Is Customer Segmentation Dead?
Late last week, I was reading Andrea Fishman’s column at ClickZ on behaviour targeting and realized that it’s been a while since I last read an article on customer segmentation. I paused to think why. Is it because we’re in an individualist era, and don’t want to be boxed into a pre-defined category? Or does the access to terabytes of data just overwhelms us, and marketers simply don’t know where to turn anymore to identify the ideal audience for a given product? Either way, I decided we should start a customer segmentation series here at Kiwano’s blog, and hopefully provide a better direction to all the marketers out there – particularly the ones that have chosen to specialize in the sustainable and social markets.
How do we define customer segmentation?
Customer or market segmentation is the subdivision of a market into customer groups that share similar characteristics. Needless to say that customer segmentation is most effective when a company tailors its offerings to segments that are the most profitable, and serves them with distinct competitive advantages. Businesses can – and should – use customer segmentation as the principal basis for allocating resources to product development, marketing, service and delivery programs.
So, what are the key benefits of customer segmentation?
1. Lower marketing expenses by targeting certain segments – good for small budgets.
2. Increased effectiveness in marketing campaigns designed to attract that segment, by identifying behaviours and buying motives for your product.
3. You’ll be finding hidden customer needs, which can be leveraged by designing new products and making improvements to your existing line.
4. Tailoring product offering to a certain market segment improves customer satisfaction – and overall customer retention.
5. It’s a bowling pin strategy – knock a pin down first, then the ones around it (i.e. go for targeted segment A, then a related segment B leveraging the credibility established in segment A).
There are many ways you can segment a market. Traditional segmentation tends to focus 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. You can also leverage psychological models to segment your market, such as the Myers-Briggs Personality Type Indicators.
Check back frequently for blog posts on specific customer segmentation models. Which market segmentation system do you use?
Recommended reading:
Leveraging personality type indicators in your marketing campaigns
Who’s your next brand ambassador?
Green marketing: what works, what doesn’t
