Summary

Customer market segmentation schemes allow marketing and sales programmes to be better focussed on subsets of customers who are aligned to the offerings of an organisation. The successful implementation of segmentation schemes, which includes communications, product design, and thorough analyses, will help to ensure that the best return is achieved for the money expended on marketing efforts and sales campaigns. In essence customer market segmentation schemes seek to provide superior value for an organisation's customers and thereby achieve better returns.

Significant costs are often incurred when new customer segmentation schemes are established; hence there is a need to ensure that the proposed scheme has a high probability of success. Customer market segmentation becomes viable when the anticipated returns are greater than the costs of implementation. Because segmentation programmes tend to be expensive it is advisable to carry out careful analyses of the proposed segments using multiple methods of measurement before proceeding. In addition carefully designed measurements systems will remain useful for gauging the success of the segmentation schemes, and for maintaining the segmentation and justifying any further expenditure that may be necessary. Customer market segmentation is beneficial for separating customers having various classes of risk and for managing them accordingly.

Customer market segmentation may be achieved in a number of different ways depending on the needs of the organisation and the perceived benefits for its customers along with potential profitability. The case studies highlighted in this management brief provide an overview of the type of segmentation schemes used in practice. In some situations very simple segmentation can provide significant results whilst in others more sophisticated systems are required.

Information technology has enabled the gathering of complex information concerning customers and enabled its effective use for customer market segmentation purposes. Dynamic market segmentation is the ultimate example where technology can enable prices/offers to be changed "on the fly" to suit market conditions, or in response to the identity of the calling customer. Apart from the usual demographic, socio-economic, and psychographic segmentation the following may be employed:

Organisational changes may be necessary to support segmentation proposals, and such changes should be carefully managed and communicated amongst all involved. Measurements and reporting systems should be put in place for the effective monitoring of the success, or otherwise, of the segmentation scheme.