Here’s How To Get Your Market Segmentation Right- Valutrics

In an era of crowded communications, where all of us are constantly bombarded with information, it helps to engage in well-defined marketing and communications as a business.

For this, it is important to answer two questions: ‘To whom should we sell our products?’ and ‘What should we sell to them?’

If there is one thing that can help any business answer these two fundamental questions, it is market segmentation.

This is simply the process of dividing customers on the basis of common needs or demands into various groups or segments, defining their traits, and then tailoring the product mix according to each group or segment’s unique demands.

Information services provider Experian defines six steps to effective market segmentation in one of its white papers. They are as follows:

Define a goal for the segmentation strategy

What do you hope to achieve from segmentation? If you answer this early on, you will know which direction to move in. There could be various aims to the segmentation process such as identifying customer needs to make more suitable propositions to them, identifying new target customers, improving customer retention, identifying opportunities for cross-selling or up-selling. 

Start with your own customers

Every existing business will have a set of customers and their data. A good point to start segmentation is to build a database of existing customers, define their traits and needs, perform simple data analysis for each product/ service, use transactional data to profile customer types and finally cut and slice the data from different angles to see what patterns and trends emerge.

Define the value proposition

Building on the initial profiling of your customers, you should next look at the value your customers add/ bring to the business. Value is defined as the monthly or annual profit per individual customer (or revenue, if profit figures are not available). You can also use propensity modeling to check the potential value of a customer from up-selling or cross-selling. Retention is also an important factor to consider while mapping value.

Identify market research requirements

Once you have the broad or first outline of various segments through your data analysis, you can further research chosen segments and ask customers what they need, want and do and through these insights arrive at actionable conclusions for each segment.

Build up a range of segmentation tools/ approaches

Now that you have your analytical profiles and market research in place, you can mix and match these to create a range of segmentation tools. You can choose your approach according to the goals you identified in the first step. 

The kinds of segmentation possible broadly include value, behavioural, socio-economic, geographic, demographic, psychographic, attitudinal, lifestyle, customer lifecycle phase and preference based.

Make your segments actionable

Once your market segments are well-defined and clear and as the segmentation evolves, ensure that the end users of this output – product managers, call centres, pricing, and communications – are all engaged and contributing to its development. This will make your segmentation process fruitful to the entire business in the true sense.