Customer Segmentation for greater Profitability

by | Sep 8, 2015 | Customer Service | 0 comments

“There is only one winning strategy. It is to carefully define the target market and direct a superior offering to that target market.” – Philip Kotler

Sure there is agreement in the business world (and outside too) that without focus it is tough, maybe even impossible, to gain or retain a stronghold. There are many aspects involved for a business to run successfully and prime among those are its customers and hence they require focused attention. We know that each customer is different and in order to pay close attention to their needs customer segmentation is a great solution. Customer segmentation allows a company to break down their existing and potential customer base in to smaller, more manageable and better defined groups. In the competitive market scenario, it is tough to attract customers and even more arduous to retain them and companies that can accurately predict their needs and expectations and consistently provide stellar customer service would be better placed for greater profitability and long term success. Customer segmentation enables companies to have and display this single-mindedness to their existing and target customers. Dividing the customers into groups also ensures that companies expend only as many resources and as much effort as would be required and not go overboard in trying to please one or the other customer.

Customer segmentation helps a company to understand better what their customers actually need and want and whether it would be able to provide for those needs. In addition, such grouping can help companies to build their capabilities in areas that customers view as important, thereby building and retaining a strong and profitable customer base. Being able to divide customers based on similar requirements and needs, makes it a lot easier for companies to cater to the needs of customers better through customized solutions and service. Customer segmentation is the foundation for putting together personalized products and services, promotional and marketing campaigns thereby saving money and effort for the company and also to direct the company’s attention to those customers that consistently prove to be more profitable and loyal than others. Any business would benefit from having a small but niche and solid customer base that not only provide repeat business but also gain more business for the company. Customer segmentation allows companies to assess and put together such customer groups that they can provide consistent stellar service to.

Customer segmentation gives a company many advantages and benefits, the primary being that it would be able to gain and keep control over their customer’s needs and the resources required for doing so. Focusing on some customers and their requirements saves a company’s time and money on putting together products and campaigns that would have no efficacy for their customers. Such savings prove to be a huge competitive advantage for any company as the money saved could be redirected to other strategies and campaigns for the company’s growth and those that will enhance its customer service levels and product quality. We have discussed earlier that providing ‘umbrella’ service and products is never a successful way of conducting business. Customer segmentation ensures that a company can put together segment specific resources and efforts, thereby serving each group better and through them before more profitable and sustainably successful.

Customer segmentation enables a company’s capabilities to put together products and services that are niche and allow it stand head and shoulders above their competitors and retain the lead. This is a huge advantage for any company and with resourcefulness and consistent efforts would remain with the company. Customer segmentation is a robust and bold path towards market dominance for any company. Does your company have any such market lead and or advantage?

It is obvious that when a company is able to focus on smaller customer groups at a time, the processes and strategies become unwieldy and extremely tough to manage after a while. With customer segmentation it becomes a lot easier to put together promotional, marketing and advertising campaigns and these efforts, due to their focus, are more efficient and effective thereby providing the kind and extent of effects and affects that a company desires. With every resource becoming limited and hard to come by, any company would benefit from breaking the customer base down to smaller and easily managed groups.

A company could have products and services that suit one kind of customer group but not another and yet it would have the bandwidth to serve them. Customer segmentation allows companies to understand which products and services can be tweaked or re-created in order to serve a different group.  Customer segmentation allows a company to enter a new market group and with focused attention, thereby achieving better and more effective results. A company does not necessarily need to produce a completely new product or service but can simply save on their resources by refashioning a focused offering (from the existing ones) that would serve the needs of a new customer segment.

Customer segmentation allows a company to shift and realign their focus without upsetting their entire operations and strategies. It enables them to decide intelligently about whether which customer segment would be more profitable and loyal than another and then formulate their strategies. Obviously the focus required for ‘better’ customers would have to different from those that are still ‘getting there’, thereby getting maximum benefit from both without wasting resources.

We know that customer segmentation is about getting more focus in a particular direction. This focus is all-round. The channels through which a company reaches out to its customers would become more focused and also fewer in numbers allowing more effective monitoring. Based on the needs of the customer group, the company can remove any channels that don’t work and also any other stumbling blocks in the way of effective customer service. Even though there would be fewer channels, they would be more valuable and helpful because they would be focused on a smaller group with specific needs.

Anyone running a business or a company would know how tough it is to run a branding exercise. This is tougher when there is a larger group of people a company is trying to reach out to. However, with customer segmentation it would be easier for the company to customize the kind of service, pricing and quality of products and portray it to a particular group depending on their interests and needs. Some customer groups may be willing to pay more for value-added services while others may be more fixated on budgets and customer segmentation provides clarity to a company on how they should service each individual group.

Using the customer segmentation tool, companies are able to give themselves a head start in client servicing, customization, product quality and other such aspects that every company must aim to excel at. It is a much better strategy to focus on a fewer yet more potent groups of customers rather than a large market that would exhaust the company’s resources without being effective. We know that customers are different – so it makes a lot more business sense to handle them so and put together groups of customers are similar to each other. This is what customer segmentation is all about and in both short and long terms, this is a more profitable and successful strategy.  It may take time and effort to conduct a thorough research of the various customer groups but the benefits would far exceed a company’s expectations.

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