Customer segmentation is a method for grouping customers
based upon similarities they share with respect to anything that
is relevant to the business. It can be customer needs, channel
preferences, interest in certain product features, customer
profitability, etc. it is, the marketer who first decide on what
basis he wish to segment his customers. Customer segmentation
is the process of dividing customers into groups of individuals
according to their age, gender, interests, and preferences and so
on. This helps the suppliers to improve their services and meet
the requirement of their customers. Customer segmentation also
helps the suppliers to deliver appropriate services to different
groups in ways that are most convenient for them.
Customer segmentation includes – people with different age
groups, gender differences, people with disability, people from
different backgrounds like minority class or black ethnic class
etc. By focusing into factors like geographical locations, size and
type of organization, lifestyle of consumers, their behavior and
attitudes one can segment customers into similar groups. This
helps the supplier to customize and improve his products and
services to fulfill each segment’s needs. Customer segmentation
also helps to identify the most and least profitable customers.
How the supplier segment the customer will depend on whether
he market his products to business or to individuals.
In case of segmenting business markets, the supplier could
divide the market by industry sector, public or private, size and
location. And if the supplier is segmenting consumer market, he
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can group consumers by location such as town, regions and
countries, by age, gender, income profile and customer’s buying
According to an article by Jill Griffin for Cisco System, there are
two types of segmentation –
o Traditional segmentation
o Value based segmentation
Traditional segmentation focuses on identifying customer groups
based on demographics and attributes such as attitude and
psychological profiles. Value-based segmentation, on the other
hand, looks at groups of customers in terms of the revenue they
generate and the costs of establishing and maintaining
relationships with them.
Why segmentation of customers?
In the present day market customer segmentation has become
an essential part of any successful business. The days when onesize-fits-all are long over.
For example, today we buy pink things for girls and blue for
boys. Especially in today’s tough economic competition it is
essential to be accurate and effective in customer services. There
are many ways to divide customers into unique groups. Methods
range from simple to complex, but all these methods should
have the same goal that is how the company can create products
or services that would satisfy the customer’s need.
A few things one has to keep in mind to make a good
o Groups should be made distinct and identifiable.
o Groups should be large enough that they are worth
marketing or selling.
o Groups should be reachable
o Groups need to be profitable or valuable
o Groups should be integrated with larger marketing plan
and make sense in the context of strategic direction.