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Author:LairdReedContributors:BarbaraBilodeau,DorieKrawiecbcSegmentationCustomerMarch1998Copyright©1998Bain&Company,Inc.bcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS2customersegmentation.PPT•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgendabcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS3customersegmentation.PPT•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgendabcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS4customersegmentation.PPTCompetitors•CustomerSegmentation•PurchaseCriteriaRating(ImportanceAnalysis)•CompanyPositioning(EffectivenessAnalysis)•AttractivenessAnalysis•ValuePropositionDevelopment•CustomerRetentionandLoyalty•CustomerAcquisitionCustomers•ToidentifycostreductionopportunitiesCustomersegmentationisanimportanttoolforcustomeranalysis.CostCapabilitiesStrategicPurpose:Tools:•Toidentifyrevenueandprofitmaximizingstrategies•Toachievedifferentiationandtopreemptcompetitors’moves•Todeterminethestrategiesthatfitbestwithacompany’scorecompetenciesContextbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS5customersegmentation.PPT*Insomecases,therewillbeonlyonetargetsegmentCustomersegmentationisaprocessofidentifyinghomogeneousgroupsofcustomers.Oncecustomershavebeensegmented,acompanychoosestargetsegmentsandapproacheseachsegmentwithavaluepropositionthatmeetsthesegment’sneeds.•EachcustomersegmentdescribesahomogeneousgroupofcustomersSegmentcustomers(existingandpotential)Choosetargetsegments*CreatevaluepropositionforeachtargetsegmentDetermineprofitpotential•Targetsegmentsarethemostattractivecustomersegmentsforagivencompanytofocuson•Avaluepropositionisthecombinationofproduct,service,anddeliveryofferedtothecustomer•ThepotentialprofitfromservingthetargetsegmentswithproposedvaluepropositionsmustbedeterminedTheProcessbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS6customersegmentation.PPTCustomersegmentationisvaluablebecauseallcustomersarenotcreatedequal.•Eachcustomersegmenthasauniquesetofneedsandrequiresitsownvalueproposition•TheprofitpotentialdiffersbycustomersegmentCustomersegmentationhelpscompaniesfocusscarceresourceswheretheycanbemostleveragedWhyDoCustomerSegmentation?bcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS7customersegmentation.PPT•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgendabcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS8customersegmentation.PPTCustomersegmentationisusefulforbothcustomerretentionandcustomeracquisition.SegmentcustomersChoosetargetsegmentsCreatevaluepropositionforeachtargetsegmentRetaintargetcustomersAcquiretargetcustomersRetentionandAcquisitionbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS9customersegmentation.PPTBaincaseteamshaveusedcustomersegmentationto:•Identifygapsorredundanciesintheproductportfolio•Screenoutunacceptablenewproducts•Chooseproductfeatures•Determineproductpricing•Establishappropriateserviceoptions•Determineoptimaldistributionstrategy•AdviseonadvertisingstrategyApplications(1of2)bcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS10customersegmentation.PPT•AlargeEuropeanbeermanufacturerwasfacedwithincreasingcompetitionandlowmarketgrowth.Bainusedsegmentationtoidentifyproductportfoliogapsanddetermineoptimalpositioningfornewandexistingbrands.Thisresultedinan8%marketshareincrease.•Aninternationalcosmeticscompanywantedtoidentifyopportunitiesinthehighgrowthskincaremarket.ABainteamidentifiedunmetconsumerneedsforanti-agingcreamsandproposedanoptimalstrategyfortargetingtheappropriatecustomers.Thisresultedinapproximately$145MMinvaluecreation.Bain’scustomersegmentationworkhasbroughtsignificantresultsformanyclients.ExamplesofBain’sworkinclude:Applications(2of2)bcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS11customersegmentation.PPT•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgendabcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS12customersegmentation.PPT•Choosesegmentationmethod(needs-based,behavioral,ordemographic)basedonunderlyingissuesProcess:Tips:•Choosetargetsegmentsbasedonattractivenessandabilitytoserveinadifferentiatedway(insomecases,therewillbeonlyonetargetsegment)•Createvaluepropositionsbasedoncustomerneeds(eachtargetsegment