Target customer segments and distribution channels

What is Customer Segmentation?

Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits and so on.

Customer segmentation allows a company to target specific groups of customers effectively and allocate marketing resources to best effect. According to an article by Jill Griffin for Cisco Systems, traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles. Value-based segmentation, on the other hand, looks at groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them.

Customer segmentation procedures include: deciding what data will be collected and how it will be gathered; collecting data and integrating data from various sources; developing methods of data analysis for segmentation; establishing effective communication among relevant business units (such as marketing and customer service) about the segmentation; and implementing applications to effectively deal with the data and respond to the information it provides.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

• Geographic
• Demographic
• Psychographic
• Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

• Region: by continent, country, state, or even neighborhood
• Size of metropolitan area: segmented according to size of population
• Population density: often classified as urban, suburban, or rural
• Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

• Age
• Gender
• Family size
• Family lifecycle
• Generation: baby-boomers, Generation X, etc.
• Income

• Occupation
• Education
• Ethnicity
• Nationality
• Religion
• Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:

• Activities
• Interests
• Opinions
• Attitudes
• Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:

• Benefits sought
• Usage rate
• Brand loyalty
• User status: potential, first-time, regular, etc.
• Readiness to buy
• Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.