Segmentation: Who is the customer? Part 1 of 2:

 This post is for:

1)   Marketers that need to be reminded…

2)   Non-marketers who want to challenge (read,  not criticize – that’s too easy) their Marketing peers.

I usually try to convince new EMBA students to be as excited of Marketing as I am.  I don’t always succeed. When I do convince them to ‘listen up”, they soon understand how to ask their Marketing peers the right questions. Segmentation is one of these areas:

First to understand segmentation, whenever I am asked to speak in public I am very inquisitive with the host organization, drilling them to know more about the audience. Why am I so persistent?

If I don’t know the audience, I cannot customize my message and “I will lose them”.

If you are selling your products/ services (let’s call it “product” moving forward) by using a “shot gun” approach and you’ve been successful…great.  However over time unless you have a meticulous understanding of your customers you will “lose them” too.

The most fundamental question for any marketer is:  Who is my customer?

If you know this, then you are doing fine. In fact the more you know this and the more you know about who is NOT your customer the better you stand a chance of identifying new sources of revenues.

Segmentation is the buzz word when it comes to understanding current customers and new ones. It would take a few chapters to explain all the relevant aspects of segmentation but let’s see if I can summarize this fascinating aspect of marketing in a few posts.

Definition: The aim of Segmentation is to identify and selectively target prime groups of customers and potential customers, to understand their preferences and to respond with different marketing strategies that are appropriate for each chosen segment.

Any form of segmentation requires a lot of analysis such as:

Ø Evaluation of external data/trends:  Economic, competitive, market dynamics, sizing/opportunity, etc.

Ø Evaluation of  internal data/trends: sales, repeat purchases, churn, retention, loyalty factors,

Ø Understanding what drives the customer experience with sales, product, and customer care which translates into the value propositions.

The importance of segmentation results from the fact that buyers of products are not a homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer’s individual characteristics, companies group customers to market segments by variables they have in common. These common characteristics allow developing a standardized marketing mix for all customers in this segment.

Ok… so how do you group them?

There are least 5 common ways to group your customer by segments after you’ve done your research:

1)   Geographic segmentation,

2)   Demographic segmentation (Age, gender, income, generation, social class).

3)   Category -based segmentation

4)   Needs based segmentation

5)   Psychographic or lifestyle-based segmentation

Geographical is self explanatory; Demographic segmentation is used mostly by retailers and banks: Psychographic segmentation (more common method in business these days) divides buyers into different groups on the basis of Values and Lifestyle (VAL). Factors that describe individual lifestyles are:

1)   Activities

2)   Interests

3)   Opinions

People buy things based on their needs but they are influenced by a variety of factors. Psychographic segmentation identifies those reasons and groups these particular customers in clusters which indicate the propensity to buy/not buy your product, or to influence other clusters to buy /not buy.

Seems pretty simple right… But how do you get there?

You can try to establish these clusters on your own but you would need a strong, analytical research team to embark on this exercise, or you would need to work with a research firm to help you indentify these clusters while your team maintains the lead on fine tuning the results. Third alternative; you could use a consulting firm that manages the research, identifies the clusters and provides you with a roadmap to drive revenues.

In my next post we’ll use an example.

In the meantime don’t forget: If you are not crystal clear on who exactly are your customers then you need to do something fast – find out in my next post.

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