Understanding the Wants & Needs of Each Segment

Understanding the wants and needs of each segment involves market research and gathering information from multiple sources, including customers themselves, which is called the Voice of Customer (VOC).

Market Research

The wants and needs of prospective and existing customer segments may require phone surveys, questionnaires, focus groups or combination of these approaches.

Sources of Customer Information

Market intelligence can be purchased from outside sources but can also be derived from data gathered from every customer transaction. Different sources can provide different elements of the complete picture of each customer segment:

  • Transaction Records
    • Transaction records can show purchase frequency and volume, information on customer complaints and feedback, and how purchases are financed by the customer segment.
  • Sales Representatives
    • Sales representatives can relay information about what various customer segments are asking for, what they’re not interested in, what concerns they have in making the purchase and why they may or may not be considering the competition.
    • In the business-to-business (B2B) world, sales representatives hold the key to educating the organization about the customer’s business and its unique needs.
  • Service Representatives
    • Service representatives can provide information about how products and services are being used currently and how specific customer segments would like to use them.
    • Their experiences can help gauge segment attitudes toward the company, its products, and how well it is managing customer service.
  • Distribution Points
    • Distribution points (for example retailers, the internet, or self-service kiosks) can provide information about customer segment values, purchasing habits, and preferences – information that can be valuable in understanding the values of customers in different contact channel segments.
  • Purchased Data
    • Purchased data from survey companies, database marketing companies, and service or finance bureaus can provide broad information about the customer pool.
    • Such data, as opposed to the other sources of data listed above, do not necessarily paint a picture of business’s own customers.
    • Purchased data may be more useful in acquiring new customers than in managing relationships with existing customers.

Voice of the Customer

  • We shouldn’t overlook customers themselves as a source of information.
  • Successful organizations recognize research as a way not only to understand existing customer segments better but to increase loyalty and create mutually beneficial relationships.
  • One way to involve the customer is by using the voice of the customer (VOC).
  • (Definition) Voice of the Customer (VOC) is defined as actual customer description in words for the functions and features customers’ desire for goods and services. In the strict definition, as relates to quality function deployment (QFD), the term customer indicates the external customer of the supplying entity.
  • In a broader context, the voice of customer is a research and measurement tool used in complex selling situations when it may not be easy to ask the right questions.
  • It can be used to understand why a customer has chosen a business or has chosen to leave the business.
  • It can be used to gauge satisfaction with after-sales service, order processing, billing, or delivery or to design new products or services.
  • VOC can help develop solutions to problems with existing products or services or assist in continual improvement.
  • It may be a response to a particular situation, but it is better used in a continual fashion as a way of keeping in touch with customers and their perceptions of the value they are receiving.
  • VOC allows customers to talk freely and identify topics for discussion rather than simply respond to topic chosen by the researcher.
  • VOC may help businesses uncover previously unstated customer expectations or needs.
  • The voice of customer can be captured in a variety of ways:
    • Through direct discussion or interviews with individual customers
    • Surveys and focus groups
    • Customer-developed specifications or customer design groups
    • Collation of customer comments from warranty records, field reports, or complaint logs.
    • This information can be collated by customer segment to help understand each segment’s wants and needs.
  • “A Voice of Customer (VOC) initiative should give voice to things that the firm would not normally hear. It should allow a firm to hear, straight from its customers, insightful things that do not surface through conventional marketing research.” – Author Jim Barnes.

Ways to Segment Markets

Segmentation can be based on any number of criteria selected to suit a particular purpose, and each class may be segmented in more than one way.

Market segments can be defined by demographic characteristics such as gender, geography, age, occupation and wealth. Demographic categories can also be refined or customized.

Customers can also be segmented by attitude or psychological profiles, such as willingness to engage in social media or self-identification in a social group.

Historic Segmentation vs Customer-Driven Segmentation

  • Historically, market segments were based, in the worst case, on preconceptions about the behaviors or desires of certain groups or, in the best case, on research into small “representative” groups of customers.
  • Predictive segmentation can be inaccurate.
  • Today, segments can be defined by customers’ actual buying behaviors, and the result is more accurate segmentation.
  • Three different ways of segmentation might occur in a customer-driven strategy:
    • Segmentation by customer value to the business
    • Segmentation by customer needs
    • Segmentation by preferred contact channel

Segmentation by Customer Value

  • The greater the customer’s value, the better the treatment the customer receives.
  • Leading-edge organizations aim to acquire and retain profitable customers and get them to spend more.
  • Generally, a small percentage of the customer base – about 20% or less – provides a significantly higher percentage of revenues or profits. This relationship is known as the Pareto Principle.
  • The diagram below depicts how a small number of customers can generate a disproportionately large amount of profit:

Segmentation by Customer Needs

  • When we begin to discuss what services or product features profitable customer’s desire, we are moving into the second form of segmentation – segmentation by customer needs.
  • These needs may refer to specific product or service features, contact channels, or logistics channels (time and placement).
  • It is important for businesses to understand what customer want, why and how much. This is called a Value Profile.
  • Once the value profile has been created, a value proposition can then be drafted that details how each segment’s perception of value will b fulfilled by the product or service.
  • The value proposition is a key part of the promotional strategy and customer relationship.

Segmentation by Preferred Channel

  • Because of potential savings, some business sectors have chosen to reward customers that use technology channels, such as a discount for setting up automated bill payment.
  • Another option is to educate customers on the benefits of a particular channel. For example, automated call answering systems usually refer callers to Web sites for faster service and a chance to avoid a lengthy wait in a phone queue.