Thursday, 18 August 2011

What is segmentation and how does it work?

Segmentation is not about putting customers into neat little boxes and hoping they will conform. Customer are individuals, and diverse. Their behaviours and preferences are circumstantial and may change for indiscernible reasons.

Segmentation is about designing and bringing multiple unique and differentiable propositions to market. ‘Customer segments’ are a tool to aid in this process.

Segmentation increases customer choice, thereby increasing customer value. Customers may choose one or more of the propositions, and their choice may change over time. Segmentation is the antidote to the ‘one size fits all’ syndrome.

Differential pricing is a method for increasing the amount of value you can extract from the market by charging more to those who are willing to pay more, and less to those who are not. However, differential pricing is only sustainable where other forms of segmentation are working effectively.