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Segment your customersIntroduction
Only a percentage of the general population will buy your productsor use your services, so the more accurately you can focus on them,the less your efforts will be wasted. It is a good idea not to aim toowidely with your targets, to avoid spreading your resources toothinly.This guide aims to explain the basics of how to sort your customersinto groups. It can help you understand what your customers reallywant and what you can offer them. It also explains how groupingyour customers into market segments is a good foundation forwinning and keeping profitable customers.
Benefits of segmentation
Segmenting your customers into groups according to their needshas a number of advantages. It can help you to:
•
identify your most and least profitable customers
•
focus your marketing on the customers who will be most likely tobuy your products or services
•
avoid the markets which will not be profitable for you
•
build loyal relationships with customers by developing andoffering them the products and services they want
•
improve customer service
•
get ahead of the competition in specific parts of the market
•
use your resources wisely
•
identify new products
•
improve products to meet customer needs
•
increase profit potential by keeping costs down, and in someareas enabling you to charge a higher price for your productsand services
•
group your customers by factors such as geographical location,size and type of organisation, type and lifestyle of consumers,attitudes and behaviour
Customer management
Because your individual customers have differing needs, it will be easier togive them what they want if you divide them into groups sharing similar needs,and treat each group differently.
 
You can then:
•
customise
your products and services for each segment
•
aim
your marketing at each particular group, saving you timeand money
•
focus
on your most profitable customers
Companies usually either target a large segment with many people in it or focus on a niche segment, which will have fewer people in it, but who they canserve well. Many will try to meet the needs of several segments, but primarilythey are aiming for a manageable number of segments with a good number of customers.How you segment your customers will depend on whether you are marketingyour products and services to:
•
businesses or organisations -
business-to-business
or
B2B
 
•
individual consumers or households -
business-to-consumer
or
B2C
 
B2B
If you are segmenting business markets, you could divide the market by:
•
what they do - industry sector, public or private, size andlocation
•
how they operate - technology, use of your products
•
their buying patterns - how they place orders, their size andfrequency
•
how they behave - loyalty and attitude to risk
B2C
If you are segmenting consumer markets, you could group customers by:
•
location - towns, regions and countries
•
profiles - such as age, gender, income, occupation, education,social class
•
attitudes and lifestyles
•
buying behaviour - including product usage, brand loyalty andthe benefits they seek from the product or service
Below is an example of how a computer manufacturer might segmentcustomers to optimise its products and marketing mix, and so command ahigher price.
Users/segment Features provided to address needs
 
FamilyGeneral and educational software, basicgames, DVD player, "safe" access to theInternet, email accounts for each member of the familySmall or home office(SOHO)Business software, fax, broadband access tothe Internet, high quality printing, documentscanning and reproductionSpecialist useSpecialist software and hardwareconfigurations for applications such as designor digital image processing, printing andstorageGamingMultimedia games, broadband Internetaccess, high quality display, sound, specialperipherals like joystick, powerful processor
Approaches to segmentation
To segment your customers, you will need to use variables, such as:
•
an organisation's sector, size, location and buying patterns
•
an individual's age, gender, lifestyle, region, buying behaviourand attitudes
Some businesses use vertical segmentation - selecting particular industries or professions to whom their product or service is likely to appeal. You can alsouse horizontal segmentation, such as selecting only one job title across arange of organisations.
Market research
To find out about your customers, many businesses conduct market research.There are two main types:
•
original research
- which involves contacting your customers,and which will give you detailed information about them
•
desk research -
using published market reports and statisticscovering general markets
For more advice, see our guide on
market research and reports
.
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