What is Customer Segmentation?
Customer segmentation refers to the division of the customer base into specific types according to purchasing behaviour patterns. Understanding the various types of customers that you may encounter while attempting to sell products or services is an important part of the marketing process.
Table of Content
- 1 What is Customer Segmentation?
- 2 Customer Segmentation
- 3 Customer Segmentation Strategy
A peek into the psychology of how and why purchase decisions are made is a valuable asset for any business owner.
Customer segmentation can be categorized into this segmentation:
- Ready-to-Buy Customers
- Potential Customers
- Repeat Customer
- Sale or Discount Customers
- Impulse Buying Customers
Ready-to-buy customers often have a sense of urgency. They have done some preliminary research or at least have an idea of something that they need. Because there is an actual need, the issue for a salesperson or service provider becomes finding out what the requirement is and filling it.
Once you demonstrate that you have what the customer needs, they can become a client. If what they need is ongoing, they could become a valuable repeat customer. Therefore, handle the situation in the best way possible for the most lucrative outcome, which is to gain a repeat customer.
While every person who enters a store or visits a website has the potential of becoming a customer, many of these types of customers are simply gathering information or browsing. This kind of customer is usually in no hurry to make a purchase, given that there is no urgent need to do so.
This is when having a sales message strategy in place can be helpful, so that you can present it to them and more easily make a sale or sign someone up for a service.
The most loyal customer is a repeat customer or one who regularly uses a company’s services and purchases its products. This type of customer is the lifeblood of the business and should be respected as such. Because they were satisfied the first time, they returned for more services or products.
Therefore, as long as you continue to satisfy their needs, you have a repeat customer. It has been estimated that it can take up to five times more work to replace a loyal customer as it would to simply continue to service them well enough to keep them.
Sale or Discount Customers
Sale or discount customers always shop for the best deals available on the items they want to purchase. They are a regular fixture at stores to find store-only sales and avidly read newspaper ads, store circulars and pay attention to local deals.
They may also conduct price comparisons online before heading out to visit a store. Most of their purchasing decisions are based upon how high the markdown in a sale is at any given time.
Impulse Buying Customers
Customers who make purchasing decisions based upon a whim or a great sales presentation usually are not in a position of needing anything in particular. They may arrive at a store or website to buy something they do need but then stay to look at other items. Often, this type of customer will make a decision on the spot for something that seems good to them at some particular time for a need-based reason.
Customer Segmentation Strategy
Once a business has identified its target market–the people most likely to purchase its goods and services it may divide the customers further using segmentation strategies. Customers in these segments share one or more characteristics. Using this knowledge, the individual responsible for marketing a small business develops specific plans to reach these targeted customers effectively.
Segmentation allows companies to build relationships and loyalty in customers by better providing for their wants and needs. Although a company could use countless variables to segment its overall market, there are a few variables that are most commonly used for customer segmentation:
Demographic segmentation involves dividing the customer market using variables such as gender, age, income, level of education, occupation, socio-economic status, type of family(traditional, divorced, single parent), religion, language, culture and nationality.
For example, a product may succeed in one area of the country and fail in another due to the concentration of a particular culture or nationality. Toys and clothes are usually marketed to particular ages and genders, and some services are created specifically for those in a particular income bracket (e.g.housekeepers, nannies, landscapers).
If your target market is families with young children, a demographic marketing strategy would have you searching for advertising opportunities in magazines, online newsletters, websites and other publications that cater to these families.
Geographical segmentation divides the market according to a specific location and can refer to an overall country or state or can be divided further by neighbourhood. Geographical segmentation can also use variables like climate, size of city or town, rural or metropolitan area, and type of landscape (mountainous, beachside or farmland).
This allows companies to determine the kinds of products that are useful or necessary in specific areas. For example, a company specializing in surfboards and other beach sports equipment will focus its efforts on states such as Florida and California where surfing is a popular sport.
This strategy allows for targeted communication as well. If the company is using billboards in a beach area, the message is more likely to reach its intended target than placing the same billboard ad in the middle of a city.
The psychographic strategy divides the customer market according to values and lifestyles, social status and personality type. This type of segmentation separates the market by how a person living a certain lifestyle responds to the consideration and purchase of a product or service. Interests, attitudes, opinions and values all contribute to a person’s view toward a product or service.
For example, those with liberal political views may not be interested in a new book authored by a very conservative author. Using this strategy, a company can present its products in a way that makes them attractive to a particular group, according to their status, personality or values. Higher social classes may be more open to additional services, features and exclusive sales, as an example.
The behavioural segmentation strategy means that the company uses information obtained regarding its customers’ needs and their reactions to the needs. Behaviours may include customer loyalty to a particular brand; paying the asking price for purchases or living on a restricted budget; repeat purchases or first-time customers; or customers who are ready to purchase or ready to compare to what they have seen elsewhere.
Customers segmented using this strategy may also be divided according to the way they use the product or service or the intensity with which they use it. For example, a customer who hires a cleaning service once a week versus one who hires the same service once every six months.
If a company realizes that there is a need for additional choices from a line of products in order to provide more variety to a loyal customer, it can develop the products based on the knowledge received via this segmentation strategy.