Customer Segmentation - Three Ways To Skin The Cat

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It’s not exactly rocket science…

The concept of customer segmentation really is a simple one - group your customers together according to a set of defining characteristics.

What the marketer wants to achieve from the segmentation exercise is to develop plans (or product features) that best appeal to the different segments.

Therefore, it makes good sense to first segmentize your customers before developing plans. As we marketers all know, segmentation often comes as an afterthought…especially when our plans are not working as we expect them to

You don’t need Bain to tell you how to segmentize your customers…

The simplest (and most common) way to segmentize customers is via demographics (age, sex, income, race, hair color…).

Often, demographic-based segmentation would lead to rather simplistic marketing plans which are relatively easier to execute (especially when the plan revolves around placing ads on TV. In such a case, all the marketer needs to do is to book the time slots corresponding to the appropriate TV programs watched by the target demographic).

The slightly more complicated method would be to cluster customers via their needs (or in marketing jargon, ‘psychographics’).

For example, in some Asian countries, lighter skin is a desirable trait for many women, and hence the need for ’skin whitening’ facial cleansers and moisturizers.

Here, marketing plans tend to get trickier to execute. Unlike demographics and physical traits, “needs” are not immediately obvious to the marketer.

Needs-based segmentation is perhaps the reason behind the multi-billion dollar industry that is market research. Multinationals are paying companies like Nielsen, Synovate and TNS to find out what their customer needs, and to check if their products fulfill those.

The Archimedes heel of this method is the fact that people buy what they WANT and not what they NEED. Big difference.

The third method - the most advanced of the lot - is paradoxically easiest to perform, as long as you’ve got some basic marketing analytical tools in place.

User life cycle segmentation - this is Marketing 2.0, folks…

User (not product) life cycle is the mapping of the ’stage’ at which the user is at as he uses a product. The basic premise behind this method is that at different life cycle stage, the user will have correspondingly different needs.

An example would be a credit card holder fresh out of college. It would be a fallacy to assume that his needs would remain unchanged as the user enters different life cycle stages). The effective marketer would track the evolution of his customers over time, and therefore craft plans that would pinpoint their specific needs based on their behaviors at each of the life cycle stage.

The idea of “pinpointing user needs based on life cycle stage” is the cornerstone of one of my web-based projects - LifeRati.com. Given the inherent ability of the Internet to capture user and usage data, it makes analyzing and clustering users in real time possible. This is real time segmentation we are talking about here, folks!

User life cycle is probably one of the most underdeveloped concepts in marketing, and very surprisingly so. Much of my work over the last two years were based on life cycle marketing strategies, and given the dearth of information on the topic, much of the effort was wasted on trial and error.

I will talk more about life cycle segmentation strategies in my next blog post - and some of my personal learnings and mistakes so you can avoid making the same - so stay tuned!