Customer Segmentation is an analytical process whereby a market is classified into discrete customer groups (heterogeneity) that share similar characteristics (homogeneity). Segmentation is one of the most powerful tools available to a marketer, providing means to identify unmet customer needs or to assist with strategies for acquisition and retention. Companies that create and identify segments can outperform the competition by developing uniquely tailored solutions to those customers, as well as providing mechanisms for developing strategies such as win-back.
The process of segmentation enables marketers to extract maximum value from both high and low profit customers, together with prioritising strategies to reduce marketing spend on costly to maintain and support segments.
Segmentation can be carried out on any dimensions that are available to a marketer, but are generally classified broadly into the following groups:
- Geographic (eg country, city)
- Demographic (eg gender, income, occupation)
- Psychographic (eg lifestyle, attitudes, values)
- Behavioral (eg website response, readiness-to-buy, benefit sought)
- Technographic (eg motivations, attitudes, standard-of-living)
The process of Customer Segmentation requires a structured approach to be taken that takes into consideration an ongoing program of creation, nurturing, value analysis, segment performance over time to ensure that an ROI is generated against specific activities targeted at the segments.
Once a marketer has entered into a segmentation exercise, there are typically a number of common uses of the model that can be employed, such as:
- Prioritize new product development efforts
- Develop customised acquisition marketing campaigns
- Choose specific product features
- Create retention strategies for lapsing customers
- Create segment specific web experiences
- Establish appropriate service options