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Customer Segmentation Revisited

The Pareto principle (a.k.a the 80-20 rule, Haddad's Theorem) states that 80% of the effects come from 20% of the causes. In the business world, this has come to mean that 80% of your revenues typically comes from 20% of your customers. Businesses have long sought after more customers who are akin to the 20% that generates the most revenues. How is it done? One method is to use customer segmentation.

Is this scenario familiar to you?

You're putting together list acquisition specs for business unit of your company (or your client's). The BU manager wants to launch a customer acquisition campaign that targets all small and medium sized businesses which have 100-500 employees, have $XX+ millions in revenues, and are geographically located in southern California. Their best repeat business customers comes from professional offices such as engineering, architectural, CPA, and law firms.

Do the specs and requirements match?


Traditional segmentation used to mean that you'd take a database (or list) of customers and carve them out into customer groups based on demographics or socio-psychographic data (e.g., Claritas). Value-based segmentation looks at groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them. ROI is not just a financial statement hot item, it is a typical key performance indicator (KPI) to gauge how useful customer acquisition strategy is by comparing what measures it took to get that customer's business, how many units of X they purchased, and how many more units of X they intend to purchase.

Just who are your customers anyways?

The basics of customer segmentation answers the following parameters of any industry its applied to: Who, What, Where, Why, and How.

Who
Consumers? Businesses?

What
Your products or services.

Where
Not just for postal recipients. Did they respond to web or email advertisements? Attend a webinar? Buy directly from you or from an affiliate merchant?

Why
The reasons(s) why your products or services won the sale. Is your product or service better than that of the next best substitution product/service? Cheaper? Easier to use? A simple followup with a customer survey usually answers this and keeps the feedback door open.

How
How was it purchased? online? at a physical storefront? at the company store? at a tradeshow/seminar event?
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