Customer segmentation design is the process of dividing your customers into clear, actionable groups based on shared needs, behaviors, or characteristics. Done well, segmentation helps companies solve business challenges, improve targeting, and align marketing strategies with customer needs.
This guide offers a practical, step-by-step approach to customer segmentation that is simple, scalable, and effective—even when time and resources are limited. By following the 7 steps outlined below, your team can create segmentation schemes that deliver clarity, focus, and measurable business impact.
The steps follow classic segmentation procedures, which we propose here:
Full-scale segmentation efforts follow similar steps but include interviews and comprehensive market research to validate findings. This simplified approach can serve as a pilot phase to assess feasibility and determine whether a more extensive segmentation is necessary. In many cases, a straightforward segmentation using internal company knowledge—both qualitative and quantitative—can be sufficient to align customer insights and marketing efforts effectively.
Imagine a small team of 5–6 people engaged with customers or contributing to interactions with customers, such as pricing and service. Allocate approximately 4 hours, ensuring some time for relaxation. If the meeting requires more time and the pace is not fast enough, consider splitting the meeting to allow team members to reflect on the segmentation effort between sessions. Manage time to maintain an energetic pace, but also ensure space for reflection. Reserve time for discussions, address outstanding issues, and set aside topics that fall outside the current scope in a “parking lot” for later review.
Ideally, capture the key business objectives before the meeting, enabling the team to come prepared. In this phase, ensure alignment on project objectives and discuss:
Existing data related to business needs may already be accessible, such as a customer list with purchase history. Collect this data before the segmentation meeting, if possible.
Evaluate the relevance of the data to the business challenge and discuss potential additional resources and their applicability.
The goal is not immediate data utilization but rather to assess whether the gathered data can aid in the segmentation work—for example, in identifying segmentation axes or estimating segment sizes.
Steps 1 and 2 can be prepared in advance by a dedicated team or left for later. The data gathered in Step 2 can be made accessible to the segmentation team beforehand to enable a more effective review during the segmentation meeting.
Begin with individual brainstorming and then, as a group, pinpoint potential segmentation axes. A segmentation axis divides customers into two or more groups that differ. A segmentation scheme in the end is the combination of multiple axes that create unique segments.
To determine segmentation axes, ask your team to individually propose segmentation axes. One method is to perform a “Post-it” session where each participant proposes a few axes for segmentation (one possible axis per post-it). Simply state the question: “Which segmentation axes are most relevant to our business challenge?” Each axis should be defined clearly, with a range that captures two distinct extremes. Provide examples for clarity.
Allow at least 5 minutes for each member to put down ideas on individual post-its for easy wall placement. Aim for five or more ideas per person. Quickly review and stick post-its on a wall or large sheet of paper, grouping similar definitions.
Using post-its ensures efficient collection, preventing unnecessary time spent on agreed-upon ideas and avoiding discussion hijacking. The meeting leader or facilitator collects the post-its for wall placement.
Review the collective results. Identify which segmentation axes appear most relevant and why. Explore their connection to the business question. Discuss examples of customers at each segment extreme. Take time to reflect on the findings—consider a short break or schedule another session if needed.
At this stage, customer segments should emerge, defined by a combination of segmentation axes, each with unique ranges for every segment.
One approach is to select and rank segmentation axes based on their ability to divide the full customer population into meaningful and recognizable segments. In most cases, 2 to 3 well-chosen axes are sufficient to define meaningful customer segments. It is normal if some axes prove less relevant or not useful for certain segments.
Review segments to estimate their sizes, ensuring they are reasonable. Avoid overly large segments (e.g., 50% of the market) or very small ones (e.g., under 5%), unless they are critical for the business objective. Provide a few examples for each segment from real customers. This will facilitate creating personas in the next step.
If identifying segments poses challenges, consider this approach:
This is the opportunity to showcase the clarity and simplicity of the segmentation. In this step, craft a concise description for each segment, ideally incorporating real examples from existing customers.
The description for each segment can consist of three components:
The objective here is to offer a straightforward approach, making each segment tangible and easy to understand. Ensure that each customer profile can readily be associated with the segment it belongs to.
The challenges and conditions for success from step 1 can now be reviewed for each segment:
The essence of the segmentation work is to reach this stage, where segmentation becomes a tool to explore situations with your customers, identifying solutions. As previously emphasized, segmentation is not the ultimate objective but rather the means to address business challenges and shape effective strategies.
Capture key learning points for segmentation. Take action on topics left aside (in the “parking lot”). Notably, take a moment to assess how the segmentation work unfolded—what was easy, what was more challenging, and how you would approach it in the future.
Also, consider the direction you want to take with this segmentation work. Begin by validating and consolidating actions related to each segment to address the business needs at hand.
Segmentation is about gaining a deeper understanding of customers so their needs can be addressed—while keeping business objectives in focus. Ask yourself: is the segmentation achieving this goal?
You can take it a step further by evaluating the effectiveness of the segmentation through discussions with customers, using techniques such as interviews or focus groups. Taking a step back is also key—to assess whether more interviews are needed or if an external approach, such as involving a market research company, is required to validate or refine the segmentation model.
In summary, customer segmentation design is a powerful way to better understand your customers, address their needs, and align marketing and sales strategies with clear business objectives. Even a lightweight, in-house segmentation can provide actionable insights and uncover opportunities for growth, differentiation, and stronger customer relationships.
Since competitors are likely conducting their own segmentation analysis, maintaining an outside-in view is essential.
Fortunately, segmentation doesn’t have to be complex, costly, or time-consuming. Even a lightweight, in-house segmentation can generate actionable insights when used effectively. By following a structured 7-step method, your team can quickly achieve clarity and business impact.
Give it a try—you may be surprised at how much value and focus it brings. To put these ideas into practice, download our free Customer Segmentation Guide (PDF) and explore additional marketing tools in our webshop.
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Segmentation is not unique—multiple segmentations may (and often do) coexist within an organization, each serving a specific purpose or addressing different business needs. It is important to dedicate time at the outset to identify the objectives and motivations behind each segmentation project. This approach ensures that each segmentation is well-founded and helps prevent new or conflicting requirements from emerging once the project is underway.
Clearly defining the scope of each segmentation effort is essential. Using a frame in/out approach, for example with post-it sessions, can help teams discuss and agree on the boundaries and goals of each project. The Value Ladder tool is also useful for clarifying the reasons behind each segmentation, including strategic and financial arguments.
While segmentation projects can be challenging—often addressing issues that are not fully understood at the start—they become valuable once insights are gained and applied to areas such as solution development, placement, and promotion. To ensure these insights are used effectively, it is important to engage and motivate teams throughout the process. The Stakeholder Analysis tool is particularly helpful for validating ongoing support and engagement as segmentation projects progress.
By clearly defining the purpose and scope of each segmentation, and by using appropriate tools to engage stakeholders and consolidate learnings, multiple segmentations can coexist effectively and deliver significant value to the organization.
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This free guide outlines a practical and scalable approach to customer segmentation, designed to address specific business challenges and support effective marketing decisions. Segmentation is most impactful when it is anchored in solving real problems and shaping customer-facing strategies.
By leveraging knowledge from customer interactions, market research, and team experience, companies can define clear, actionable segments. This method offers a smart, focused way to align teams and test the relevance of segmentation—whether as a stand-alone initiative or as a first step toward a broader study.
Offered as a downloadable PDF, the guide reproduces the content of the corresponding method page on this site. It can be used to test the order and checkout process, and it is provided free of charge.
Performing this internal segmentation work in advance may also help clarify priorities among stakeholders and sponsors—paving the way for more effective external research if needed.
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