No product or service market is homogenous. Within such markets, differences among customers are often a fundamental issue. Customer segmentation can help to divide heterogeneous markets into smaller customer groups in order to develop a better understanding of the overall market. This way companies can strengthen their long-term strategic growth potential and achieve several advantages:
- Marketing campaigns and corresponding channels can become more efficient since they can be targeted at specific customer groups
- Products and services can be adjusted to the needs of different customer groups or even developed especially for each of them
- Focusing on smaller groups allows for differentiation of competitive strategies
- Overall, resources are used in a more efficient way, which results in a higher ROI
But what actually is customer segmentation? The process is always based on three components: The needs of the customers, their distinguishing features and, eventually, their purchase behaviour. It is the distribution of these elements which defines specific customer segments. At the same time, there are rules which segmentation processes must follow:
- Differentiation – the customer groups must be clearly separated from each other
- Recognisability – it must be possible to identify the groups along specific criteria
- Size – the customer groups must be big enough
However, one has to differentiate between segments, target groups and personas. They constitute different interpretations of the same data but there are significant differences between these three instruments and what they are used for.
A segment is a group of people with the same characteristics, such as sociodemographic features, needs, usage patterns etc. Such groups are always created with the use of wide data sets which make them quantifiable and tangible. In general, segments help to structure the markets and to identify and understand potential of individual sub-markets.
But a segment shouldn’t be confused with a target group, which is a group of people the sales offer is supposed to be targeted at. It can consist of just one or several (sub-) segments or follow a different logic (for example by being based on sociodemographic factors or firmographics). The target groups make it easier to define the target market and the corresponding marketing tools. They generally help companies decide on their strategic directions.
Finally, a persona is an archetypical representation of a homogenous group of people. An important characteristic of a persona is that it always has a name and life story. Personas do not necessarily have to be quantifiable, they rather serve the purpose of simplifying data and making it more understandable. Furthermore, they are often used to evoke empathy and deepen the general understanding of various customer types.
We at the savvy company have extensive knowledge and experience in conducting valuable segmentations for all different types of organizations. For more information, read about segmentation in B2B, our related work or contact us.