Customer segmentation is a crucial aspect of running a successful business. By understanding your customers and tailoring your offerings to meet their needs, you can create, communicate, and deliver products and services that resonate with them. Customer analytics, especially segmentation, helps you achieve this effectively.
In this article, we will explore the ‘S T P framework’ – segmentation, targeting, and positioning – a fundamental marketing framework that applies to all areas of business and marketing activities. We will focus on segmentation and delve into the process of dividing a population of potential or existing customers into groups that share similar characteristics.
Contents
Segmentation: Dividing Customers into Groups
Segmentation is a process that involves dividing customers into groups based on similar characteristics and behaviors. These segments enable businesses to tailor their marketing activities and offerings to better serve each group’s specific needs and preferences.
For example, consider the market for chocolate candy bars. Not everyone likes the same brand or can afford the same brand. By segmenting customers based on characteristics like income, age, and gender, marketers can identify groups that prefer a certain type of chocolate and respond similarly to different marketing activities.
There are two broad groups of characteristics used for segmentation: demographic and behavioral. Demographic characteristics include age, income, education level, and other factors. Marketers rely on these characteristics when consumer behavior data is not available, as is often the case in new product development.
On the other hand, behavioral characteristics are based on consumer behavior data, such as purchase history, buying frequency, and product ratings. These characteristics provide more representative segments when available.
Targeting: Selecting the Right Segments
Once we have segmented our customers, the next step is targeting. Targeting involves evaluating the potential profits from each segment and deciding which segments to focus on. Marketers consider factors like segment sizes, expected growth, and competitors’ offerings to make informed decisions.
Targeting also includes selecting the different ways to promote products. For example, one segment may be targeted through TV advertising, while another may be targeted online. These activities are often based on qualitative examination and psychological factors, which go beyond the scope of this article.
Positioning: Meeting Customer Needs
Positioning is the final step in the ‘S T P framework.’ It involves understanding and meeting the needs of customers in the targeted segments. Marketers analyze what characteristics a product should have and how it should be presented and distributed.
Positioning considers not only the product’s characteristics but also how it is communicated and presented to customers. This process is known as the Marketing Mix, which focuses on four variables: Product, Price, Promotion, and Place (also known as the 4 Ps of marketing).
The product relates to the core attributes and features of the offering. Price refers to the pricing strategy and how it is perceived by customers. Promotion involves communicating and advertising the product. Place concerns the distribution channels and locations where the product is offered.
FAQs
Q: Can customer segmentation be applied to online stores as well?
A: Absolutely! The techniques and concepts discussed in this article can be applied to online stores, as well as physical stores. The main difference lies in the availability of data, with online stores typically having more diverse and detailed data about customer behavior.
Q: How can data analytics help in customer segmentation?
A: Data analytics plays a crucial role in customer segmentation by providing insights into customer behavior, preferences, and demographics. With the help of data analytics, businesses can identify and understand customer segments more effectively and tailor their marketing strategies accordingly.
Q: What are the benefits of customer segmentation?
A: Customer segmentation offers several benefits, including:
- Improved marketing effectiveness: By targeting specific customer segments, businesses can create more relevant and personalized marketing campaigns that resonate with their target audience.
- Enhanced customer satisfaction: Understanding the unique needs and preferences of different customer segments allows businesses to provide tailored products and services, leading to higher customer satisfaction.
- Increased profitability: By focusing on the most profitable customer segments, businesses can optimize their marketing efforts and allocate resources more effectively, resulting in increased profitability.
Conclusion
Customer segmentation is a powerful tool that allows businesses to understand and cater to the unique needs and preferences of their customers. By leveraging the ‘S T P framework’ and conducting effective segmentation, businesses can develop targeted marketing strategies, enhance customer satisfaction, and drive profitability.
