Customer segmentation is a facet of market segmentation. It is the subdivision of a market into discrete customer groups based on specific criteria. For example, customers can be grouped into homogeneous groups according to age or income. A powerful tool to identify customer needs, customer segmentation helps companies to catalog those segments that have not been served as yet, and achieve market leadership by being among the first to serve them.

The knowledge of the specific needs of each segment help companies provide tailor-made offerings to the most profitable segments, focus on segments whose needs have not been met, or even allocate time and resources to product and marketing development. In addition to providing more defined and precise customer knowledge, customer segmentation also provides predictive models that quantify the market size of each segment.

The unique predictive capability of customer segmentation allows the forecasting of a customer's potential purchasing patterns, understanding the effects of particular segment strategies, testing hypotheses about customer behavior, and tailoring planned product and market development by segment.

Customer-Segmentation Strategy

The customer segmentation strategy that analysts use to help understand the market can be critical to marketing success. Analysts need to identify key differences among customer groups that may require different marketing strategies. For example, if the segments used to analyze the customer base show absolutely no difference in their purchasing behavior, needs or problems, then the segmentation strategy used for analysis will yield no results in terms of increased sales or market share. An effective analysis of the market researches all possible customer segmentation strategies to unearth any hidden differences among customer segments that could be used to increase sales. The one-size-fits-all approach died many years ago. Today, companies are differentiating their products for a wide variety of customer segments, each with its own marketing strategy.

Some of the more common customer-segmentation groupings are listed here:

• Age of people
• Size of company
• Industry code
• Application area
• Purchasing authority
• Geographic location
• Product use
• Purchase history
• Product purchased
• Annual budget
• Organizational structure
• Satisfaction rating
• Financial status
• Ownership type