What is Customer Segmentation?

Customer segmentation is used when a company needs to appeal to a certain customer base group or groups. Instead of simply offering their service or all of their products to everyone, businesses tailor their products and marketing tactics by using specific target markets. By using customer segmentation, companies are able to effectively allocate marketing resources by targeting only the populations who are most likely to buy what they are selling.

There are several different types of customer segmentation and all have different procedures. While not every segmentation process is used for every type of demographic, they do all have a few things in common. All marketing segments being tested must be stable and not be subject to change too quickly. Meaning, studies must show that the neighborhood, town or city is not growing or declining too rapidly. They must also be substantial enough to draw in profit and the market must be verifiably measurable.

Companies use many procedures for customer segmentation. First, they decide what data will be collected. Then they have to find the best way to collect that data. Most consumer data is collected and integrated from various sources by establishing effective communication such as customer service and marketing business units.

If a company is looking at doing value based segmentation, they will be looking at such things as the client or customer’s revenue generation and the costs associated with establishing and maintaining these relationships, should the occur. They also implement specific applications in order to use this information as efficiently and effectively as possible.

Behavioral segmentation uses variables such as brand loyalty, usage rates, price points and benefits the customers are looking for. By using behavioral segmentation, businesses are able to market to specific potential customers who all have these specific things in common.

Psychographic segmentation looks at such variables as lifestyle, values, and consumer attitudes. Again, by using this type of segmentation, businesses can pinpoint who they are advertising to, and potentially increase sales.

Geographic segmentation revolves around regional variables such as climate, region, population growth and density. Businesses use this information to market to specific clientele in specific regions. This is an obvious segmentation process. Since consumers living in different parts of the country (or world) use different products. For example, a consumer in Colorado would have no interest in a surfboard advertisement, but there are many consumers in the coastal regions would absolutely pay attention to a surfboard company’s commercial.

Demographic segmentation uses the basis on variables like age, ethnicity, gender, occupation, income, and education. Demographic segmentation is perhaps the most obvious to consumers. Notice that ads for kid’s sales always pop up in areas where there are more young families than professionals? This is not done by accident.

If you look around and pay attention to your current surroundings, you will notice that there are stores, products, and services all strategically placed only in areas where there is the most likelihood that there will be a market for that product or service.


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