Customer segmentation: impact on the value proposition

Different customers, different needs

Nowadays, customers expect much more than a ‘one-size-fits-all’ solution. Expectations, needs and beliefs may differ significantly per target group. For this reason, it is important to understand who the customers are and what they value.

E.g.: Typically, customer requirements for commodity products differ from the expectations customers hold for specialty products. For premium goods, customers expect higher quality or more service and support compared to commodity goods. To be able to optimally serve both segments and come with strong propositions, creating in-depth customer profiles should be the starting point.

From customer needs to concrete propositions

After having defined the relevant customer groups, in a next step this should be streamlined into segment specific offerings.

Important to take into consideration is that this goes beyond the product: it involves all the different interactions and touchpoints with the customers. It usually starts by exploring and validating the product & service fit with the specific market needs and the existing channels for customers. If a customer only shows interest into basic products, you probably should not offer your entire portfolio of premium products and services. This can reduce the risk of brand erosion or even price erosion that could appear when the extra services provided are not valued by a customer.

In certain industries, taking a closer look at capacity management per segment is highly relevant as well. E.g.: prioritization should be evaluated, a decision on what stock policy to apply should be taken, and so on.

Besides the tactical considerations described above, service levels, pricing, contracting, approval flows and commercial interactions should be reviewed.

Ultimately all these different elements must come together into a concrete offering, with the objective to articulate a feasible and effective promise per customer segment. It is however crucial to recognize the overall end-to-end impact, because all these different options come at their own cost. As such, it is of utmost importance to manage customer expectations appropriately in order to run an efficient business and stay close to the company value strategy.

Coming up next

In the upcoming post, we will deep-dive into customer centric processes . Stay tuned!