Every organization through its growth reaches an inflection point, where it can no longer assume that its customers have the same requirements and expectations from the company. Figuring out who to focus on and how to address their requirements becomes an even bigger challenge. This is where the need for customer segmentation comes into play.
Customer segmentation is simply the creation of customer groups based on certain common characteristics. These groups help stakeholders and decision-makers to target potential customers, develop personalized marketing campaigns, and boost customer loyalty. Some of the most prevalent models of segmentation are:
|Segmentation Model||Segmentation Parameters|
|Geographic Segmentation||Country, state, city, town, and locality|
|Demographic Segmentation||Age, gender, income, education, and marital status|
|Behavioral Segmentation||Tendencies, habits, frequent actions, purchase history, and product use|
|Psychographic Segmentation||Personality, attitude, values, interests, preferences, and dislikes|
|Technographic Segmentation||Software, applications, mobile and desktop usage|
|Needs-Based Segmentation||Product/service requirements of specific customer groups|
|Value-Based Segmentation||Economic value of customer groups within the scope of the business|
Once the segments have been mapped out, you can enhance product development, position it and market the product to the right customers and improve your sales. You can keep refining the segments over time, and offer complete visibility into your clients to anyone within the enterprise looking to better understand the customer base.
But customer segmentation should not be misconceived as intuition related to customers, strategies for marketing or sales, and definitely not as a suggestion regarding which segment to target. It is not capable of considering every facet related to products or customers but is rather a continual process of harnessing relevant information – whether it is the difference between customers or any innate similarity that has gone unnoticed.
Segmentation leverages massive volumes of data on both existing and potential customers, enabling you to identify specific customer groups and address them in an effective way. These groups are highly accurate as they are based on the analysis of real parameters as mentioned in the previous segment.
Marketing and sales professionals are always looking to maximize the revenue from every customer they interact with, and this makes it imperative to have as much knowledge about the customer as possible. Knowing your customers paves the way for targeted marketing strategies, where the customers feel like you know them and are addressing them personally. The focus is also not on short-term gains and profits but on impacting the customer lifetime value (CLV). Where a customer receives optimal satisfaction, has an exceptional retail experience, trust is developed, brand loyalty is generated and retention can be boosted. This also suggests that CLV can also be a potential parameter for enterprises choosing to focus on that aspect.
Still, wondering why you should engage in customer segmentation analysis? The following are some ways that segmentation can elevate your business and processes.
A common misconception when it comes to the topic of segmentation, is that market segmentation is the same as to customer segmentation. Market segmentation is a general view of the marketplace as a whole, and aspects within the marketplace. Customer segmentation on the other hand deals with specific customer groups within the market.
If you own a car dealership, market segmentation can help you view your performance when it comes to the overall sale of sedans, SUVs, and hatchbacks in a particular marketplace. But customer segmentation can help you dig deeper and take a detailed look at customers who are purchasing each type of vehicle. This helps identify common factors connecting each customer interested in a specific kind of car and group them accordingly. Once you have a clear idea as to why certain customers choose to buy a vehicle, marketing strategies can be developed to target this specific customer group. There is always a higher revenue from targeted marketing strategies that reach out to customers based on segmentation analysis.
While developing an effective strategy for customer segmentation analysis, you have to first map out your team’s objectives and targets. You can then proceed with segmenting customers based on their characteristics.
There are several ways that your enterprise can benefit from segmentation analysis. The most common benefits experienced are as follows.
With all this being said, no two enterprises conduct their customer segmentation analysis in the same way. Companies have different products, services, and audiences, making segmentation a completely unique process for each. You also have the option of outsourcing your segmentation analysis requirements to a service provider, and saving yourself the trouble and expense of hiring and maintaining an experienced in-house team. Course5 Intelligence offers state-of-the-art services and we have our unique modus operandi when it comes to segmentation.
Course5 Intelligence takes a very comprehensive and structured approach when it comes to identifying, defining, and profiling segments within a product category. While most companies focus their approaches to segmentation on lifestyle/psychographic variables and needs, Course5’s approach is multidimensional and integrating. Fundamentally we believe that purchase decisions within a category are based on a multidimensional gestalt that is the sum total of normative beliefs, attitudes, behaviors, and needs. We have provided a more detailed description of our overall approach below.
Course5 believes that in any given product category, there are five key dimensions that mitigate customer purchase decisions:
This dimension is related to how customers see themselves in terms of who they are as individuals, their lifestyles, and how they relate to the world around them. The core thought process here is based on “I will buy things that are consistent with and reinforce who I am as a person.” In order to capture a holistic view of personal identity, Course5 has developed a battery of attributes designed to assess customer beliefs about who they are based on lifestyle factors including beliefs about leisure, the role of work, the role of family, personal health, finance and spending, environmental concerns, fashion, charity, and social interaction.
In addition, to assess personality dimensions, we utilize the “Big Five” model to assess personality dimensions. The Big Five model is a comprehensive, empirical, data-driven research finding. These five broad factors were discovered and defined by several independent sets of researchers. These researchers began by studying known personality traits and then factor-analyzing hundreds of measures of these traits (in self-report and questionnaire data, peer ratings, and objective measures from experimental settings) in order to find the underlying factors of personality. The Big Five metrics we use include
These are the actual behaviors related to the category and address questions around how customers behave within the specific category, how much time they spend on activities related to the category, what types of activities they engage in, etc. The items we use in this section include assessments of time spent on various activities such as work and personal email, instant messaging, discussion group participation, gaming, online research, digital entertainment and music, online shopping, online banking/investing, working on documents, spreadsheets and presentations, etc.
This dimension is related to how customers relate to the category, which in this case translates to understanding how customers relate to technology and technology products. Our battery of category attitude measurement tools, customized to the technology space includes early versus late adopter, technology opinion leader versus follower, the role of technology in life (anxiety, confidence, liking, and usefulness), and the importance of various emotional attributes (global brand, heritage, youthful and exciting, etc.).
Different categories have a different mix of brands. Customer decisions on what product to purchase depend on the category itself, the number and types of brands in that category, and their general perceptions regarding the incremental value that a specific brand brings to the products in that category. The list of attributes in this section includes items related to the number of brands, the importance of brands, similarity or differentiation among brands, etc. Additionally, we include attributes related to information-seeking behavior associated with purchases in this category, as well as perceptions regarding discounting and promotions.
These are the core product-related needs – the extent to which a customer is likely to purchase a specific product depends on the extent to which they feel the product meets their specific needs. Course5 typically develops a custom set of attributes for specific categories. For instance, because of our significant and long-term experience working in the technology space, we have identified a comprehensive list of product/service-related needs that customers in this category typically have related to design, style, colors, weight, performance, multimedia performance, advanced features, reliability, security, battery life, screen size, need for touch screen, customer service and support, warranty terms, etc.
Because customers can be segmented on each of the above five dimensions that mitigate the purchase process, Course5 then develops an optimal set of segments separately based on each of the five dimensions detailed above (Segmentation Basis Dimensions – SBD), and then integrates the results to develop a final set of segments. The process by which this final set of segments is developed is a combination of art and science.
First, the segmentation results for each of the five SBDs are examined to determine which of the solutions offers the best set of segments in terms of size and differentiation across segments, and homogeneity within segments. Each set of dimensions is rank-ordered on the basis of the segment yield, differentiation across, and homogeneity within segments (Segment Yield Efficacy Rank – SYER). The dimension that yields the strongest solution (SYER=1) then forms the foundational framework against which the next two dimensions (SYER=2 and SYER=3), are combined in a “matrix” to yield a more detailed set of “cascading” segments. This approach ensures that we are using the three strongest dimensions (in terms of Segment Yield Efficacy) to determine the final segment solution.
The final set of optimal segments is then “profiled” using the segments from the remaining two segmentation basis dimensions. Additionally, each segment is further profiled using demographic variables, product/brand ownership variables, key influencers, and media habits (TV/Radio Programming, Newspapers/magazines, and Internet Sites). Finally, Course5 is able to develop perceptual maps for each segment that show the relationship between brand perceptions and key product/service needs and emotional connection attributes, to help identify “white space” opportunities for product development and marketing communication strategy.
One of the key elements of the approach we have outlined above is the iterative process which is used to arrive at the final segmentation solution. It is important for our clients to understand that they will necessarily need to be an important and engaged partner in the iterative process. For a segmentation study to be ultimately successful and resilient within an organization, it is important for key stakeholders to have a say in the final segment solution. Thus, at each stage of the process, Course5 will share our findings and provide recommendations; the client will have the opportunity to review our findings and recommendations at each stage and provide feedback based on stakeholder outlook, expertise, and understanding of the client’s long-term goals and strategies. This collaborative process will finally yield a set of key, actionable segments that can then be effectively targeted by our client to drive share growth.
We believe our approach has several key characteristics that make it a superior approach to market segmentation. Our rationale is outlined below:
Get in touch with us, and let us help you better understand your customers’ requirements, identify relevant and actionable segments to target, and enhance your offering to both customer and enterprise markets.
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