27th June 2022

Common sense and segmentation

Most successful businesses in every sector use a segmentation model of some sort or another, but if you asked business owners what it was,  many would say they have never used segmentation at all. This is because in reality it’s just plain common sense that business people have adapted over time. This allows them to  ensure they work with and sell to the people who value, want and need their product or service. 

While this may work, I’d argue that if properly applied good common sense and proven segmentation techniques together can make a positive difference to any business.

Effectively done customer segmentation allows you to provide the right message or service to the right people at the right time at the right price.

The secret is doing this on a consistent and profitable basis. 

Back to the academics, they define customer segmentation as the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. As we know using segmentation allows companies to target groups effectively and allocate business resources to best effect. 

I prefer to avoid academic definitions and look at customer segmentation as the most effective way of identifying the clients who can provide you with most profit going forward. It can also help you identify the clients that are costing you time and money. 

You can then ensure that you design, offer and cost a proposition that offers sustainable long-term value for both your business and your clients.

Whether you’re marketing cosmetics, food products or financial services, you need a common-sense approach to segmenting clients. 

Here are five golden rules used by businesses around the world, in a myriad of industries, to segment their client banks.

You can also use these to refine any segmentation model you may have in use, be it by design or by accident!

Five simple steps to effective segmentation

Clarity

Be specific about the clients in each segment. Avoid broad terms such as A, B and C or gold, silver and bronze. Write a descriptive narrative for each segment, saying what appeals to them, what puts them off, what stimulates and motivates them. This information will help you visualise each segment and provide ideas for whatever proposition you want to develop for it.

Take it in small steps 

Don’t go segmentation-crazy – stick to a manageable number of segments. Otherwise, you will find it harder to effectively market to and service your current clients and possible future customers. This leads to increased cost and complexity the opposite of what you are trying to achieve. 

Always know what is working and what is not

Measure, measure and measure again everything that you are doing. Be clear about who makes you money, and who costs you money and also time. This allows you to focus on who provides profit to your business and who will also provide its future growth. You can also manage by fact and make hard choices easier when you know certain segments cost you time and money and are unprofitable. You can also use these measurements to adjust your marketing or service to ensure profitability or even great returns on certain segments.

Know who costs you time and money

If you identify clients that cost you time and money, change the way you deal with them or think about ending the relationship. 

Identify what is the common value factor for the company.

Any segmentation model has to have measurability so its key that whatever factors you agree to segment on are shared across the business. These could be:

• Business the client has done with you
• Potential business in the future
• Referrals produced
• Ongoing income you receive

The factor is up to you. It is essential to ensure agreement from all parts of the organisation on this. You may have to compromise and agree what is most important for the overall company rather than one element.

Be clear what makes people different

Be clear at the outset on the differences between the segments you’ve established. This will help you develop a marketing, service or charging proposition tailored to them.

Remember, there’s no set segmentation model. It differs from one company to another, because it needs to flow from the goals and visions of the company. If you want to segment your clients – and I would urge you to consider this. The key thing is to agree a common segmentation model and next time I will share a segmentation template any business can use. 

John Joe McGinley June 2022 

John Joe McGinley, Glassagh Consulting