Choose Profitable Customer Segment

Choose customer segment is the second part of business development strategy. It is a powerful concept that makes your business more efficient. This article talks about the benefit of segmentation. I answer about what is segmentation, type of segmentation, how to segmentation.

Benefit of Segmentation

To get customer segment, we first do segmentation. That enables us to choose the best segment. Segmentation and targeting is a tool for reducing money/time and competitive strategy. Without segmentation, the business cannot measure their marketing cost, because too much.

Imagine you as a marketer want to sell diapers. You have limited budget and time. Do you offer the diapers to everyone? That is a bad idea, because of that exhaust unpredictable time and money. Cost almost unlimited.

Who will buy your products? Every one?

Not everyone needs diapers. It also applies to others products. Not everyone needs same pizza, clothes, and school. So, marketers identify distinct segments of buyers or segmentation. They identify demographic, psychographic, and behavioral differences between them. They also quantify the group of similar

They then decide which segment(s) present the greatest opportunities. For each of these target markets, the company develops a market offering that it positions in target buyers’ minds as delivering some key benefit(s).

Volvo develops its cars for the buyer who concerns mainly to safety. The company decides a positioning for them as the safest a customer can buy. Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels.

To sell diapers efficiently, we need to classify, and choose who most probable groups of customer that need diapers? You don’t sell it to everybody, but the only group that has baby and toddler. That is segmentation and targeting. Customer segment of diapers is family that have baby and toddler. That strategy reduces cost and time.

Another benefit of the segmentation is competition.  Segmentation enables targeting. How to compete with another diapers products? There are several alternatives using segmentation.

First, go to a geographic area that you can compete or it has no diapers. Second, we break down diapers customer group to a more specific characteristic, for example, economic status.

Instead of competing to generic diapers, it is better to compete with a more specific customer that you can serve better. If you can serve high class better, that is the best choice for you to create products that suit the specific segment customer that you choose.

Usually, people think business idea is products. If we search business idea in search engine, that is about products and service. Usually, people check products idea, whether it is high competition or low competition. That is not enough.

Even you see some products is over service or high competition, it seems no opportunity.  Segmentation helps us see the opportunity.

Segmentation is divide market based on need, want and demand. The concept assumes that customer differs in:

  • the products benefit that they want.
  • Product specification that they want
  • Communication Channel which usually they use to get information that influences their decision
  • Amount of cost or price they are able to buy
  • Time and location that they want to buy
  • Quantities that they want to buy.

That mean, even very high competition, if we divide market based on more specific need, we can find opportunity.

Not all customer needs the same benefit, specification, and price. So if you found the unsatisfactory big market, that is an opportunity to offer your products.

Segmentation also evaluate profit prospects

That is a benefit of segmentation.

What  is Segmentation

Segmentation is dividing the market into several levels of interest and power to buy.  The result is customer segment. That is a definition if you have existing products. If you have no products, you will decide the products later.  First, you make segmentation. You divide market based on your ability to provide and purchase power of the market. You scan several markets, then you decide which segment that you can serve and potential.

The main category is end user (customer), trader or producer (business)? In a new term, B2C (business to customer)  or B2B (business to business)?

Geographic

  • Customer location
  • Region
  • Urban / rural

Demographic

  • age
  • gender
  • occupation
  • social-economic group
  • education level

Behavioral

  • benefits sought
  • rate of usage
  • Loyalty status
  • Readiness to purchase

Psychographic

  • personality
  • lifestyles
  • attitudes
  • class
customer segment

We can target segment market to business to business.

Demographic

  1. Industry: Which industries categories that you target?
  2. Company and business scale: What scale size companies should we serve?
  3. Location geography: What geographical areas should we serve?

Operating Variables

  1. Technology. The technology that customer use triggers specific need: What customer technologies should we target on as segment market? What kind of technology that has a specific need that you want to serve.
  2. User-specific machine or something needs specific need. The frequency of using something also has a specific need. It is segmentation. The user or nonuser status: Should we serve geek users, medium users, rare users, or nonusers?
  3. Customer capabilities also have a specific need: Should we serve special customers based on their capability needing many or few services? Purchasing Approaches
  4. Purchasing-function organization: Some of the business organization rely their decision on purchasing on purchasing division. Another organization relies decision on purchasing at the boss. Where is the type of company that easy to accept your offer. Should we serve companies with a highly centralized or decentralized purchasing organization?
  5. Power structure: Company has several types of dominance perspectives. The type is technology perspective, financial perspective, worker perspective, boss perspective, customer perspective. What perspective that dominated in a company? What kind of company that easies to accept your offer.
  6. Consider your existing relationship. Maybe they can be your customer segment that easies to access and persuade.
  7. Purchasing policies: Should we target companies that prefer specific term of payment.
  8. Product criteria: Should we target companies that prioritize price? quality? Service? Situational Factors
  9. Urgency: Should we serve companies that need fast or slow delivery or service?
  10. Modularity: Should we target a company that tends to apply a certain application of the product. So they need specific function and price.
  11. Retail or trader: Should we focus with or without minimum order? Personal Characteristics
  12. Similarity: Should we target companies whose similar values to ours?
  13. Attitude toward risk: Should we target risk taker company or not?
  14. Long-term relationship to Supplier: Should we target companies that tend to maintain a long-term relationship?

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