Segmentation and Targeting involve identifying and focusing on specific categories of customers that share common characteristics, behaviours, or needs. These two processes are part of the STP model (Segmentation, Targeting, Positioning), widely used in strategy to define an efficient Marketing Mix for products. 

Segmentation is the process of dividing the market into smaller, more manageable groups. For product teams, the purpose of efficient segmentation is not only to better understand different customer groups that share similar characteristics, but also to bring clarity to the product’s value proposition. There are several types of criteria used for segmentation: demographics (e.g., age, income), geography (e.g., region, country), firmographics (e.g., company size, industry), behaviour (e.g., product usage patterns, engagement), and psychographics (e.g., values, attitudes, tech-savviness). Efficient segmentation, however, is dynamic and should be tailored around customer needs. This approach brings new perspectives on how we perceive the product and ensures it serves specific purposes, such as finding the right positioning for a new product or pivoting an existing one. Product segmentation typically differs from brand segmentation, particularly in large companies with diverse product portfolios. 

Once segmentation is completed, the product team can address targeting. 

Targeting is the process of identifying the most promising customer segment, which becomes a crucial part of positioning and differentiation, as well as the definition of the product strategy. Proper targeting helps product teams focus on relevant product development and effective resource allocation. Segmentation and Targeting help define the right priorities, provide clarity for the go-to-market strategy, and assist sales and marketing teams in crafting a clear message. 

Segmentation is considered a prerequisite for effective targeting. These two processes are essential steps for personalization and are particularly useful in product-driven tech companies where scaling is a key strategy. In such organizations, product teams tend to avoid product customization, which is more common in project-driven companies. 

There is a significant difference between personalization and customization. Personalization involves tailoring specific features or experiences for a segment deemed valuable enough to justify targeted development and resource allocation. Customization, on the other hand, places personalization in the hands of customers, allowing them to adapt the product or experience to meet their specific needs. While both approaches focus on user-specific development and help customers engage with the product, their business implications differ. Product-led organizations typically avoid customization because it requires ongoing management, such as regular updates and revisions, which is resource-consuming. 

Customization may be viable if it can be automated efficiently or handled by a dedicated project team. Yet, product-led organizations prefer to avoid this approach because project teams are not designed to manage a piece of the product and ensure its lifecycle; their role is typically limited to time-bound implementations. Product customization is often practiced by companies targeting enterprise customers and is usually linked to the RFP (Request for Proposal) process. However, well-managed upstream segmentation can help prevent the need for recurring customization. 

Segmentation is widely used in B2B, B2C, and B2G organizations. To make segmentation clear and actionable, teams often create buyer personas and map customer journeys. Customer journey mapping helps identify pain points in product usage and provides valuable insights into customer needs. It also supports the design of go-to-market strategies and the development of effective marketing materials. 

A Buyer Persona is a semi-fictional representation of your customer, designed to help internal teams better understand the specific motivations, preferences, and challenges they aim to address with their product strategy. This method transforms abstract data about customer segments into tangible and actionable insights, such as "Victor, a busy father and executive of a large international company seeking ways to optimize his work-life balance." But why do we focus on representing a single individual to embody an entire group, rather than relying solely on broader customer segments? This approach leverages the Identifiable Victim Effect, a cognitive bias that makes people more likely to empathize with and take action for a single identifiable individual than for an abstract group or concept. 

This bias occurs because it is far easier for us to connect emotionally with one person than to relate to an impersonal group. When we see the challenges or motivations of an individual, their story resonates more deeply, driving action and engagement. 

The Identifiable Victim Effect can be used ethically to inspire empathy and drive positive outcomes, but it has also been exploited in manipulative ways. For instance, charity organizations often highlight the story of a single individual in their campaigns. Studies consistently show that donations increase when a personal and emotional story is shared, compared to a general appeal to help a group. This bias leverages our innate tendency to connect more deeply with individual narratives rather than abstract statistics. 

A similar dynamic is often observed in political propaganda. While not definitively proven, the infamous quote attributed to Soviet dictator Josef Stalin encapsulates this idea: “The death of one man is a tragedy. The death of millions is a statistic.” This illustrates the power of a single relatable story versus the overwhelming and impersonal nature of large-scale events. 

The effect is also evident in social movements, which are often catalyzed by the story of a single individual who becomes a symbol of the cause. Examples include George Floyd for Black Lives Matter, Malala Yousafzai’s I Am Malala for Girls’ Right to Education, and the Harvey Weinstein case for the #MeToo Movement.

To segment customers, product teams can utilize data from customer surveys or internal company resources. The criteria for segmentation are typically aligned with the product vision and company mission, while targeting is usually tied to the overall business strategy. Both segmentation and targeting lay the foundation for defining product positioning, which is then translated into the product strategy. 

Both operational and strategic segmentation are purpose-driven. Operational segmentation focuses on immediate and practical applications, while strategic segmentation serves as a framework aimed at defining positioning and aligning with overall strategy. Segmentation and targeting should be reviewed regularly to ensure it supports a competitive product position and adapts to market changes. The Geoffrey Moore Curve, also known as the Technology Adoption Life Cycle, explains how five distinct groups of customers - Innovators, Early Adopters, Early Majority, Late Majority, and Laggards - adopt new technology over time. Each group seeks different benefits from the same product, driven by their unique priorities, risk tolerance, and motivations. This implies that the targeted audience will vary depending on where your product is in its life cycle. 

The rise of AI has facilitated hyper-segmentation, which is already widely adopted by industries like retail, hospitality, and airlines. However, this type of segmentation is more effective in downstream processes, such as marketing campaigns or personalizing customer experiences (e.g., offering specific product options). It is less effective as an upstream process, such as strategic segmentation for defining positioning and product strategy. While hyper-segmentation can complement strategic efforts, it cannot replace the broader, long-term segmentation required for sustainable product development and market alignment.

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There are three potential pitfalls, driven by cognitive biases, that can arise during the product segmentation and targeting process. These pitfalls can lead to a significant waste of human resources, time, and money if not properly addressed.