Customer Segmentation Definition Customer segmentation is the analysis of customer needs to identify groups of buyers who are homogeneous in the way they discriminate among products and suppliers Objective To identify a profit and market share maximizing strategy for each need-based customer segment to minimize: - Oversatisfying some customer segment needs (excess financial cost) - Undersatisfying others (market share cost)

Customer Segmentation Business Definition CostsCustomersCompetitors Do all customers in the market have similar needs and requirements, or are there segments of customers whose requirements and behavior are distinct? How is the firm’s offering perceived by each segment of customers? How significant (size & profitability) is each of the segments? What elements of the firm’s strategy and marketing mix would have to be adjusted to appropriately pursue each segment of customers? Long Term Strategy

Customer Segmentation How to Do It Planning - Hypothesize customer segments and selection criteria - Select analytic methods and design market survey - Select survey sample to include all hypothesized segments - Pretest survey with focus groups and individuals Data Gathering - Conduct survey and obtain customer scoring

Customer Segmentation How to Do It Analysis - Group respondents with homogeneous needs into customer segments - Analyze customer perceptions of firm’s product vs. customer needs for each segment - Evaluate whether the firm is: -Analyze customer perceptions of firm’s products/services versus competitor’s offerings for each customer (needs-based) segment Oversatisfying some needs Undersatisfying others