Customer Segmentation

Customer Segmentation is a subdivision of marketing whereby customers with similar interests are grouped together in order to improve and enhance their experiences and target their specific needs. This provides the organization with a competitive advantage, as members are better able to understand the niche groups within the customer market. This management tool aids the organization by providing its customers with tailoring offers, discounts, products, and services to suit their needs. This will also aid in campaigns and pricing strategies and will help improve resource allocation and product development.

The development process requires managers to:

  • Divide the market into respective segments according to customer needs, past behaviors, and demographics.
  • Identify which segment could be most profitable and which could be the most costly.
  • Use cost-profit analysis to establish a system that highlights segments that can be targeted and segments that are not feasible.
  • Allocate resources for production, service, marketing, and distribution so that each target segment’s needs are met.
  • Measure and monitor individual segment performance and improve approaches over time.

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