Unit 2: Customer Segmentation

1. Demographic segmentation
Identifying customer segments is a fundamental aspect of marketing that helps
businesses understand and target different groups effectively. Customer
segmentation involves dividing a larger customer base into smaller, more manageable
groups that share similar characteristics. These characteristics can be based on
demographics (such as age, gender, education level), geographic location, behaviour
(such as purchase habits), or psychographics (such as values and interests).

The process of segmentation allows marketers to tailor their strategies to meet the
specific needs and preferences of each group, making marketing campaigns more
efficient and effective. For instance, a company selling a range of products might use
demographic segmentation to target younger consumers with trend-driven items, while
offering more traditional products to older segments.

Segmentation enhances customer satisfaction because Personalized marketing

strategies can address specific customer needs. By understanding segments, businesses
can allocate resources wisely, improving the chances of customer acquisition and
retention

Advantages of Demographic Segmentation

1. The data is easy to obtain

The data required in a demographic market segmentation are usually publicly available or
not very difficult to obtain. These may be available in national archives, and may also be
collected through surveys, interviews and contact forms.

2. Data easy to analyse

Once the information has been obtained, its analysis is fairly straightforward.

3. Help to develop market presence

Si no sabes quién es tu cliente, poco podrás avanzar en cuanto a sus necesidades y

preferencias más específicas.

4. Improve products and services

When you deeply understand your target audience, it is easier to put yourself in their shoes
to satisfy them.

5. Optimise Marketing Strategies

Getting your demographic segmentation right gives you greater visibility into the journey of
your customers and prospects. This is necessary to deliver a Personalised experience that
attracts and converts customers at scale.
Disadvantages of Demographic Segmentation

1. Information is too basic

While demographic segmentation is often a good starting point, the data it provides is
fundamental, and only indicates who the customers are, but does not specify their buying
habits or motivations.

2. It does not offer competitive advantage

For there are no attitudes, needs or beliefs to exploit.

3. The information obtained is not long-lasting

A consumer, demographically speaking, will not be the same today as in ten years.
Therefore, the data collected by a company cannot be used for such a long time, as people
change in every way: age, address, marital status, and so on. Therefore, this information
must be collected constantly to keep the picture realistic.

Variables in Demographic Segmentation

1. Age
2. Gender
3. Occupation
4. Education
5. Ethnicity and Religion
6. Family Structure

2. Customer Pyramid
Any relationship marketing strategy must be based on individualised and professionalised
customer management that allows us to get to know them better through the history they
have maintained with the company: who they are, what they are looking for, what
motivates them, what business potential they offer. A correct analysis of a company's
customer portfolio should be carried out in four phases:

a) An identification of the Customer.

b) Knowledge of the level of involvement with them

c) Evaluation of their real purchasing potential and its development over time.

d) Provision of a detailed definition of the new customer management strategy,

covering both the overarching approach as well as the specific strategies for
different customer segments (e.g. customer pyramid).

The customer pyramid represents the structure of a company's customer portfolio based
on an analysis of the value they bring to the company, mainly in terms of turnover.

This work consists of an exhaustive numerical analysis of the company's current

commercial channels compared to recent years. In this way, conclusions can be drawn
and commercial and relationship marketing objectives can be defined for the future.
An in-depth analysis of a client portfolio, which includes and shows the average number of
references or products sold to each one, will allow us to better understand the
effectiveness of the organization and to plan specific growth and loyalty objectives, at the
level of areas, zones and salespeople.

Key Conclusions from Customer Pyramid Analysis:

1. The 80/20 rule

The Pareto Principle (80 / 20) works in the vast majority of companies, with exceptions
such as public transport companies, mutual insurance companies, the leisure sector
(theme parks, aquariums, bingo), and a few other sectors such as the automobile
industry. Typically, 15-25% of an organization’s customers can generate 75-85% of
turnover and gross margin. Based on these numbers, the company must decide whether
these groups are worthy of a specific relationship marketing programme that will keep
them loyal to the company and, at the same time, maximise its profitability.

2. Customer Potential

Any classification (AAA, A, B, C) of customers should be based on current turnover data,

not forgetting the purchasing potential they may have. Chiesa points out that if a
company's sales of products or services to a customer are low, they are not a C customer
and should not be considered as such. Possibly their buying potential should be at the
same level as other AAA or A customers, but for some reason they are buying less from us
than they could. The company should keep an eye on this account so that it can grow and
take full advantage of its buying potential. Any relationship marketing programme based
on segmentation should be especially cautious with these ‘false’ C-customers. Hence the
need to indicate, in each customer category, which customers are likely to move up the
pyramid. Between 5 and 30% of a company's customers have the potential to move up the
customer pyramid. A 2% net upward migration in the customer pyramid can mean 10%
more revenue and 50% more profit.

3. Low-Value Customers

When a customer is really very small and with very few possibilities for growth, it is a true
C customer. These are customers whose profitability must be closely monitored, as the
gross margin they bring in may be so small that it does not justify frequent visits by
salespeople. In these cases, one should consider changing the commercial strategy
with this customer by limiting direct actions without thinking at all about diminishing
their attention. This means that this customer should receive the same treatment, the
same quality of service and possibly be subject to the same segmented relationship
marketing programme but taking into account the value they bring to the income
statement. The profitability of these customers should be analysed very carefully because
introducing small, low-potential cards into a salesperson's portfolio can undermine his or
her sales capability and damage our operating profitability. Many low-potential customers
may become unprofitable if they are subject to promotional investments that may not be
necessary.
4. Retain before Acquiring

Generally, between 90 and 95% of business in a consolidated company comes from

existing customers. It is advisable to seek a balance in the marketing budget between
investments dedicated to customer acquisition and investments dedicated to the
maintenance, loyalty, and cross-selling of current customers. Customer satisfaction is
essential to move up the customer pyramid.

3. Customer Archetype and Buyer Persona

Customer Archetype - To avoid this confusion, this tool is often referred to as
‘archetyping’ or ‘customer profiling’. This way of categorising customers is sometimes
referred to as ‘archetypal segmentation’, indicating that segmentation is being done but
that it is being done in a different way than traditionally done. This is why customer
segments are avoided and never referred to when referring to this tool.

Buyer Persona - In Anglo-Saxon literature, this tool is often literally called a ‘persona’. This
term is very confusing in languages with Latin origins. However, since English is the main
source of knowledge and literature in this discipline, this term is sometimes used even
though it is probably not the most appropriate due to the confusion it can generate.

What are archetypes?

Archetypes are a segmentation tool that represents groups of customers identified by

shared expectations, objectives, and motivations with respect to the company or its value
propositions, thus allowing you to really know what customers want and how to build
bridges of contact that solidify your relationship with them. The term Archetype refers to
models of people that represent patterns of behaviour, motivations, lifestyle, habits,
interests and needs of customers, i.e. it refers to the profile of the buyer. It is a model used
for the representation and understanding of customers, allowing empathising with them
and obtaining a coherent and uniform vision that can be shared by the entire organisation
to understand them and design experiences capable of responding to their expectations.

Why do we need archetypes?

There is a tendency in the decision-making process to make a design that responds to

what the organisation requires, but not to what the customer requires as the recipient of
the value propositions. In this framework, the organisation assumes that the customer has
certain knowledge, values, priorities, skills or objectives, without really having carried
out a discovery process, resulting in a misalignment between what the customer expects
and what the organisation offers. In business terms, this misalignment translates into
lower uptake, dissatisfaction, churn and reduced cross-selling and profitability.
Archetypes as Segmentation Tool

The use of customer representations is still a segmentation criterion. The aim is to

identify groups of customers, current or potential, to develop more precise
commercial messages, highlight certain product attributes, and direct relationship
strategies. As in all segmentation, archetypes must define customers with homogeneous
characteristics among themselves (each member of the segment must have the same or
very similar attributes to the rest of the members of the group) and heterogeneous
concerning the rest of the segments (each segment must be easily distinguishable from
the rest because its attributes are different from the rest of the groups). In this way, it is
possible to consider different customers as belonging to one group or another.

The main difference with other criteria traditionally used by companies lies in the fact that
customer expectations, motivations, or objectives are introduced as fundamental criteria.
The difficulty lies in the fact that organizations have been able, for years, to collect socio-
demographic information (age, gender, location, income, etc), but archetypal
segmentation tells us that this segmentation is not enough nowadays, and we need to use
criteria that are unknown to the organization or that have not been captured and stored,
making specific research necessary

Features of Archetyping:

1. Hypothetical: They describe people who are not real. They are built on the basis of
research with real people, but they do not reflect any of the research participants
or any of the specific clients.

2. Realistic and credible: The person should be a description of how a certain group
of customers relates to the company and for this it must be credible. This
credibility is often achieved through background and ‘humanising’ information,
usually through a short Personal story.

3. Accurate, not exact: Archetypes represent specific customer characteristics, but

this does not imply that they are accurate, indeed, accuracy may even be at odds
with the purpose that people have if the exact data is taken as the one that is
actually defined.

4. Memorable: One of the main objectives of this tool is to create a common

communication and understanding framework throughout the organization.
Therefore, the output of this tool should be easily disseminated within a design
team or to teams that have contact with clients.
Buyer Persona

What is a buyer persona?

A buyer person represents your ideal customer, a semi-fictional profile that, as a brand,
you need to create based on market research and real information about your customers.

Why should I use buyer persona?

The use of buyer persona makes it easier for the brand to design and guide content
strategies and achieve an alignment of global objectives. In addition, if you have
information about your ideal customer, you will be able to attract potential customers and
get leads for your company.

Pain points can be identified in all brands in a context saturated with advertising, in which
thousands of brands try to compete to sell products, those that want to stand out need to
be empathetic to the needs of consumers. The brands that manage to identify and focus
on these pain points will be the ones that will come out of it stronger. That is why it is so
important to create buyer PERSONs and obtain as much data as possible from our
audience: to be able to delve deeper into their interests, problems, and desires.

Main Advantages of defining a buyer persona

Steps in creating a Buyer Persona

1. Identify what information is needed to develop buyer PERSONAs

2. Determine how buyer persona will be researched and how answers to the
questions asked will be obtained.
3. Conduct the research, collect information and responses, and record the majority
of responses on the buyer person development sheet
4. Convert the development sheet into a complete buyer persona profile
5. Tell the full story of the buyer person by following the complete profile.
Types of Buyers Persona

The buyer person does not always have to be the one who decides to buy the product or
service. There are three buyer person profiles:

Decision maker: this is the person who can make the final purchase decision. This is
usually the most widespread case, especially in B2C.

Prescriber: the person who recommends the product. A very clear example could be that
of a doctor who may be the prescriber of a certain medicine.

Influencer: the person whose opinion can positively or negatively influence the purchase
decision. It is very important to know who are the influencers of our buyer PERSON, as this
will help to decide which blogs and profiles on social networks are worth contacting to get
some kind of collaboration.

Target Group Vs Buyer persona

It is common for the concepts buyer persona and target to be confused. Although, at first
glance, they seem to refer to the same thing, the truth is that they have substantial
differences that are worth knowing. The buyer persona is not the target audience or market
niche of a company; it is much more specific and is the one for whom the unique value
proposition is designed.
4. Empathy map
The Empathy Map is a Design Thinking tool whose main purpose is to understand as well
as possible the potential customer of a brand, understanding both their explicit and
implicit needs. The Empathy Map helps to go beyond what the customer ‘seems’ to want,
or what they say they want, to understand what they want.

The information we need to assemble the empathy map is gathered from our customers,
from quantitative and also qualitative information, statistics, information from
salespeople, CRM files, and any other material the company has that helps to gain insight
into the customer. Gathering this information will help us communicate and relate better
with our customers, which will make the value proposition more effective and have a more
person lised approach.

Elements of an Empathy Map

1. See:

1. What does the customer see in their environment?

2. What are their pain points, frustrations, and challenges?

3. What are they observing about products, services, or competitors?

2. Hear:

1. What are the customer's friends, family, and colleagues saying?

2. What are they hearing from marketing, advertising, or the industry?

3. What are the voices and influences in their life?

3. Think and Feel:

1. What are the customer's thoughts, concerns, and dreams?

2. What are their emotions, both positive and negative?

3. What motivates them and what are their values?

4. Say and Do:

1. How does the customer behave in public?

2. What do they say to others?

3. What is their attitude and body language?

5. Pains:

1. What are the customer's fears, frustrations, and obstacles?

2. What risks or barriers are they concerned about?

3. What problems are they trying to solve?

6. Gains:

1. What benefits, outcomes, or results does the customer want?

2. What would make their life easier or better?

3. What would they consider a successful outcome?

5. Consumer Insights
A consumer insight is a deep, meaningful, and actionable understanding of the
customer's underlying thoughts, feelings, motivations, and behaviours. It goes beyond just
surface-level data or demographic information to uncover the core drivers and unmet
needs that shape how a customer thinks and makes decisions.

Some key characteristics of a strong consumer insight:

1. Reveals the "why" behind customer behaviour:

Explain the underlying reasons, emotions, and thought processes that lead to a certain
action or decision.

2. Uncovers unmet or unspoken needs:

Identifies the latent needs, frustrations, or aspirations that the customer may not even be
fully aware of themselves.

3. Provides directional guidance:

Points to concrete opportunities for innovation, product development, messaging, and

marketing strategies.
4. Goes beyond obvious or superficial observations:

Digs deeper than just demographic data or stated preferences to find the more profound
and meaningful drivers.

5. Connects the customer's context and mindset:

Considers the broader environmental, social, and psychological factors that shape the
customer's perspective

Market Research: Getting to the insights

1. SURVEYS AND INTERVIEWS.

2. COMMUNICATION CHANNELS.

3. OWN DATABASES.

4. PUT YOURSELF IN THE CONSUMER'S SHOES