Reasons to Identify and Understand Market Segments

  • The primary reason to identify and understand market segments is to increase the organization’s profits (or its equivalent) over the long term.
  • (Definition) Customer Segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing. Traditional segmentation focuses on identifying customer groups based on demographics and attributes such as attitude and psychological profiles.
  • When discussing market segments in supply chain, there may be more than one perspective of who the customer is: For example:
    • Intermediate customers are those customers that are not at the end of the supply chain.
    • Ultimate customers are the final recipients of the products or services.
  • Successful business strategy is customer driven, and customer-driven marketing typically requires identifying and understanding market segments.

Customer Driven Marketing

  • (Definition) Customer-Driven is defined as a company’s consideration of customer wants and desires in deciding what is produced and its quality.
  • Customer-driven marketing is based on several fundamental marketing concepts:
    • Customer requirements must drive product and service design.
    • All products and services have more than one market segment.
    • Logistics and marketing strategy must focus on customer segments.
    • Profitability is more important than sales volume.

What has driven the change to a Customer-Driven business environment?

  • Business need to understand customer segments, to improve two-way communication with customers, and to fulfill customer segment needs because today’s customer is harder and more expensive to win and to keep.
  • Meeting those expectations raises the cost of design and production.
  • As customers begin to assume that products and services will be of high quality, the competitive differentiator becomes price or value.
  • (Definition) Cross-Selling is imperative. It occurs when customers by additional products or services after the initial purchase.
  • Turning one-time customers into “customers for life” has become a critical business goal. Reaching that goal requires understanding and then satisfying customer segment expectations and delivering greater perceived value than the competition.

Benefits of Segmentation

  • Words like “niche” and “customization” reflect the fact that customers increasingly expect the market to come to them rather than for them to go to the market.
  • The marketplace is more segmented every day, which could be seen as a drawback due to its complexity. However, customer relationship management (CRM) philosophies and technology systems, exist to help manage that segmentation.
  • Segmentation also benefits organization. Lifetime customer relationships are more likely when customers feel that business is meeting their unique needs. This is a mutual dependency/mutual gain relationship.
  • Customer-driven business have the opportunity to learn more about their individual customers and to use that information to increase sales and profit.
  • Segmentation also helps business to get better return on their promotional budgets.

About Paresh Sharma

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