Customer segmentation is the practice of dividing a customer base into groups that are similar in specific ways relevant to marketing: age, gender, interests, preferences and spending habits. By implementing customer segmentation, powerful results are achieved such as identifying unmet customer needs.
Further research allows for the identification of where and to what customers assign value to, their purchase decision making process. This information is essential in the design and development of the business offering. By offering uniquely appealing products and services tailored to unique segments, the company is paring their offer to the most profitable segments. This prioritization creates a guideline to best utilize the company’s resources in areas such as R&D, production processes and marketing campaigns as well as help define adequate pricing strategies to extract the maximum value from each segment.
- Divide market into meaningful and measurable segments according to customers’ needs, wants, preferences, past behaviors or their demographic or psychographic profiles.
- Calculate the profit potential for each segment by analyzing the potential revenue impact and cost of tending to each defined segment.
- Prioritize target segments according to their profit potential and the organizational ability to serve each segment in a proprietary way.
- Create a guideline for allocating resources to tailor products, services, marketing and distribution programs to match the needs of each target segment.
- Measure the performance of each segment and adjust approach over time as market conditions change throughout the organization.
What does the Customer Segmentation process achieve?
- Develop strategic approach to servicing customer segments.
- Prioritize product development and tailoring efforts.
- Define customized marketing programs.
- Identify specific product features which add most value to customer segments.
- Determine appropriate product pricing.