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What Is 'Segmentation'?

Segmentation means splitting data into well-defined subgroups to add additional Context and find unknown relationships.

There are three ways to segment customer data:

1. Past Performance, which segments customers by past actions.
2. Demographics, which segments customers by external personal characteristics.
3. Psychographics, which segments customers by internal psychological characteristics.

By segmenting your data, and trying different techniques, you'll find hidden relationships worth exploring to improve your systems and business.

Josh Kaufman Explains 'Segmentation'

Very often, aggregate data sets contain hidden nuggets of gold-if you can find them.

Segmentation is a technique that involves splitting a data set into well-defined sub-groups to add additional Context. Splitting the data into pre-defined groups can uncover previously unknown relationships.

For example, knowing orders increased by 87% this month is good, but knowing that 90% of those new orders came from women in Seattle is even better. Find what made those women order, and you'll be able to use that information to further capitalize on your success.

There are three common ways to segment customer data: Past Performance, Demographics, and Psychographics.

Past Performance segments customers by past known actions. For example, you can segment customer sales data using previous sale data, comparing sales to new customers with sales to customers who have previously purchased from you. Lifetime Value calculations are a form of segmentation by past performance.

Demographics segment customers by external personal characteristics. Personal information like age, gender, income, nationality, and location can help you determine which customers are your probable purchasers.

For example, most businesses segment sales using "business" and "consumer" definitions, treating each type of sale differently. Knowing that your best customers are males between the age of 23 and 32 who live in major metropolitan areas and have over $2,000 per month in disposable income can be quite useful- you can focus your marketing efforts on reaching more prospects who have those characteristics.

Psychographics segment customers by internal psychological characteristics. Typically discovered via surveys, assessments, or focus groups, psychographics are attitudes or worldviews that influence how people see themselves and the world at large.

Psychographics can be very useful in focusing your value-creation, marketing, and sales strategies.

For example, if you're selling home security systems, it's likely that your probable purchasers will believe the world is a dangerous place, and feel somewhat in danger even when in their homes. Experimenting with promoting your product in survivalist and self-defense magazines and Web sites might not be a bad idea.

Segment your data, and you'll find many useful hidden connections worth investigating.

Questions About 'Segmentation'

• What segmentation strategy makes the most sense for your measurements, given what you're trying to achieve?
• How can you use segmentation to understand what different groups or people or processes are doing?

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"Analytics nirvana rule: never report a metric (even God's favorite KPI) without segmenting it... There is no KPI so insightful all by itself, even in a trend or against a forecast, that can't be made more impactful by applying segmentation."

Avinash Kaushik, author of Web Analytics: An Hour a Day

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