Customer needs vary according to the type of customer; where a business executive needs a slick and sophisticated phone that looks good in order to impress clients, a manual labourer needs instead a sturdy and rugged phone that will withstand the conditions he works in i.e. dirt, dust, heat, water etc. By looking at customer needs and putting together products and services that are clearly differentiated to meet the requirements of different segments, companies can strengthen their position and thus expand their market share. All this purely because they better meet the needs of different segments.
We are going to take a look at how to differentiate products according to these customer segments.
A market segment is:
- A marketing term which splits up they whole market into smaller sub-sections. These comprise customers with similar preferences, demands and tastes
- A small unit found within a larger market which is made up of like-minded customers
- Absolutely distinct from other segments
- Made up of buyers who have similar interests and think in the same way
- Full of customers who will react in a similar way to any changes in the market
4 Basic Types of Customer Segmentation
When putting in place customer segmentation, the first step is to work out the type of customer who will most prefer your products; they will then belong to your targeted segment. Think about who would want your product, if it fits well into the segment and the wants and demands of that segment. Before creating any new product, you first need to define the market segmentation.
There are 4 basic types of customer segmentation:
This is one of the most simple and widely used types of segmentation with companies using it to ascertain the population using their product. This is then broken down based upon several variables such as age, gender, size of family, occupation, income bracket, race, nationality and religion. You can see good examples of this within the car market as different price bands are used when vehicles are produced. Maruti has a low price bracket aimed at those with a lower income whilst BMW/Mercedes focus on the higher-end buyers. So as we can see, here the demographic segmentation is based upon earnings. The segments can be further refined by using life-cycle and gender.
Here the market is divided according to behaviour, decision making patterns and usage i.e. younger people may prefer to buy the Dove soap whilst those into sport will use one like Lifebuoy; this clearly illustrates segmentation split according to buying behaviours. By taking these preferences into account, a product can be marketed correctly. This type of segmentation is used heavily in the market for smart phones; Blackberry is very much aimed at business people whilst Samsung is targeted at those who prefer Androids and certain apps for free. Apple very much has a premium edge and is directed at those who like to be part of a select niche. If we look at certain times of year and festivals such as Christmas, buying patterns change dramatically so this should be taken into account at the appropriate time.
Here we focus on the lifestyles of buyers and take into account such things as opinions, interests and activities. A little like behavioural segmentation, it goes into more depth, looking at consumer buying behaviour and different psychological aspects, bringing into play social standing. This is used widely across all markets. Next is very much focused upon lifestyle; if buyers want the latest in trendy clothing, a visit to a Next store is suitable. Office is aimed at the office type of lifestyle and those that want to look smart and professional at work.
Here the market is broken down geographically, which is fairly easy to do. Taking a group of possible customers, who would be looking for different things based upon where they live. Those living in the countryside may shop less frequently so may prefer to buy goods in bulk that are long lasting; city shoppers will tend to buy in smaller units and will be attracted more by convenience and smaller packages that are easy to hand-carry. If we take this to a bigger scale, buyers in cold countries will always be looking for forms of heating whilst those in hot countries will be far more likely to want air conditioners. Because this type of segmentation is very easy to apply, it has been used a lot by many industries. However, whilst the reach of this type of segmentation is still very high, it is more often used when a business is expanding or wanting to move into new territories, particularly international ones.
Advantages of Segmentation
So far we have seen that customer segmentation can be used very effectively but we must remember that it is impossible for any business to be all things to all customers; there will always come a time when you have to focus on your particular type of customer rather than trying to please to broad a group. A more realistic way of looking at this is to say that you can offer the ideal solution to a large group of buyers and that this should be substantial enough to allow you to grow your business successfully. The way to go is definitely to produce a smart customer segmentation strategy rather than one that tries to be all-encompassing.
This brings with it certain advantages:
- You understand a smaller group of buyers deeply – once you get to know your buyers really well, you can far more easily communicate with them at a serious level. By doing this in an empathic way, the buyers will feel more drawn to you and it will be far easier to convert a lead and make a sale.
- You will find that case studies have a higher impact on future prospects – once you get your customer case studies spot on, your chances of converting prospects will go up, particularly when you are able to relate to them so accurately.
- You will be able to eliminate competition that is too general to understand your segment – you will have taken the time to put together plenty of inside knowledge appertaining to your customers, both old and new. In possession of this valuable data, you will have the most inside knowledge and will therefore be able to knock the competition into touch.
- You will be empowered to identify your ideal customer profile and become a honed production facility instead of a job shop – now you will be creating products or services specifically designed to target your customer; the specification will not need to change per person. Think of the time and money you will save by not having to customise each product before it goes out. By standardising your list of prospects and your targeted customer segment, variances in offerings can go out of the window.
Market Segmentation Plan
There are four simple rules for market segmentation that you need to follow in order to be successful:
- Don’t make the mistake of defining your segments too broadly – this way you will always be left with an opening provided by competitors who target too narrowly.
- Organize your business by market segments – start off by putting together market-focused groups or teams and then you can split these down into focused business models.
- Manage your segments globally – it can be a mistake to opt for regional organisation as later on you might find yourself falling short when it comes to responding to a more vigorous global economy.
- Complete your analysis and research and form a strategic market segment portfolio – you can then go forward confidently, hitting the desired segments.
Segmentation, Targeting and Positioning (STP)
This segmentation, targeting and positioning process clearly shows the links between an overall market and how a business may choose to compete within that market. If you think of this as a procedure, then segmentation needs to be carried out first, followed by selection of the target markets – this can be more than one. Finally the implementation of the positioning can take place. The goal of this STP process is to clearly lead the business towards the development and implementation of suitable marketing mix. This is clearly shown in the diagram below:
Why it is crucial and why you must start now
In order for your business to be successful, it is essential that you differentiate products according to customer segments. If you do not and take no account of your target customer, then in theory you end up not knowing what to sell or who to sell it to. A competent marketing strategy along with effective segmentation will not only improve your competitiveness but also your brand recall and retention of customers. In turn, communications will be vastly improved and you will be able to expand your market efficiently, proactively and profitably.