Author:LairdReedContributors:BarbaraBilodeau,DorieKrawiecbcSegmentationCustomerMarch1998Copyright©1998Bain&Company,Inc.2customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgenda3customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgenda4customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOSCompetitors•CustomerSegmentation•PurchaseCriteriaRating(ImportanceAnalysis)•CompanyPositioning(EffectivenessAnalysis)•AttractivenessAnalysis•ValuePropositionDevelopment•CustomerRetentionandLoyalty•CustomerAcquisitionCustomers•ToidentifycostreductionopportunitiesCustomersegmentationisanimportanttoolforcustomeranalysis.CostCapabilitiesStrategicPurpose:Tools:•Toidentifyrevenueandprofitmaximizingstrategies•Toachievedifferentiationandtopreemptcompetitors’moves•Todeterminethestrategiesthatfitbestwithacompany’scorecompetenciesContext5customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS*Insomecases,therewillbeonlyonetargetsegmentCustomersegmentationisaprocessofidentifyinghomogeneousgroupsofcustomers.Oncecustomershavebeensegmented,acompanychoosestargetsegmentsandapproacheseachsegmentwithavaluepropositionthatmeetsthesegment’sneeds.•EachcustomersegmentdescribesahomogeneousgroupofcustomersSegmentcustomers(existingandpotential)Choosetargetsegments*CreatevaluepropositionforeachtargetsegmentDetermineprofitpotential•Targetsegmentsarethemostattractivecustomersegmentsforagivencompanytofocuson•Avaluepropositionisthecombinationofproduct,service,anddeliveryofferedtothecustomer•ThepotentialprofitfromservingthetargetsegmentswithproposedvaluepropositionsmustbedeterminedTheProcess6customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOSCustomersegmentationisvaluablebecauseallcustomersarenotcreatedequal.•Eachcustomersegmenthasauniquesetofneedsandrequiresitsownvalueproposition•TheprofitpotentialdiffersbycustomersegmentCustomersegmentationhelpscompaniesfocusscarceresourceswheretheycanbemostleveragedWhyDoCustomerSegmentation?7customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgenda8customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOSCustomersegmentationisusefulforbothcustomerretentionandcustomeracquisition.SegmentcustomersChoosetargetsegmentsCreatevaluepropositionforeachtargetsegmentRetaintargetcustomersAcquiretargetcustomersRetentionandAcquisition9customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOSBaincaseteamshaveusedcustomersegmentationto:•Identifygapsorredundanciesintheproductportfolio•Screenoutunacceptablenewproducts•Chooseproductfeatures•Determineproductpricing•Establishappropriateserviceoptions•Determineoptimaldistributionstrategy•AdviseonadvertisingstrategyApplications(1of2)10customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•AlargeEuropeanbeermanufacturerwasfacedwithincreasingcompetitionandlowmarketgrowth.Bainusedsegmentationtoidentifyproductportfoliogapsanddetermineoptimalpositioningfornewandexistingbrands.Thisresultedinan8%marketshareincrease.•Aninternationalcosmeticscompanywantedtoidentifyopportunitiesinthehighgrowthskincaremarket.ABainteamidentifiedunmetconsumerneedsforanti-agingcreamsandproposedanoptimalstrategyfortargetingtheappropriatecustomers.Thisresultedinapproximately$145MMinvaluecreation.Bain’scustomersegmentationworkhasbroughtsignificantresultsformanyclients.ExamplesofBain’sworkinclude:Applications(2of2)11customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•Thecustomersegmentationconcept•Applications•Customersegmentationsteps–segmentcustomers–choosetargetsegments–createvaluepropositionsfortargetsegments–determineprofitpotentialofservingtargetsegmentswithvaluepropositions•Examples–needs-based–behavioral•KeytakeawaysAgenda12customersegmentation.PPTbcCopyright©1998Bain&Company,Inc.CustomerSegmentationBOS•Choosesegmentationmethod(needs-based,behavioral,ordemographic)basedonunderlyingissuesProcess:Tips:•Choosetargetsegmentsbasedonattractivenessandabilitytoserveinadifferentiatedway(insomecases,therewillbeonlyonetargetsegment)•Createvaluepropositionsbasedoncustomerneeds(eachtargetsegment