If you don’t do or “get” segmentation, your business is really missing out on dollars and opportunities. Segmentation is the secret weapon of any effective marketing program. In it’s simplest form, segmentation basically involves putting your customers into “like” groups; women or men, for example. Ever wondered why we segment or how someone decided on segmenting?

Segmentation came out of the need to communicate more efficiently with customers. One-to-one communication is the ideal, but as markets grew beyond the “village” that became inefficient and expensive. So marketers moved to mass communication. But then, the messages applied to some customers and not others. Finally, marketers started grouping people into segments that reacted similarly to their message. And today, as the world shrinks through the internet, segmentation is even more critical as we once again come around to one-to-one marketing.

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Not every group is worthy of being its own segment. There are some rules that have to be followed.

  1. Mutually Exclusive. Your segments cannot be overlapping and your customer shouldn’t be a member of two segments at the same time.
  2. Substantial. There have to be enough members of a segment so that you can take advantage of the economies of scale in communicating with them. So, a segment of 3 low-volume customers wouldn’t justify a whole segment. It has to be big enough either in terms of members or dollars.
  3. Homogenous. A workable market segment has members that are similar enough to react the same way to your marketing message or offer. They need to value the same things, do similar things or interact with your product or service in a similar way for your segmentation strategy to work.

How to Start Segmenting

  1. Take a Customer/Product Inventory. The best place to start is to literally pull out a list of your customers and what they buy from you. You can even use your customer files or a sales report by customer, by product and in descending profit margins.
  2. Create a Demographic Profile. Now simply identify the visible characteristics of these customers. Gender, Age, City, State, Country, Products Purchased, Volume, Education level, etc. Basic demographic information is what you can see and document about the client.
  3. Look for deeper segments. Most people stop at step #2. but the ones who persevere to this step can really hit pay dirt. Here are some other segmenting opportunities: Product usage – how do they use your product, in what applications? This is a great segmentation tool for Business to Business marketers or for industrial markets. Psychographic or Lifestyle segments; what are their attitudes about life, themselves and how they live? There are some fabulous tools out there for PRIZM is a lifestyle database that groups people into zip code communities. It’s an ideal resource if you’re selling to consumers or in retail. Another resource is VALS 2 which separates people into 8 values and lifestyles groups.

You should be running at least two segmentation schemas at any time; the basic demographic profile (because you have to know who you’re selling to, what you’re selling and where it’s going.)? But don’t stop there, move on to these more sophisticated segmentation options because this is where the real profit opportunities are.

  • High Usage Segments. Do you have customers that purchase high volumes frequently? You can put them on a “retainer” or contract that saves them time, effort and money and assures you of their constant order.
  • On-Demand Segments. Do you have customers that always order at the last minute and want it now — no matter what the cost? Set up an overnight or emergency on-demand offering at a much higher price.
  • Hand Holders. How about customers that requires a lot of service and hand holding? They may be willing to pay more for your attention.

Those are just three easy examples of benefit segments that can and will increase the profitability and loyalty of your customers. Not only that, but it will set you apart from other providers who haven’t caught on.

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