Customer segmentation

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 decides 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 disabilities, people from different backgrounds like minority class or black ethnic class, etc.

By focusing on factors like geographical locations, size, and type of organization, the 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 markets his products to business or to individuals.

In the 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 the consumer market, he can group consumers by location such as town, regions, and countries, by age, gender, income profile, and customer’s buying behavior.

According to an article by Jill Griffin for Cisco System, there are two types of segmentation

  • Traditional segmentation
  • 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.