Author: Sadhika Johnson,
Director of Insights at CōLab

June 26, 2025

When One Size Fits None:
8 Signs Your Business Needs
a Customer Segmentation

Whether you’re building a new business, a new product within an established business, or a feature set for an existing product, it’s crucial to know who you’re building for. One way to uncover this is through customer segmentation.

At its simplest, segmentation is dividing a group of people into sub-categories based on common characteristics. Every business uses customer segmentation in some form or another. You’ve segmented your users if you’ve divided customers into groups based on:

• Lifecycle (new vs. existing users)
• Geographical location 
• Demographics you have segmented your users (age, gender, etc.)

A full-blown Segmentation with a capital S will methodically examine the market, describe each group, tell a complex story of the varying needs of distinctly different groups, and reveal their relationship to your brand. 

There are many approaches to segmenting your audience, and we work with our clients and portfolio companies to right-size the process to their needs. This almost always starts with answering the question – do they actually need a (capital ‘S’) Segmentation? 

Here are 8 of the signs we use to determine whether a business is ready for Customer Segmentation, aka the full monty, grand daddy of consumer research.

1. You’re trying to find your niche.

The key to finding product-market fit is identifying a group of customers who will most benefit from your product, and building a product they love.

Segmentation can help:

• Define your Target Addressable Market (TAM)
• Find the segment(s) that will most resonate with your offering,
• Understand their needs, expectations, preferences, and behaviors

This enables your team to focus on addressing the needs of key segments, instead of wasting your resources trying to be for everyone. This way you can gain product-market fit , and carve out a niche that is ownable and defensible by your brand.

2. Your organization doesn’t agree on your target audience.

Sometimes teams can get siloed and start solving for different audiences. We’ve seen many cases where product and design are building for one type of user, while marketing is targeting a different audience. This can result in a fragmented user experience and wasted resources.

Segmentation is a rigorous statistical process, involving input from all key stakeholders. Engaging stakeholders throughout the process increases the likelihood of buy-in on the final output, and drives alignment across the organization. This exercise drives focus so your team can prioritize your resources on creating a cohesive user experience and building products that resonate with your target audience.

3. You’re having difficulty breaking into new audiences.

If your brand is relatively mature, you may have captured significant market share among a particular segment. You know these early adopters well, and are meeting their needs. However, growth is slowing, and you don’t know where the next phase of growth will come from.

Segmentation can unblock your team by identifying new segments along the adoption curve, so you can break into more mainstream audiences and continue growing your business. Over time, you can expand to new audiences by developing products that meet the needs of adjacent segments.

4. Your messaging is ineffective.

If your marketing is under-performing or engagement is low, it could be because your messaging is too generic, vague, or irrelevant to your audience.

Segmentation gives you a comprehensive understanding of your target audience and their unique needs, interests, values, and preferences. You can use this information to craft more compelling messaging that will help you break through the clutter and differentiate your brand. More specific, personalized messaging will attract the people who are most likely to purchase from you, and convert them into paying customers.

5. You’re spending too much to acquire a customer.

If you don’t know who your product is for (and not for), you may be spending a lot more trying to market to everyone, or to the wrong people.

Segmentation helps you trim the fat in your media plans by making you more surgical and targeted in your tactics, channels, and placements. Targeting specific segments with precision will help reduce wastage and stretch your marketing budget. You’ll be able to focus your money on the audience that will be most responsive to your product and messaging.

6. Your product innovation has stagnated.

Is the majority of your roadmap filled with minor improvements or small features that will not make a step-change to customer satisfaction, business growth, or any other major business objective? If your answer is yes, you may be stagnant.

Segmentation can help your team innovate by identifying unmet needs and pain points of different segments, and surfacing gaps in the market. This insight can:

• Highlight areas ripe for innovation
• Guide development of new products that address user needs
• Build a competitive moat for your busines

7. You’re growing fast and trying to look ahead.

Let’s say you have found product-market fit in your target audience, and your business is growing fast. You may want to look ahead so you can steer the business in the right direction, and grow strategically based on certain business and brand objectives.

Segmentation gives you a comprehensive view of the market, including customer preferences, behaviors, and attitudes at large. These macro trends allow you to deeply understand your problem space and be data-informed when making long term strategic decisions like:

• Defining a vision
• Making big bets
• Outlining company priorities

8. You have multiple brands that could cannibalize each other.

If you have multiple brands in the same product vertical, you risk fighting for the same customers. This creates the potential for huge wastage in marketing spend and cannibalization in the business.

To avoid this nightmare scenario, Segmentation can help you look at the entire market holistically. You can identify mutually exclusive priority segments for each brand, with their distinct needs, preferences, and values. It can help establish clear swimlanes, with clearly defined value props, and differentiated positioning. This will ensure your marketing doesn’t cross wires, and you don’t risk competing against yourself.

About the author

Sadhika is CōLab’s Director of Insights, and our resident “people-nerd.” Using methods in the domains of experience research, design thinking, and product management, she helps founders and executives make more informed decisions, and ultimately build better products. Prior to joining CoLab, Sadhika was at Airbnb, where she helped establish the Consumer Insights function, worked across the product life cycle, and led foundational research and strategic thinking to understand new problem spaces and verticals (e.g. Frontline Stays, Unique Stays). Over her nine years at Airbnb, she facilitated numerous workshops, design sprints, and strategy sessions to ensure alignment and help teams execute on a shared base of insights.