Segmentation Drives Sales and Customer Satisfaction

At the core of any successful marketing strategy is the ability to create a sustainable and profitable competitive advantage in the customer’s mind. Many strategic marketers would agree that the most value is created when the organization is able to provide both lower costs and superior benefits to the consumer. Keeping this in mind, an organization must establish its marketing strategy around effectively identifying the needs and wants of target customers. Because not all customers are alike, segmentation is one such way to do this.

A well designed, robust customer segmentation study provides the necessary insights into the implicit and explicit needs of the customer. Segmenting target audiences develops an understanding about the drivers of purchase decision and is essential to developing an effective marketing strategy that drives sales success. Segmentation can enable an organizational customer-centric focus that makes for better decisions, leading to greater customer satisfaction, revenue, and profitability.

Why Segmentation?

While every customer has a unique set of needs and wants, organizations generally can’t afford to market to each individual. But the organization cannot treat them alike either.

The motivation and benefits of segmentation are clear, but the way to go about segmenting can be a bit more ambiguous. A robust segmentation scheme contains multiple factors, and is usually developed through comprehensive market research that identifies offers most relevant to customers in each target market:

• Demographic segmentation is based on characteristics, such as age, gender, race, income, occupation, education level, etc.
• Psychographic segmentation is based on variables such as values, attitudes, interests, or social characteristics, etc.
• Geographic segmentation is based on regional characteristics such as urban or rural, regions, counties, service area, population density, etc.
• Behavioral segmentation is often based on the function needs and wants of products or services, items such as price, service, function, brand, quality, performance, image, service, or other benefits sought.
• Operational factors in business segments can include items such as business type or size, products or services offered, markets or customers served, etc.

Mass marketing approaches offer the same marketing mix to all customers. Driven by the economies of mass communication, repeated use of methods, and generalized distribution, this method is usually recognized by customers as a generic strategy with little effort to meet their specific needs, thus resulting in little customer loyalty.

Targeted or segmented marketing approaches, on the other hand, do not try to satisfy all customers with a common offer. The diverse sets of customer needs are addressed through sets of offers closely aligned with expressed needs and wants of the customers in the segment. Segmentation research helps marketers understand the buying behaviors of groups of customers, within in a market, based on common characteristics or similar sets of needs and wants. Segmentation research develops deeper knowledge about the drivers of customers’ purchase decisions that enables marketers to more precisely develop a marketing offer, ultimately resulting in a positive differential value and likely a purchase.

Building a Segmentation Approach

Once research has defined target segments, organizations can begin building a marketing approach for each segment. For a segmentation approach to be effective and sustainable, the segmentation scheme should meet the following criteria:

• Operational:  the differentiating attributes of the segments must be measurable and useful in identifying customers,
• Reachable:  through communication and distribution channels,
• Sufficient:  of a size and profitable enough to justify the resources required to target them,
• Unique:  customers in the segment will be responsive to different sets of the marketing mix,
• Stable:  to minimize the cost of frequent changes, and
• Actionable:  the needs of the customer and resources required to serve them are consistent with the company’s capabilities.

Utilizing a segmentation approach in your marketing strategy can provide benefits in many ways. It will enable a customer-centric mindset throughout the organization by bringing the customers’ needs into focus. Segmentation can also help uncover untapped opportunities for product and service innovation, growth and expansion, and can result in more alignment and efficient use of the organizations resources that will drive competitive advantage, customer satisfaction and loyalty, as well as revenue growth and profitability.
 
In general, customer segmentation processes includes these steps:
 1. Research:

• Develop a segmentation hypothesis utilizing internal information, secondary data, and expert opinion to develop a proposed framework.
• Decide what data will be collected and how it will be gathered.
• Identify and develop appropriate methods of data analysis.
• Through an iterative process, collect qualitative and quantitative data with appropriate tools and methods.

2. Identify Segments:

• Create the segment profiles from the criteria and variables that drive the segment differences.
• Identify attractive segments through a quantitative assessment
• Align segments with the organizations resources and product mix.

3. Build Targeted Offers:

• Testing tailored offers to members of those segments to validate the approach.
• Refine and finalize the segmented marketing offers into marketing programs and communications.
• Promote Offers to Target Segments
• Build and implement a communication plan to align the organization around the segmentation strategy
• Integrate segmented approach into demand creation strategies and action plans.

The professionals at Adayana can help you uncover the opportunities that lie within a market-segmentation approach with our proven methods and collaborative approach to problem solving. Let us accelerate your success through market segmentation and research. rmcmanusadayana [dot] com (Contact us) today.
 

Bibliography

Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985.
Baron, J. and Hollingshead, J., Making Segmentation Work, Marketing Management, 2002