Customer Segmentation

Background

Identifying the needs of different customer groups and targeting them with tailored offerings is a hallmark of successful businesses. This practice is called Segmentation. It divides customers into categories based on shared needs, demographics, priorities, common interests, and other psychographic or behavioral criteria. It is a helpful way to understand the needs and desires of potential customers.  Understanding customer needs is the first step in developing a successful strategy that matches the right product with the right customer.

Benefits of Segmentation

Segmentation helps businesses market and sell more effectively. Some of the benefits of segmentation are:

1. Increased revenue: Businesses can boost sales by tailoring their content and marketing efforts toward specific customer groups. They will be able to sell more product or service because it is relevant to the needs of their specific audience.
2. Improved ROI (return on investment): Segmentation helps businesses identify which channels will work best to reach each customer group. This information helps to optimize spending and achieve the greatest return on investment possible.
3. Effective marketing communications: Businesses can dump the one-size-fits-all communications and refine their messaging for a specific group. Thereby establishing a more meaningful connection with their audience.
4. Higher customer retention: Meaningful connections also mean customers feel understood and well-served. This feeling leads to increased loyalty, lower customer churn rates, and a higher Customer Lifetime Value.
5. Enhanced consumer engagement: When customers feel like they're getting value from, and are valued by, a business, they are more likely to tell others about it.
6. Identification of niche opportunities: Segmentation helps businesses identify and gain new insights into underserved markets and find new ways of satisfying existing customer base needs. This leads to brand and business expansion of their business and brand.

Types of Segmentation

There are four main types of segmentation in business:

Demographic Segmentation

Psychographic Segmentation

Behavioral Segmentation

Geographic Segmentation

Segmentation, Targeting, and Positioning

Segmentation in the food industry can be based on Demographic categories or food-related lifestyles. Demographic categories include age, education, income level, etc. Food-related lifestyle covers aspects like price consciousness, attitude towards environmental control, health, body consciousness, etc.

For instance, some factors known to influence a customer's choice of a food stand vendor include: 

• Stand appeal
• Pricing
• Brand popularity of the business
• The food and service quality of the stand
• Dietary considerations

A business can categorize and target customers based on any combination of the above factors. Success depends on the business's ability to identify and attract the right customer by offering value that appeals to them.

Tips for choosing the right segment

Knowing the right customer segment to target is about understanding the type of customers the food stand can serve based on its existing capabilities. A business with a low-end food stand and only basic facilities cannot expect to target a luxury-loving segment, like Managers, successfully. Here are three steps to follow when picking a customer segment:  

1. Understand the business's capabilities: The first step in targeting the right customer segment is understanding the business's capabilities. What type of Stand does the business own? Which customer segment will find it appealing? Is the employee trained enough to deliver excellent customer service? What is the quality of ingredients available? Will customers seeking food with fresh, organic ingredients be satisfied? Knowing the answers to these questions will help determine which customer segments are a good fit for the business.  
2. Research the market: The second step is to research the market. In which locality are the customer segments that fit the business gathered? What is the cost of a spot there? Can the company afford it? This information will help you narrow down your choice of locality.  
3. Test the market: It is time to hit the ground running with the first recipe. Which segment visits the Stand most? Which customer thinks the recipe and price are perfect? What is their feedback about the employee's service? Testing the market will help fine-tune the business's assumptions and determine which customer segment best fits the business in its current state.

Simulation

Customers in the city have been grouped into nine segments. Each group is primarily driven by one or a combination of the following factors:

• Appeal
• Price
• Health
• Environmental impact
• Quality  

Students

Students generally have a limited amount of money to spend each week. So, they are frugal, spend conservatively on necessities, and mostly shun luxuries. They are often under a lot of pressure to succeed academically, leading to skipped meals or the quick food grab from a fast-food spot. The beauty and popularity of the food premises do not matter much. Students just want a low price and will not fuss about quality or service if the food is decent.

Parents

Being able to provide for the needs of their children highly influences the purchase decisions made by parents. They try to save money by taking advantage of cheaper food options, eating out less often, and going for deals or jumbo offers. They are a little more particular about the beauty and popularity of the food premises than students. Although highly price-sensitive, Parents are happy to pay more and stomach mediocre quality and service if the food comes with enough extras.

Staff

Stuck between the low and middle rungs of the working class, Staffs need more money to live the way they want. Any income left after paying for their necessities usually goes to retirement savings or gets swallowed by emergency expenses. Because they spend a lot of time on the go trying to meet deadlines, Staffs tend to snack on cheap and fast foods throughout the day to stay energized. They are more focused on getting their meals affordably and quickly than they are on the appeal of the premises and popularity of the business.

Influencers

Influencers are captivated by the latest fashion, technology, and lifestyle trends. They are frequently ahead of the curve and unafraid to experiment with new, even unfinished, products and services. Friends and family value their recommendations because of their uncanny ability to spot emerging trends. They are adventurous eaters, ready to try the latest culinary creation on a whim. Although Influencers are not wealthy, their style and sophistication often cause them to pay a bit extra for quality, beauty, and luxury.

Environmentalists

Frugal and conscientious about their spending, Environmentalists are very mindful about where their money goes and its impact on the environment. They live simply, dislike waste, and contribute heavily towards fighting environmental damage. They support environmentally-friendly businesses by paying more for their products and services. Their diet is rich in organic, locally-sourced vegetables. When eating out, they pay more attention to the natural beauty of the premises and the quality of food served than the popularity of the brand.

Foodies

Foodies love good food and enjoy sampling various cuisines and flavours. Foodies savour every bite of food because the act of eating is just as important as the food itself. They are usually knowledgeable about nutrition and prefer quality over quantity. So, they are comfortable spending more money on high-quality meals or ingredients. Enjoying a rich culinary experience is a big part of who they are. Businesses that provide fresh, organic food with excellent service in a physically pleasing environment will always be attractive to foodies.

Tourists

Tourists have a reputation for being big spenders. They aim to maximize their vacation by experiencing new things and creating memories. This typically comes at the expense of their finances as they eat out, go shopping, and participate more often in activities that are not part of their everyday routine. But they do not mind. They are eager to try the local cuisine and willing to pay more than they would at home. As they seek memorable experiences, popularity, quality, and beauty play a significant role in their meal choice.

Fit ones

Fit ones are particular about their diet and spending. They invest a lot of money in workout clothes, gym memberships, and healthy food to reach and maintain their fitness goals. Active and high-energy, fit ones spend a lot of time working out. They eat at fixed intervals to maximize their energy distribution throughout the day. They will pay a premium for fresh, healthy food from a business with a strong brand and excellent service.

Managers

Managers are very busy people with little time to spare. Although hectic, their high-salaried jobs ensure they have enough disposable income to unwind frequently. These top-level executives tend to express their status through conspicuous consumption - making them well-known for their lavish lifestyles. They prefer eating at places that match their high standard of living. They are only satisfied with the best food quality and service delivered by a strong brand in luxury premises.