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Factfile 11

Why needs-based segmentation is the right approach
However, whichever way a company decides to segment, customers will ignore this and select the offer that best meets their needs, the one that delivers them the most attractive value proposition. So why try and fight the way customers segment?

• A criticism often aimed at needs-based segmentation is that it can be difficult to associate each resulting segment with a particular type of customer (especially when limited to the information currently held by a company). In many cases this is only true because the segmentation project has not explored all the profiling opportunities it could utilise. 
  
  
• Further, to have the approach to segmentation - and the success of customer-focused business strategies - governed by what is currently held on a company?s database is equivalent to having the dog wagged by the flea at the end of its tail. 
  
  
• However, even when segment profiling continues to be difficult despite a project?s best endeavours, it remains the way that customers segment and it is therefore incumbent upon the business to find other ways of allocating customers to their segment. 
  
  
• For example, many companies have achieved this through a telemarketing campaign or as part of their normal customer service routines by introducing a series of key questions, the answers to which enable a customer to be allocated to their segment. 
  
  
• For some companies, however, incorporating needs based segmentation into its organisation presents too many challenges in the short term. It may require changes to the current products and services, require changes to the way current customers are classified and even challenge the current structure of the organisation, particularly in the way it faces the market (changing from a product based structure to a segment based structure). 
  
  
• Although customers will continue to segment along their own lines, the company may need to progressively move towards a needs-based approach in order to implement segmentation successfully.

Steps in building needs-based segments


Figure 3: Bases for segmentation

Source: Bonoma and Shapiro, 1983

The following adoption guidelines may be helpful:

1. Determine how the customers segment so you are aware of its needs based structure ? this then becomes the goal (the far right of Figure 3).
2. Ensure you are at least one step further to the right in Figure 3 than your competition.
3. If you move more than two steps right of where you currently are, you will experience difficulties in implementing segmentation.

Once segmentation projects have been completed, following the needs based process outlined later in this section, companies are unwilling to divulge anything about the commercial insights they have just gained.

But to provide a taster:

• GB£28 million in 10 months - UK based company. 
  
  
• A forecast gain of (equivalent to) GB£70 million over 12 months - Australian based company. 
  
  
• A forecast gain of (equivalent to) GB£70 million over 12 months - Australian based company. 
  
  
• Margins up by 5% - UK based company. 
  
  
• A substantial increase in market share - mainland European company.
  
  

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