If you fail to segment your customers and treat each group differently, you’ll be unable to identify underserved areas and utilise this intelligence to develop uniquely appealing products and services. If your competition uses this strategy, this puts them in a more informed and powerful position.
Without this intelligence, you lose a distinct competitive advantage that enables you to identify both your least and most profitable customers and be in a position to prioritise and tailor offerings in areas that would give you the most profit.
This information can also allow you to develop marketing campaigns and pricing strategies with the goal of extracting maximum value from both your high and low-profit customers.
Without the information identified by customer segmentation, you wouldn’t be in a position to invest the appropriate resources to tailor product, service, marketing and distribution programs to match the needs of each target segment. Nor would you be in the informed and powerful position that allows you to measure the performance of each segment and adjust the segmentation approach accordingly over time as market conditions change.
What you are looking for are not the differences that appear on the surface, but those underlying differences that actually affect buying behaviour.
Segmentation principles can add several layers of intelligence to what you already know about your customers. This extra information is based on some key differentials, like spending habits, gender, where they live, demographics, and socio-economic groups.
What you are looking for are not the differences that appear on the surface, but those underlying differences that actually affect buying behaviour. You're looking to uncover the motivations that trigger each person to buy.
You're seeking information that gives you a competitive advantage and represents a deeper understanding of the consumer – information that your competitors may not have. Your research should identify and describe your target market.
It should also identify key pain points for your customers and shifts in consumer behaviour or makeup. You should also be looking for information that helps you predict the demand and reaction to your product or service.
The initial steps to take are to divide the market into meaningful and measurable segments according to customers' needs, their past behaviours or their demographic profiles. Then to determine the profit potential of each segment, you'll need to analyse the revenue and cost impacts of serving each segment. It is then, with this information, you'll be able to invest the appropriate resources to tailor product, service, marketing and distribution programs to match the needs of each target segment.
Never overlook the importance of regularly measuring each segment's performance and adjusting the approach as market conditions or your business needs change.
Avoiding a one-size-fits-all customer strategy means your business will benefit greatly in a competitive marketplace. Customer segmentation allows you to:
avoid the markets that will not be profitable for you
build loyal relationships with customers by developing and offering them the products and services they want
create highly targeted and focused advertising and marketing communications
develop new products when and where they are needed
develop differentiated customer servicing and retention strategies
focus your marketing on the customers who will be most likely to buy your products or services
get ahead of the competition in specific parts of the market
group your customers by factors such as geographical location, size and type of organisation, type and lifestyle of consumers, attitudes and behaviour
identify new products
identify niche markets
identify your most and least profitable customers
improve customer service
improve products to meet customer needs
increase profit potential by keeping costs down, and in some areas enabling you to charge a higher price for your products and services
maximise opportunities for cross-selling or up-selling
optimise your sales-channel mix
target prospects with the greatest profit potential
use your resources wisely.
Customer segmentation is an essential component of effective marketing, and can help you run successful sales and marketing campaigns.
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