How To Determine Your Customer Segments Using The SPA Method

What Is Customer Segmentation?

As an entrepreneur, when you are crafting and refining your offering, it’s crucial to identify your target customer demographics. Understanding who your quintessential customer is and where to locate them is an essential part of your strategy.

Defining customer segments is essentially categorizing your clientele based on certain attributes determined by the business owner or marketer. This segmentation acts as a tool to help in several ways:

• It allows for effective concentration of your efforts
• It facilitates tailored marketing strategies for each demographic

Taking into account the characteristics of your merchandise or service, you could determine the segmentation of your potential clientele according to various elements. For instance, in B2B marketing, it could be astute to compartmentalize based on:

• The nature of the industry
• The magnitude of the company
• Geographical presence
• Among other factors

When considering B2C marketing strategies, customer segmentation based on demographics is a common approach. These key factors include:

• Age Group
• Gender Identity
• Marital Situation
• Current Life Stage
• Financial Status (Income)
• Geographic Location
• Educational Level

How Can Customer Segmentation Enhance Your Business Performance?

Undeniably, the utilisation of customer segmentation primarily boosts your marketing initiatives. By gaining a precise understanding of your target audience, tailor-made messages can be designed to specifically appeal to those customers.

• Optimised Communication
• Targeted messages
• Profitable Customer Focus
• Insightful Understanding of Consumers
• Strategic Upselling and Cross-selling
• Enhancement of Customer Relationships

How To Segment Customers?

In this composition, I’ll be introducing you to an approach I mastered during my tenure at the HUB101 incubator program. This technique is named the SPA strategy, and it’s an acronym for Size, Pay, Access.

The core concept of this technique is to provide a simple framework for determining the consumer demographics you should be targeting initially. Furthermore, the SPA strategy can assist you in planning your marketing endeavours to effectively channel them towards the target customer segments.

The most straightforward path to execute this is through the formulation of a tabular matrix. This table should comprise four columns and be labelled as follows:

•  Column 1 | Customer Classification: Drawn up to represent different groups of shoppers. 
• Column 2 | Segment Dimensions: A numerical illustration of the size for the distinctive shopper groups.
• Column 3 | Payment Potential & Pain Points: A union of two aspects: The buying power of a targeted group and the seriousness of the problems this group needs to address.
• Column 4 | Segment Accessibility: A quantification of how easy it is to penetrate a specific shopper segment.

Don’t forget that the figures you input into the table cells should reflect your comprehension and your specific scenario. For instance, if someone has already established an audience within a particular customer segment, reaching out to that audience will be significantly simpler as compared to somebody who’s just starting.

The numbers that you feed into the cells come under the spectrum of 1-3. You have the option of getting more precise, if you prefer, by considering numbers between 1-5 or even 1-10, although the 1-3 span appears to be quite effective. Below are the explanations behind the varied digits:

• Size
  • 1 – More than 100 customers
  • 2 – Over 10,000 customers
  • 3 – More than a million customers
• Pay
  • 1 – Lack of financial capability or absence of a problem (the issue is not genuine)
  • 2 – Financial capability exists or the problem is real
  • 3 – Financial capability and a real issue exist (actively seeking a solution)
• Accessibility
  • 1 – Weeks (You’ll need a couple of weeks to get access to the decision maker)
  • 2 – Days (It will take a handful of days to reach the decision maker)
  • 3 – Hours (You are already in conversation with these prospects, so it’s a matter of a few hours to access the decision maker).

As previously mentioned, one individual’s figures might be quite different from another’s. This is particularly true when considering Accessibility ratings – it hinges on the number of interactions you’ve had with customers under that segment or how much ease and effectiveness you have in doing whatever it takes to connect with decision makers.

To calculate the total Score, multiply the figures for a specific consumer segment:

Total Score = Size x Pay x Accessibility

Example

The plan for my startup service was to market it to Coffee Shops, Restaurants, Dentists, and Trade professionals like electricians, plumbers, painters. Initially, I intended to focus on coffee shops and restaurants. This seemed like an obvious marketing approach due to similar services already being marketed to these sectors. My goal was to provide a superior and more user-friendly service.

As you can see, after doing the SPA exercise, it was obvious that I needed to focus on Dentist first. This showed me that it is an underserved market and I feel more comfortable getting to talk to owners of dental practices than restaurant owners.

Be Mindful When Classifying Your Customers

There are numerous strategies and procedures available for customer classification, each offering its unique benefits and potential shortcomings. Your selection should be informed not only by your comfort level with the approach but also by its alignment with your marketing aspirations.

Customer classification is a broad-spectrum strategy effective for both fledgling businesses and established corporate entities. The benefits and applications of this approach transcend the scale and status of the business, making it equally useful for startups and industry giants.

When defined and administered effectively, customer classification can aid in sharpening your target audience, thereby bolstering marketing productivity. Such improvement can spur an uptick in conversions and revenue generation.