits and motivations. You can also identify target customers you are not yet reaching.
2. Customer analysis must then show what the needs of these different customer groups are.
3. You then need to work out what bridges these two, identifying how the company’s products meet the needs of each customer group. How do you provide solutions to their pain points?

What is a customer analysis model?

Any analysis should start with asking clarifying questions that can help establish the reason for the analysis and create a framework for evaluating the data. 

The customer analysis model represents the framework marketers and insights professionals can follow when diving deeper into the customer data to surface consumer preferences and interests.

Researchers often cite the 5W and 6W models, which stand for the Who, What, When, Where, Why, and, lastly, Why not of the data. 

This approach to analyzing customer data can help reveal not only who your target audience is and what they might be interested in but also what they dislike and the reasons behind it.

5 Key steps to conducting effective customer and segmentation analysis

To conduct effective customer and segmentation analysis, organizations should follow the following five key steps:

1. Identify and segment your existing customer base:

• Identify your current customers and gather as much detailed information as possible.
• Segment these customers into distinct groups with similar traits and motivations.
• Identify potential target customers you still need to reach

2. Define segment criteria:

• Ensure that your segmentation criteria are measurable, observable, substantial, and financially justified (the effort and resources required to target and serve a particular customer segment are justified by the potential return on investment).
• Consider whether marketing messages can be tailored to each segment.
• Evaluate the size and accessibility of each segment to determine the focus.

3. Develop customer profiles and personas:

• Create detailed buyer personas that include background, demographics, communication preferences, and challenges.
• Gather qualitative data in the form of quotes to humanize the personas.
• Visualize a human behind your potential buyer rather than an abstract idea when crafting your personas.

4. Discover customer needs and pain points:

• Engage with customers through surveys, social media, and direct dialogs to understand their needs (e.g., create an open feedback loop or run Q/As on social).
• Analyze past customer actions and explore relevant online platforms like Quora, Reddit, and LinkedIn groups.
• Use social intelligence to monitor discussions and content shared within your persona groups.

5. Connect customer needs to your brand:

• Work with internal stakeholders to determine how your brand can meet the needs and solve the problems of each customer group.
• Emphasize solutions over features, focusing on making customers' lives easier.
• Apply these insights to marketing, sales, and product development to better align with customer expectations and drive business success.

Identify your customers

You can learn more about your customers in a variety of ways, and a mix of research methods will give you the most accurate results. It is best to gather as much information as possible and avoid thinking details are irrelevant. Details like age, gender, location, demographics, and psychographics are all important, but so are their interests, other brands they like, publications they read, and so on.

Talking to them and running a survey will be the best way of hearing about them in their own words, although that does come with biases. Reduce this by complementing that research with sales and CRM data and speaking to customer-facing employees. Once you have identified these groups, social data can elaborate your understanding by providing a more holistic view of the groups.

It’s also worth considering at this stage whether or not the buyer and end-user are the same person. In a B2B setting, the buyer might hold budget responsibility but not actually use the service or product themselves. 

In a B2C setting, there are several situations when a buyer might not be the end user; a toy water pistol or a diamond ring are both unlikely to be used by the purchaser.

Do customer segmentation in groups

You cannot undertake an accurate customer analysis without segmenting your audience into groups whose members are homogenous and distinct from other groups. Your segmentation criteria should be:

• Measurable: Your analysis should identify the size of a market segment so that you can decide to what extent efforts should be focused on the segment.
• Distinguishable: Observable differences that are clearly defined must exist in order to characterize segments.
• Substantial: The market needs to be large enough to justify segmenting, with each segment substantial enough to make it worthwhile.
• Financial: There will be additional costs when marketing to multiple, separate groups, so the predicted income must exceed these costs.
• Accessible: Your marketing messages should be accessible to each market segment. Different groups will respond better to different forms of advertising.

Develop a customer profile analysis

Use your data, segmentation criteria, and some educated guesswork to develop your buyer personas. It helps to have personas to visualize a human rather than aiming for an abstract idea.

Elements to include in a buyer persona include:

• Background and responsibilities, including job title, career path, and consumers’ primary job responsibilities.
• Demographics, including gender, age, income, family, and location.
• Communication: Which channels do they prefer? What is their demeanor? Do they have an assistant?
• Media and influencers: Which publications do they follow, and which individuals are leading the conversation in their world?
• Challenges vs proposition: The challenges they face in implementing their primary job goals and how your product or service can help them overcome those issues.
• Objections: Common reasons why this persona wouldn’t choose your product.
• Common language: What language should you use to appeal to their needs?
• Quotes: Adding some qualitative data in the form of quotes can really help to bring the personas to life and remind you there are real people behind these aggregated models.

Discover your customers’ needs

The next step in customer analysis is to get a good idea of what the customer’s needs are. By understanding their needs, several departments can gear their output towards answering these questions rather than taking an “If you build it, they will come” approach.

There are numerous ways to discover what your customers’ pain points are.

• The best way is to ask them. A survey is great if you can get enough responses, and online services like SurveyMonkey can keep the cost down.
• Consider the past actions of the group, such as the percentage that have purchased a similar product at some time in the past.
• Look at questions asked on Quora or Reddit.
• For B2B businesses, looking at job adverts for your target customers can give you an insight into their day-to-day work and problems.
• Join LinkedIn professional groups to get an insight into questions and discussions.
• Social intelligence can again help to understand the issues faced by customers. You can begin by building an audience of your personas and then monitor that group for questions asked, relevant content shared (such as how-to guides), and discussions.

How does your brand meet the needs of the customer?

Once you’ve done your research and outlined your different customer groups and their needs, you should connect the dots to your brand and identify how you meet those needs. This section of customer analysis should just be a matter of discussing and brainstorming with internal partners.

Solution-based answers should come out of this process. Instead of merely listing features, concentrate on showcasing how these features address the challenges your customers and prospects have. Always focus on benefits ahead of features. 

Solving the problems that customers face on a daily basis will resonate with them much better than shouting about a shiny new feature. Focus on how you can make their lives easier and more enjoyable.

This will obviously be reflected in marketing, but these insights can help sales and product development as well, tightening your focus to better match your customer’s needs.

Ready to make your customer and segmentation analysis?

Systematically conducting a customer and segmentation analysis is not merely a recommended practice but essential for any business aiming to thrive in today's competitive landscape. 

By understanding the core principles of customer analysis and following the five key steps to conducting an effective analysis outlined in this blog, you can unlock your brand’s true potential and foster lasting success. 

The journey of customer analysis starts from analyzing your existing customers, mirroring buyer personas after them, and ultimately connecting the dots between your brand and the solutions you provide to address your potential customers’ pain points. 

The insights from conducting a customer analysis are not just data; they are the compass that guides your marketing, sales, and product development efforts to better align with your customers’ needs. 

Now it's your turn: How are you going to harness the power of customer analysis to drive business success in 2024?