It's not hard to buy into the theory that the more you know about your customers - the better you can find them, serve them and most importantly, keep and grow them.
This is hardly a new phenomenon, but the approach to it has certainly changed over time. What is customer segmentation then, how is it done and how is it used to best effect?
"We believe that a company needs to break both its existing and potential customer base market into smaller segments of 'similar' customers, and tailor its campaigns to each of these segments," says Knowledge Factory catalyst Geraldine Mitchley.
Analysts and marketers of blue chip companies around the globe will tell you that customer segmentation is a great tool for understanding customers and connecting with them, but few companies do it effectively or can boast much success.
This may be because they haven't thought through the types of segments that would best serve their objectives, or perhaps it is because the logistics involved in accurately segmenting their customer base are simply overwhelming.
Mitchley believes that smart customer segmentation involves:
Consolidating customer data and information from a variety of sources and systems.
Ensuring that the data collected is accurate and in a consistent framework.
Understanding, identifying and separating profitable and unprofitable customers.
Statisticians, analysts and data miners defining algorithms to analyse the mountains of data in order to group customers into segments that are meaningful to your business.
A robust infrastructure for aggregating, storing, processing and circulating information about customers to the people in your organisation who need it and
A process for further information gathering, measuring performance and learning more about your customers with every interaction, so your customer segmentation knowledge improves and works better for you, each time you use it."We need to move back to basics when looking at the prerequisites for market segmentation," continues Mitchley:
It MUST be measurable: The size, purchasing power, potential profit and profile must be measurable.
It MUST be large enough: A segment that is too small is not profitable to pursue.
It MUST be accessible: The market segment must be reachable on the ground.
It MUST be actionable: It must be possible to develop separate market offerings for different market segments.
It MUST be differentiable: Different segments must exhibit heterogeneous needs; this allows for tailoring the approach based on specific needs and aspirations.The ultimate goal of good segmentation is to understand both prospective and current customers thoroughly, in order to provide them with a product/service/value offering that they simply cannot refuse - because it meets their specific needs in a manner that makes them feel good about doing business with you.
Then repeat the process again and again, until your relationship transcends mere convenience and your customers begin to trust you to anticipate and fulfil their needs, wants and desires - time and time again.
