Segmenting a market is important for an organization’s ability to focus and develop uniquely appealing offerings tailored to the most profitable customers, effectively outperforming competition in a particular target market. The competitive advantage does not necessarily have to take the form of enhanced product/service features: it can instead involve savvy marketing campaigns or dynamic pricing strategies. Customer segmentation helps companies in their resource allocation process and value adding prioritization scheme. It can be carried out based on any number of customers’ demographic or psychographic attributes (age, income, ethnicity, education, gender), but an increasing number of researchers have expressed skepticism with this approach and instead propose to segment customers based on the circumstances under which customers proceed with a purchase, the reason why they buy the client’s product (the jobs-to-be-done approach).
- Identify measurable market segments that are meaningful to the client’s value proposition
- Carry out (or use results from) customer surveys, focus group, and 1-on-1 interviews
- Determine the profit potential of each segment by analyzing the cost and benefit of serving each segment
- Target segments according to their profit potential and the client’s capabilities/objectives
- Invest client’s resources to match offerings (product differentiation, pricing, marketing, distribution) with the characteristics of the selected segments.
- Prepare organization to adjust its offerings to future changes in market conditions