Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. Traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles. Value-based segmentation, on the other hand, looks at groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them.
To put a segmentation program into operation, you need to group your customers according to their needs and behaviors and then rank them according to existing and potential profitability. Accepted best-practice says that customers’ needs and behaviors should be the starting point for segmentation and the development of all propositions.
A segmented service proposition can give you the time and the information you need to drive additional revenues from customers with the greatest untapped value and broaden the appeal to prospects that would consider the ‘standard’ proposition as not suitable for them. Through this process, your company can decide which segments it wishes to target and develop an appropriate positioning to compete successfully.
Once the segmentation has been agreed, the real work can begin on investing to retain and grow the most valuable customers, winning new and profitable ones in the target segments and divesting of any that are unprofitable.
The table below shows a sample customer segmentation result for a retailer based on splits for day part, as separated by the market.
