Firms use segmentation to approach their customers individually by identifying groups or segments of customers that are similar in specific ways pertaining to marketing, such as age, spending habits or use of same products. Customer knowledge indicating their preferences and habits allows a company to create special products and services tailored to specific segments. Different marketing campaigns can be targeted at individual segments in order to set precise objectives for them. As a result of segmentation, a vendor gets improved results across its portfolio of products and services.
Segmentation as a process
Creating segments is essential but it is only the first step. The next crucial step is to integrate the segments into the firm or organization’s operations. Once set up, segmentation can be applied to other similar categories of products and services, or it can be used to communicate more effectively with the individual segments. The last phases of segmentation are monitoring, reviewing, and updating.
Correctly creating segments identifies groups or segments of customers with similar needs and in a timely way. Using data mining models and/or special expert rules, we create segments to identify and propose customers’ division into groups based upon all available data. All customers are initially categorized in a segment though the classification is not permanent as customer profiles inevitably change over time. Consider for instance the low-income university student who later becomes a high-income manager with a completely different standard of living.
Integration is a key step to successful segmentation. When correctly integrated into the company’s operating systems, be it in the marketing department, sales, customer service, human resources, or finance department, strategies can be defined and clearly implemented for all customers ensuring the most appropriate form of contact with the customer is maintained.
Once integrated, segmentation can be used to provide a unique approach to differing groups. The current value and potential of each segment can be determined. A variety of products can be offered and select means of communication established. Customer segmentation not only takes place in sales and over the counter (Front Office) services, but also at the operational support level (Back Office), such as when mailing statements or waiving fees.
Monitoring allows you to see how your customers move across the segments, how the number of segments changes, how the response rates in individual segments vary, and whether any major product changes or changes in the characteristics of the segments have occurred. A timely alert of a drop in the performance of segmentation leads to rapid response and overall improvement of the system.