Performing Customer Segmentation Analysis and dividing your customer base into different segments based on different criteria is a great exercise for discovering profitable segments and alternatives for growth in those segments. Customers within one customer segment have similar characteristics and are driven by similar needs and preferences.Analyzing and understanding your customer segments can give you competitive advantage in your marketplace. For example, the better you know and understand the segment the more competitive you are in developing customized offerings, products, services or simply you are able to develop better sales and marketing approach. Customer Segmentation allows you to better allocate and optimize your company wide resources.

Effective Customer Segmentation groups your customers in meaningful segments which are well defined and measurable customer groups. Once defined each segment can be targeted with customized sales and marketing approach. Also, well defined and measurable segment allows you to plan and develop alternative go-to-market strategies and plan appropriate cost structures to target the customer segment. If you develop effective customer segmentation you will also be able to measure your market performances for each of your segments. Companies can improve their profitability and benefit from customer segmentation in many ways such as better pricing and profit margin decisions, better customized offerings, effective logistics and distribution decisions, improved product development and product positioning in the marketplace, more effective promotional tactics, etc.

Customer segmentation is critical and challenging. Understanding and quantifying your current customer base is the starting point for any successful segmentation. This step in the process requires decision makers to analyze the customer data. You need to define your current and relevant customer segments and quantify the segment size - number of customers as well as your current revenues for each relevant segment.