Entrepreneurs are happiest when they have customers and do not have to worry about next month’s revenue. In the beginning, customers choose the business. However, it is risky to only have customers who choose your business. It is better for the business to choose its customers.
Segmentation enables a business to identify new potential customers. Segmentation is the process of dividing the market into segments or categories.
The following criteria may be used to segment the market.
- Geography: Location, market, sector, or trade
- Demographics: Age/life stage, income/revenue, gender, or size
- Purchase Behavior: Purchase criteria, price sensitivity, time of purchase, or size of purchase
- Psychology: Personality, qualifications, life style, or values
For segmentation, the following four criteria may be used in isolation or in combination. For example, the business-to-business (B2B) sector may be further categorized based on the size of the organization. By combining criteria, more specific customer segments can be identified.
Think about the customers the business currently serves and the customers the business could serve. If the business serves the US, in the future the business could target customers in Canada. Segmentation highlights unexplored customer segments and allows the business to target new customers.
Once the customer segments have been identified, the segments may be prioritized. This enables the business to identify its best customers. Customers may be valuable for different reasons. Some may be profitable or loyal. Others are great references for new customers. With the prioritized segments, you can determine how to best allocate your resources. It’s all about identifying which customers you approach proactively and which customers come to you.
Customization is another benefit of segmentation. The business can tailor its products and marketing to fit various customer segments. For example, the business can customize how it communicates with segments. One segment may prefer a mailed brochure, while another segment may prefer an email. Segmentation allows a business to better serve different customer needs and preferences.
By customizing your product offering and marketing efforts, the business also saves money and uses its resources wisely. Instead of sending out hundreds of brochures, send a hundred brochures to the customers most likely to respond. When determining the customization, data is a prerequisite.
Historical data and customer data improves customer segmentation and the associated customization. It is essential to collect customer’s information and store it in a database for later reference. Surveys, questionnaires, or customer loyalty programs can be used to collect customer information.
Choosing the right customer segments is one of the most important decisions an entrepreneur will make. Simply relying the customers who find you is not enough. It is best to proactively identify and seek out your best customers. Even as the business grows, periodically check your customer database to identify new opportunities for growth.
For guidance on customer segmentation and identifying your best customers, schedule a GrowthWheel consultation.