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Need Of Customer Segmentation and its Impact on strategy

Hey There… Let’s start our talk by understanding Customer Segment first.. than we can better understand it’s impact of business strategy…

What is customer segmentation:

Customer segmentation is dividing a big group of consumers with varying needs into smaller groups of consumers with same needs.

To understand it a bit more, i have an exercise for you.

Exercise 1: Match the right product with the right customer segment

if you have chosen Salaried executive for the golf ball, Photographer for DSLR and Transport Company Owner for GPS..  You are correct….

Yehhh… that’s easy..  anyone can do that…

It is so easy then why it’s a serious matter to understand and learn..

Let’s do this exercise once again..

Now imagine you are the product manager for a Car Company, for example, Hyundai..  And you need to decide the right segment for each car getting sold in your country..

Exercise 2 : Fill the blanks with the right customer segment.. (you can do a bit of research online about cars)

Is selecting the right customer for each segment is as easy as it was in Exercise 1?

NO, its not.. Exercise 1 has with obvious choices, but the second one seems more complicated..

In Exercise 1 you had different product lines with no similarity in product at all. So being a customer you don’t need to use multiple selection criteria. However in Exercise 2 products are from same product line with few different specification, hence customer will use multiple selection criteria to chose one of them. In case of this Exercise 2, selection criteria can be Price, Family Size, Driving Condition, Purpose of Driving, Geographical Challenges, Few specific features and more.

So here comes your need of skill as expert of Customer Segmentation. You have to insure that your company is designing, marketing and saling the right product to the right customer.

Impact on strategy?

To find customer for product of your company first of all you need to know that for WHOM you are designing this product. Now to find this ‘WHOM’ you need to do customer segmentation. If you don’t do it, your marketing strategy will most likely yield undesirable results, because you are targeting your efforts at the wrong segment of consumers who, in most probability, have their buying interest laid elsewhere.

Customer segmentation is very crucial for:

  • Designing discount/offers strategies
  • Customer retention program
  • Hiring right set of front line staff
  • Selecting the right time for launch
  • Finding the right partners, mentors or investors
  • And more..

These are really important points to understand for a start-up while preparing its strategy.

To understand how to build customer segment, check “Points to keep in mind while building customer segment” in the related post section.