Many companies often face the question of how to carve out a profitable customer segment and position themselves for success. The answer is found in customer segmentation and positioning strategies.
What is Customer Segmentation?
Customer segmentation is the process of dividing up or categorizing customers into groups (segments) that share common traits such as geographic location, age range, income bracket, etc.
How Customer Segmentation Can Help Grow Businesses
Customer segmentation is the key to creating a profitable business. It’s all about segmenting your customers into ones that are more profitable, or ones that are less profitable. Once you’ve segmented your customers, you can focus your marketing efforts to get the most profitable customers to buy more of what you offer, while also offering discounts and promotions to get the less profitable customers (i.e. “lost” sales) to buy more of what you offer. And when that happens, you will be able to turn an operating profit sooner than if you did not segment your customer base in this way.
Large companies like often use Customer Segmentation in their financial strategy. Segmentation by some large companies e.g., Target often fall into the following categories:
High Income Demographic – Very resourceful and very “self-conscious”
Company’s have unique demographic which could be distinct from that of other retailers. For example, Target’s market demographic is a little different from other retailers because it comprises customer that usually have enough income to buy all of the things they need.
Middle Income Demographic – Sam’s Club and Walmart.com
There is also a much larger segment of customers, those that have enough money to buy the basics but not much more. The strategy for this segment is often focused on acquiring as many potential customers as possible by offering things like free shipping, fast delivery, and overnight availability for free.
Elderly – The AARP market
Retailers also takes into account those that are living into their elder years as well as those that still have large families to shop for. They therefore tailored their products to meet the needs of the elderly as well as young families.
This strategy is very well suited for retailers because it allows them to focus all their efforts on two segments, instead of spreading the “wealth” among many. This simplifies marketing strategies, inventory strategies, and product selection decisions. It also sets up clear expectations for what will be offered based on the target segment.
Recognizing Different Customer Segments
Successful companies must always remember that they’re providing a product or service that benefits the customer in some way. It’s never enough to say “Buy our products”. The reason we pay for our products is because we think they benefit us in some way, so if you want your customers to buy your product, it’s important you understand what benefits they receive from buying it.
The benefits of your products or services may be the same for all customers, but what drives them to want to purchase your product in the first place will vary. This is why it’s important that you understand what each type of customer needs in order to drive them to buy your product or service. It’s essential that you find out what their needs are and then tailor your marketing strategies accordingly. If you don’t, you’ll waste a lot of time, energy and money trying to market a product that isn’t going to sell.
Once you’ve figured out what your customer wants, you can then go about finding ways to fulfill their needs and ensure they buy your product or service in the future. Generally speaking, the two main ways to do this are:
By understanding your customer’s needs and desires, you can tailor your branding efforts and make sure that wants and needs are communicated in a manner that will drive people to buy your product or service. Knowing what the customer likes is also important because once you understand what they like, it’s easier to market to them effectively. You can then use your marketing efforts to build awareness, associate your product or service with the benefits that are most desired by your target segment, and drive them towards making a purchase.
Recognizing the best ways to convince customers to buy is key because in order for your business to be truly successful you will have to not only sell more of what you offer but also sell more of what they request. Target does this well, by tailoring their products according to what each segment wants.
When it comes down to it though, if you’re not able to meet the needs of your customer or even if you do, then you will do little more than survive. To be successful, you need to address the needs of your customer and then fulfill them at a price that you can turn a profit on. That way, when it comes time for them to purchase again, you’ll again be there to offer what they need and at a price they can afford.
Using segmentation in your financial planning is one of the most effective ways to take your company from surviving to thriving. Segmentation allows you to focus all your attention on the products and services that attract your target customers and develop strong marketing strategies aimed at selling those things. By making this transition, you will eventually turn an operating profit instead of just trying to cover overhead costs with “lost” sales made up by shrinking profit margins.
With the right process in place, you will be able to accurately identify where the profits are coming from and pinpoint which products or services are doing well. Then, you can redesign your products and marketing strategies to accommodate these changes. Segmentation is especially effective when applied to different customer types because it allows you to target is exactly what they want and sell them at a price that they’re willing to pay for it.