A Definition of Customer Segmentation As Describing Your Customers

Let's assume that Senior Management has asked the Marketing Department for a customer segmentation.

As an astute market research manager, or a marketing manager with market research responsibilities, you do not ask for their definition of customer segmentation; instead you ask for clarification of what management wanted. The response you get is that the company needs to understand who its customers are, what are their needs and wants and what other potential customers are in the market and how can your company attain them as regular customers.

In short, management wants a demographic segmentation, statistics that describe customers and potential customers.

Understanding who your customers are, what they want, what they do, and how, when, where and why they use your product or service provide critical insights for developing an effective marketing strategy, including communications, advertising, and new product development strategies.

The beginning point of customer description is internal data using the data you already have about your customers in a systematic manner.

If your company is just beginning to learn more about its customers and/or potential customers, you probably have much more data, and therefore potential information and insights about your customers than you may think you have.

The first step is to organize and systematize this information.

A key starting point is to generate statistics on the percentage of customers who are providing what percentage of business.

In other words, look at the tried and true 80/20 rule as it relates to your business.

While usually not literally 80/20, many organizations find that between 15% and 30% of their customers, supporters, or donors are supplying 65% to 85% of revenue or contributions or volunteer time and work.

Odds are that when you run the numbers, you will find that a large percentage of your revenue is coming from a relatively small percentage of your customers. Certainly, as marketers, you want to safeguard these customers, keep them satisfied, listen to their suggestions, and respond to their needs. You also want to know who they are, if for no other reason than to know which part of your untapped market is mostly likely to produce the most revenue for you.

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