Customer segmentation is a practice that involves dividing a customer base into groups for the purpose of separating out different kinds of customers. This practice allows companies to market to particular subsets of the market, and to develop products with certain types of customers in mind. This can increase profitability and help companies identify strengths and weaknesses in their overall business strategy.
There are a number of ways to break up a customer base. In customer segmentation, each individual segment should contain fairly homogeneous customers who are distinct from those in other groups. The company can look for common ground demographically, identifying people in similar areas and of similar ages. It can also break customers up by values or by other metrics, such as psychological response to advertisements and promotions. The process requires conducting surveys to understand the market as a whole in order to narrow down the customer base for customer segmentation.
With customers broken up into groups of similar individuals, the company can identify the needs and concerns specific to each area of the customer base. For example, a telecommunications company might learn that it has some customers who are primarily concerned with getting cheap basic phone service, while others may want features on their phone accounts, and others want highly stable and reliable service and are not concerned with cost. Trying to address the customer base collectively would result in not meeting the needs of one or more market segment. Creating customized services and campaigns aimed at specific segments will result in happier customers overall.
Customer segmentation can be a valuable strategy for developing retention campaigns, working on product development, and creating marketing campaigns to attract new customers. It can also reveal valuable information about the way different groups of people interact with and think about a product. This information can be used to more accurately target customers and improve business practices. It can also help companies develop price points and use their marketing funds in more useful ways.
In customer segmentation, companies recognize that customers fall into a number of different categories that cannot easily be lumped together. Finding those categories and separating them out will allow companies to serve all of their customers more effectively. It can also maximize profits and increase overall market share. People who are not currently customers may hear recommendations from other customers who feel like the company provides personalized service and may be persuaded to switch loyalties.