Customer segmentation

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Academics define customer segmentation as the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. Using segmentation allows companies to target groups effectively, and allocate business resources to best effect.

We prefer to avoid academic definitions and look at customer segmentation as the most effective way of identifying the clients who can provide you with most profit going forward. It can help you identify the clients that are costing you time and money.

Create your segmentation Identikit

The first step has to be to review the segments you've established and look at the key characteristics of each one. You have to define what I call the segmentation identikit.

Imagine you're in a meeting with everyone in your business and outside waiting to come in are clients from each of your segments. Given 30 seconds to describe what type of people they are, what word pictures would you paint? What attitudes, dreams and aspirations do they have and how do they like to communicate?

Put simply, you have to make each segment come alive. Once you've done that it's a lot easier to work on the second stage, which is defining a profitable proposition for each segment.

What will you offer them?

To do this, use the identikit you've produced to answer the following questions about each segment:

• What do they want from you?
• What do they need from you?
• What do they expect from you?
• What do they value from you?
• What can you afford to provide for them?

With these answers you can now start to define:

• what you want to offer each segment
• how they'll pay you for the services delivered, and
• how you'll communicate with them