Customer segmentation is often the foundation of strategy at companies. Those that do it best identify the highest value target segments and then shape everything from product development to communications around their wants and needs.
Companies can choose between a number of different segmentation approaches, each with their own utility, and often employ more than one approach to achieve enterprise goals. For example, an insurance company seeking to optimize underwriting and claims will probably leverage a risk-based segmentation. On the other hand, a company with products/services tailored to specific life stages might deploy a demographic-focused segmentation. These various approaches can also be combined to produce even more granular insights. For example a company might look at demographic segments and also customer lifetime value segments within critical demographic segments. See Figure 1.
For companies that are seeking to refine their overall business strategy and to sharpen their value proposition, we recommend segmenting the customer and prospect population based on needs and attitudes. This type of segmentation is particularly effective at uncovering what motivates people or why they buy.
Once needs-based segments are identified and prioritized, the organizational benefits are only fully realized when the segmentation is utilized to drive strategy and tactics throughout the organization– everything from developing the value proposition to new product development and advertising campaign development. See Figure 2.