The essence of customer segmentation is identifying different types of customer behaviours, needs and wants. This helps the small business to improve its product and service offerings, and to develop more targeted marketing and communications initiatives.
Customer segmentation does not have to be a complex, time consuming and expensive process. It boils down to whether the small business owner knows who his or her customers are, where they are, how they like to transact and communicate, and the key factors that influence their purchasing decisions.
If the small business owner already knows the answers to these questions, customer segmentation already exists (even if informally and just in the small business owner’s head). The small business owner just needs to remember to apply this knowledge in his or her strategic planning and decision-making.
Small business owners who do not have much insight into their customer base are in a more difficult position. They can keep things simple by observing potential and existing customers, or directly asking customers to provide feedback about their experiences and how the business could be improved.
Employees who interact directly with customers can make note of commonly received questions or complaints, and report these back to the small business owner. Over time, the small business owner will be able to get a good sense of consistent themes, high priority versus low priority issues to address, and opportunities and threats. Other small business owners may opt to engage specialist service providers to do the customer segmentation on their behalf. In doing so, small business owners should be aware of debates around the effectiveness of traditional customer segmentation techniques.
Some people on blogs.hbr.org argue that conventional demographic and psychographic profiles are no longer relevant in today’s world, and are likely to yield incomplete and inaccurate information. Rather, directly monitoring things such as how people use their cellphones and other gadgets, or make purchases online and in-person will tell the business owner what he or she needs to know. Small business owners should bear these alternative views in mind when briefing their service providers (whilst also taking into account that there are legal and ethical boundaries in collecting and analysing data).
In South Africa, terms such as ‘black diamonds’ and ‘emerging consumer markets’ are bandied about in reference to specific customer segments. Small business owners should not unthinkingly embrace these and other popular concepts. It is more beneficial to the business to develop its own customer segments than to take shortcuts and latch onto existing segments that may not be a good fit.