Customer Segmentation

Customers are a prime focus in any business. With this in mind, you should ask yourself how much time is spent on analysing your customers? The Customer Mix is a term used to acknowledge that there are multiple classifications for your customer and as such many different requirements. To break your customer mix up into classifications is known as segmentation. The different customer segments often may attract different sales and marketing pitches but also often command different costings. Pending on how you choose to segment your customers you can track and follow product or service types sales patterns. At this point it starts getting a little crazy because there is just so much analysis and data to deal with when evaluating customer segmentation. If you imagine there are quite a few things that are driven from this one set of data. Sales behaviours, Purchasing behaviours, Advertising Channels, Product Mix, Cost Base, Internal Overhead allocation, customer service time, social media engagement.

Customer and Market Segmentation Pic

A Customer Mix analysis is quite common amongst medium and large business and is tabled religiously at executive meetings. Small and Medium business (SME)’s whilst not formally would still have a form of breaking up their customers and intuitively know of the basic breakup of the customer mix. As with a lot of other facets of business the owner/owner manager retains a lot of the knowledge base without formally documentation. This lack of documentation is a barrier to SMEs gaining accurate and detailed feedback from this or any form of analysis. Thankfully in this day and age with the advent of cloud computing and the availability of user friendly accounting this type of analysis is now readily accessible.

The first step is to find patterns within your customer base, these can be quite straight forward like demographics i.e. age, sex, location. Where it gets a little more complex is when we have combinations of these demographics drive the segmentation of customers for example the following might be classified as Playstation Warriors

• age: 24-38,
• sex: male,
• location: capital cities,
• marital status: single,
• disposable income: high,
• occupation: white collar,
• Platform: Playstation

A key determinant for these segments are Customer Value (how much customers may be worth) and Customer Needs (what your customers need and expect). In your analysis there will always be certain groups that overlap each other and a decision needs to be made whether to recede the current groups and make the requirements more tighter or to create a whole new to avoid overlapping.

Without overwhelming you simple steps are the key to gaining bite sized insights initially. Without over complicating it a recommendation of 3-5 segments will allow value to flow through from this exercise without creating an overload of information. Keeping it simple would be to segment based on location i.e. Metro, Regional and International or potentially B2C, B2B and Government. As mentioned above the key drivers are Customer Value and/or Customer Needs. If you use this as a yard stick you will find that it will give more clarity and direction when setting out to undertake this exercise. If you have been in that industry for a while it should generally come instinctively to you, however it is still a worthwhile exercise to undertake when using value and needs as a driver for the segments.

Segmentation can also be applied to products using the same drivers being value and needs. Ofcourse this is not limited to the two but for simplicity’s sake I would recommend challenging yourself. A word of caution, from the outset this appears to be a simple task though when you get stuck in the middle of it and take into consideration all the unique and one off transactions you undertake you may be poised with a little more than you anticipated. A fantastic way to get your head around where you see customer value and needs. It is strongly recommended that customers are actually consulted on their thoughts. Often there is a perceived notion by owner/managers which is not always 100% in tune with customer’s perceptions. Best to be safe and take full advantage of undertaking this exercise and maximise the insights offered to you and your business.

Happy segmenting.

Posted in Business As Usual.

One Comment

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