A customer segment is a group of prospective consumers with similar products and services. Potential segments can be based on age, gender, income, family structure, affluence, city size, location within a country and around the world, interests, life style, behavior, psychological characteristics, culture, and product function. Segmentation is also found in business-to-business relationships. Businesses can be segmented by product and service needs, business function, and industry, location within a country and around the world, culture, and by the size of business.
The goal of segmentation is to target and sell to consumer groups that have similar characteristics and demand habits. Segmentation can be useful in describing the target market, but it should be used sparingly. Potential customers can be a member of many segments. There is a tendency toward over segmentation. There are three key criteria available for developing and using a customer segment. The first question relates to whether the customer segment is easily identified and whether the customer segment makes sense? The second question is related to the first and asks if the individuals in the customer segment are relatively homogeneous? The third question relates to being able to target and reach those customers in the segment. Can the organization effectively use advertising and promotion to target those customers in the customer segment?
Segmentation and grouping are typically based on age, gender, income, family structure, affluence, city size, interests, life style, behavior, psychological characteristics, culture, and product function. However, many businesses and marketers use more detailed and descriptive words to describe their customer segments. Here are a few of the many words that can be used to describe customers segments:
Traditionalists, Conventionalist, Survivalist, Easterners, Westerners, Northerners, Yankees, Southerners, Pioneers, Enthusiasts, Gamers, Minimalists, Organics, Granolas, Back-to-Naturists, Adventure Seekers, Risk takers, Romanticists, Aficionados, Connoisseurs, Fasttrackers, Soccer Moms, Techies, Umbrella/Helicopter parents, Seniors, Oldsters, Middle Agers, Middle age crises and cruisers, Teens, Goths, Hip, Impulsive, Tweeners, Generation X, Millennials, Baby Boomers, Hippies, Yuppies…
It is interesting to note that many of the customer segments are related to the meaning that consumers attach to products and services. Additional discussion of the importance of the meaning underlying a product or service will be presented in Conceptualizing Products/Services Using FAD. The best use of segmentation is to provide additional insight and to describe in greater detail the consumers who will be buying the Midas, Atlas, and Hermes versions.
Usually, a product or service is targeted toward a particular customer segment. For example, suppose a company wanted to develop a global positioning system for Adventure Seekers and Risk Takers. After they identified the customer segment, they would then develop two or three versions (Midas, Atlas, or Hermes) of the product that were linked to price sensitivities. Here is another example. Suppose a company wanted to develop high-end head phones for listening to MP3 songs using a new speaker technology. They could target both the Tweeners and the Baby Boomers with different versions and marketing campaigns. They could also develop three versions (Midas, Atlas, or Hermes) of the product for Baby Boomers according to their price sensitivities as well as three versions of the product for Tweeners. Usually, but not always, businesses identify the customer segment or segments first. They then engage in versioning to obtain more revenues and to assist in identifying the product features that are attractive and in demand. The bottom line is that versioning complements and assists in the customer segmentation. Here is a summary of how customer segments fit into product development:
- Conceptualize product or service
- Identify appropriate customer segments for product or service
- Design and develop two or three versions for each customer segment
- Obtain feedback from potential customers, employees, vendors, and interested parties
- Revisit step 1
This is of course not a linear process. For example, step 1 and step 2 often occur at the same time. It is similar to the creative problem-solving process discussed in Facilitating Creativity and Innovation. There are periods where product developers are engaged in leaning-about customers, emerging technologies and other products offered in the marketplace. There are also periods of learning-by-doing, where prototypes are built and scrutinized, and where the feedback is obtained from relevant parties. It is, however, a never-ending process of refinement and experimentation.