What Is Customer Segmentation, And Why Should You Care?

Business owners, regardless of the size of their particular business, are constantly trying to find what makes them stand out from their competitors. They navigate through a sea of industry jargon, and in the ever-present barrage of ideas to differentiate themselves, the concept of customer segmentation stands as quite possibly most difficult to peg down.

Customer segmentation, at its most basic, asks of a business to divide its customer base into groups that are similar in certain ways. Essentially, you're trying to breakdown your customers to the things about them that allow your company/product to best reach them; it is Advertising and Marketing 101. Companies further the distinction of these new groups so that a clearer picture emerges as to what makes customers unique & how those unique characteristics can eventually lead to profit.

For example, let's say that a music store specializing in vinyl records chose an advertising agency to help target potential customers near a specific geographic area. The agency would try to figure out behaviors of residents that are related to music. How many concerts do residents attend? What genre of music has the greatest popularity in digital music trends in the area? What average costs do residents have when it comes to their "music & entertainment" budget? This information would be beneficial to the music store so as to know what to stock, how to establish their product pricing, and even if offering in-store artist appearances may be a way to draw customer in the door.

This strategy can give companies quite the advantage, and why wouldn't it? After all, you're trying to figure out how best to monetize customer-base characteristics and behavior. Customer segmentation, no doubt, has a place as a viable business practice, but why does this matter to your business? In other words, why care? Simple --- it's about money. Businesses of all sizes are always trying to extract the most out of every dollar they spend, and effective marketing is no exception. If you can target your marketing to the segment(s) of the population that will make you successful, then why would you spend your ad money elsewhere? Moreover, the effort toward the targeted segment strikes a distinct chord, one that has the capability to expand beyond the original group & bring in more profit.

What is also important to keep in mind about customer segmentation is that in order for a business to continue to evolve and see success, those in charge of marketing need to identify marketing segments that can be later seen as much larger, more profitable segments. The segmentation needs to be dynamic rather than static. If your business can only target its product(s) to one group that may, in time, change its habits, there needs to be forethought on how that customer is targeted in the future (short- or long-term) and what other possible customer segments warrant attention.

Customer segmentation is an important part of effective advertising & marketing strategy for any company. Always remember, though, that maintaining a successful marketing strategy also means being an active partner in the process.