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Customer Segmentation
Understanding your Customer Base. Customer Segmentation is the subdividing of your market into distinct subsets of customers, where each subset can be selected as a target market itself and reached through specific marketing mixes. It is based on the understanding that every market is comprised of a number of distinguishable groups, each characterised by customers with different needs, attitudes, buying behaviours and intentions as well as different demographic profiles. No universal proposition is available that will satisfy all customers. Benefits Effective Customer Segmentation strategies can form the basis of competitive advantage by facilitating: ¤ detailed understanding of customer needs and buying behaviour ¤ efficient allocation of marketing investment as organisations focus on those segments that are most profitable and most closely aligned to its core competencies ¤ the development of differentiated Customer Value Propositions (CVPs) ¤ product/service uplift through the development of CVPs which are more tailored to meet each segment's underlying buying motivations ¤ a reduction in total cost to serve as the level of service provided is varied between customer segments. Strategies An effective segmentation strategy is the source of competitive advantage for many successful financial services organisations: ¤ American Express. Amex's analysis and segmentation of the high net worth / disposable income market was the process behind the launch of its 'Blue' credit card ¤ Direct Line. Detailed segmentation of the motor insurance market ensures that Direct Line can carefully target low risk drivers ¤ MBNA. Understanding and segmentation of the credit card market allowed MBNA to successfully enter the UK credit card market, despite the dominance of the established clearing banks, by identifying the niche affinity card market ¤ USAA. Uses life-stage segmentation strategies to achieve one of the highest cross holding and retention ratios in the insurance industry. Traditionally financial services organisations have adopted one of three segmentation strategies: ¤ Existing product segmentation uses product profiles, product profitability, demographics ¤ Potential product segmentation uses potential product usage, psychographics, selling history to prioritise resource allocation and define service levels ¤ Life Cycle segmentation uses transaction data, life cycle point, propensity to buy at life cycle point to identify what to sell and increase cross holdings. However the best companies are moving from needs based to intentions and values based segmentation. It is based on the fact that purchasing behaviour is driven by a combination of a buyer's values and intentions as well as the buyer's characteristics, needs and wants. This segmentation strategy allows organisations not just to define new buyer segments and help to more closely define the CVP, but to guide the timing of the sale itself, increasing sales efficiency. If you are interested in obtaining more information, please contact us. |
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