Redefine Your Customer Base

Crosby, Lawrence A.; Johnson, Sheree L.
March 2004
Marketing Management;Mar/Apr2004, Vol. 13 Issue 2, p12
This article argues that innovation can start even earlier in the marketing process with segmentation and targeting. Wendel Smith first conceptualized market segmentation in 1956. It is the process of identifying homogenous groups within a company's customer base in order to develop unique value propositions matching the segment's needs. The central hypothesis behind segmentation is that not all customers are created equal. Customers have to be different in order for segmentation to be profitable. The first challenge of segmentation lies in identifying these differences. There's no single correct way to segment the market. Segmentation criteria can include key buying factors, needs, usage/purchase occasions, lifestyles, psychographics, demographics, and behaviors. The second key challenge of segmentation is managing the segments by allocating resources among the segments. Layering loyalty-based segments with the value of the segments provides additional information into the marketing decisions of segmentation and targeting and the subsequent decisions of resource allocation. With customer loyalty segmentation data, companies can develop responsive investment strategies, prioritizing the initiatives that should be considered and funded. Evaluating customer loyalty can have a direct consequence on revenue and should be a critical corporate investment criterion.


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