More about Customer Segmentation
At its most basic, customer segmentation involves segmenting customers into distinct groups based on their needs that a single product or service can satisfy and buying characteristics of the groups of people.
Process and types of Customer Segmentation
The process to categorize i.e. segment the customers is to first decide the data to be collected. After collecting all the data about the participants or users, this data is analyzed to segment users into clusters of those that are similar in some respects.
There are four broad types or characteristics that customer segmentation is based upon in a B2C setting – demographic (age, race, religion, gender, family size, ethnicity, income, education level), geography (location of home or work), psychographic (social class, lifestyle and personality characteristics) and behavior (spending, consumption, usage and desired benefits). In a business setting where the method is employed when designing for business users – vertical and horizontal segmentation techniques become more relevant. In vertical segmentation, researchers segment specific industries, domains or job titles within that industry. In horizontal segmentation, researchers segment one job title across industries and organizations.
Method
Purpose
Advantages
Disadvantages
Vertical
To address the needs of user types based on industry or domain.
- Takes into account the needs, behavior of users in a specific industry.
Certain user specific challenges may get missed when looking at all users within an industry.
Horizontal
To address the needs of user types based on job profile irrespective of industry.
- Takes into account the needs, behavior of users across the board who are performing the same task, activity or work.
- Certain industry specific exceptions may turn out to be difficult to collate the findings.
Advantages of Customer Segmentation
1. User/Human Centered
The method takes into account the user needs, behavior and other factors that can be used to create a design that has the user at the center of it all.
2. Details can be controlled
Depending on the data collected initially from the users, the one that is used to segment participants into groups, the level of details can be planned, managed and controlled by the researcher.
3. Applications
Customer segmentation can be employed and is employed by researchers, product and service designers, marketers and business in a number of ways to create something new, fill a gap in the market, target potential customer or to elicit action from existing customer base.
Disadvantages of Customer Segmentation
1. Segmentation Type Dependent
This method is so specific to the segmentation type that if the choice of segmentation criteria were incorrect, the grouping will be incorrect affecting the final intended result from the activity.
2. Time-consuming
Creating segments is a time consuming and elaborate process. Time is required to first recruit users, research them, and then segment them.
3. Recording Exceptions
Every user may have different needs, behavior, goals and prioritizing which needs, behavior patterns and goals should be part of the segmentation criteria and which shouldn’t is a huge task in itself. Also, segments should incorporate exceptions or extreme user descriptions to cover all aspects of users one is designing for.