Your Favorite Product Management Resources

User Segmentation: The Best Tool Product Managers Can Deploy to Design Targeted Product Experiences

Every year, the Emmy Awards announce their long list of nominations, and all over Hollywood (and the world) TV lovers spend hours perusing all the potential winners.

The reason they spend so much time is that there are so many TV shows out there, and it’s hard to make sense of them all. But that’s why the Emmys are divided into categories based on genre (Drama, Comedy, etc), discipline (cinematography, music, etc), and a host of other criteria. 

In the world of product development, we call this process user segmentation, and it’s just as useful for product managers trying to understand their audiences as it is for audiences trying to understand TV show awards. 

What is user segmentation, exactly?

User segmentation is the process of categorizing users into groups, or segments, based on commonalities that potentially affect how they use your product. Segments might be based on user characteristics, like demographics, or the type of companies for which they work. Or, they might be based on the users’ actual behavior in the product. The use case for each model will vary based on the company, but regardless, segmentation is a powerful tool. Segmenting helps Product teams understand who their users are and gives them insights they can use to create targeted, user-centric product experiences. 

Why does user segmentation matter?

Facebook is a good example of a digital platform that serves a wide variety of different users. You have people who use the social media site to network with family and friends. You also have small businesses who use the site for commerce. Then you have larger brands that use Facebook for communicating with customers, investors, and the wider public. And then there’s the advertiser component. Obviously, this list of segments for Facebook is by no means exhaustive, but you get the idea. The point is that when Facebook’s Product teams are designing and optimizing their software, they need to target these different use cases and tailor workflows, engagements, marketing, and support accordingly. 

At the end of the day, segmentation is one more weapon in the arsenal of Product teams looking to deliver value and create sticky experiences for users that lead to increased engagement, adoption, renewal, and expansion.

What are the different types of segments?

You can break down segmentation into two broad categories: user characteristics and user behaviors. User characteristics are traits that users bring with them to the party, independent of the product. User behavior segments, on the other hand, are defined by how the user experiences the product, whether that be specific actions, sentiment, or familiarity with the product. You can think of the two types as “who they are” vs “what they do.”

User characteristic segmentation

  • Demographics: Information about the individual user, such as age, gender, occupation, location, language, or income level. Commonly used in marketing, this may be more relevant for B2C products rather than B2B. 
  • Firmographic: Categorizes users based on their user’s organization, using characteristics like industry sector, company size in terms of headcount and/or revenue, and growth potential. This can be important if your product is used by a diverse group of companies. 
  • Technographic: Segmenting users based on the tech stack or capabilities of their company. This could include tech like CRM, back office systems, or platforms (eg, mobile vs desktop). Technographics are important if your product is reliant on integration with other tech to be successful.

User behavior segmentation

  • Paid vs. free: The meaning of this segment will vary depending on whether you are using a freemium or a free trial strategy, but either way, this is a very important metric. Obviously, paid users are the goal, and this segmentation prompts Product teams to retain the former and convert the latter.
  • Frequency: Usage frequency, or the number of visits, is a great way to define users based on how much value they find in the product. Users who return frequently have clearly found something useful that, ideally, you should try to replicate with other users who are not returning as often. 
  • Time in-product: The amount of time a user spends in your product can be a useful way of segmenting. This measure will tell you which features are correlated with higher engagement and help you make the product stickier for others.
  • Length of account: Especially for products that have been around for a while, the length of time a user has been a customer can tell you a lot. For example, are they a legacy user who joined for an earlier iteration of the product? Are they still in wait-and-see mode, having only been a customer for less than a year?
  • Sentiment: Segmenting users according to measures like Customer Satisfaction (CSAT) or Net Promoter Score (NPS) is a direct way of identifying which customers love your product and which customers need some convincing. 
  • Adoption status: Professor Everett Rogers developed a theory called “diffusion of innovations” that can be useful in segmenting product users. These categories—innovators, early adopters, early majority, late majority, laggards—tell you a lot about how far your product has penetrated into a given user base. 

What do I do with user segmentation data?

  1. Track user engagement. Segmentation begins with assembling data on your users. User characteristic data will mostly come from CRM or similar sources, but the usage data itself is best gathered using a product analytics tool. Segmentation should be built around the different ways that different segments find value in your product. 
  2. Identify metrics (eg, conversion, retention, churn). Once you have a general idea of how different segments are finding value, the next task is to find relevant metrics that capture this value. Each segment should have a few key metrics that represent their user journey. 
  3. Dive into the analytics. Once you have defined the segments based on their user journey, you can start analyzing the data using the metrics as a lens. You should be looking for action items that will help your Product teams reach business goals by optimizing product experiences. 
  4. Create targeted product experiences. Now comes the fun part. Through experimentation, your Product team can start searching for the right levers to pull to affect change in a segment’s behavior, experience, or sentiment. 

User segmentation in action

Let’s take a look at an example. Company X is an SaaS company that makes a digital platform for construction companies to manage their heavy equipment, like cranes and trucks. By tracking user data, and comparing it with customer information from their CRM, they identified three key user segments. 

Their large enterprise customers had a high volume of activity with many power users on mobile, but their NPS was low. This segment was built using firmographics (company size), usage (frequency of use), and sentiment (NPS).

Their mid-size customers had a small number of power users, relative to the total company size, and the number of users remained static over time. This segment was built using firmographics (company size) and usage (frequency of use, number of users, and amount of time with product).

Their small business customers were mostly stuck on the freemium version of their software, which had limited functionality. This segment was built using firmographics (company size) and usage (paid vs free)

Based on their evaluation of these three segments, the goals for the Product team were distinct and clear:

  • Large enterprise customers were dissatisfied with the mobile experience, so the Product team took a deep dive into how to improve that experience and get those NPS scores up.
  • Mid-size customers had a few gatekeeper power users who were acting as a bottleneck, preventing wider use within the companies. This was probably because the product was deemed “too complicated” for average employees. Product looked for ways to create a simplified version of the product that non-power users could access.
  • Small business customers simply weren’t converting to paid. Product (along with Sales!) looked for ways to use in-product engagements and other tactics to sell the customers on the benefits of paid. 

Make Gainsight PX your co-star

The Gainsight PX platform has robust user segmentation capabilities. Our tools empower you to create targeted product experiences for any segment—without writing a line of code. You can use contextual engagements, customized onboarding, and personalized user guides. All while collecting the right data and filtering it through the right metrics in an easily accessible format. 

Learn more about how Gainsight PX can jumpstart your segmentation initiative. Schedule a demo today.