Targeting Customers
Grouping customers for your products and services and targeting one or more customer groups can help to grow your business and keep you profitable. This allows you to find out which customers you already have, and which ones are your best.
Grouping Customers
A small business with just a few customers tends to treat every customer differently, providing a high level of personal and personalised service. However, as the business grows and acquires more customers, it becomes difficult to make a profit at the same time as providing such a highly personalised service.
Grouping customers is a way to continue to provide high levels of value and service to customers while making a profit for the business. If you like, it is a form of mass personalisation that helps a business to manage large numbers of customers. It is based on understanding both what they want and how they buy, as well as which customers you would regard as good for your business.
When a business knows which existing customers are profitable - the usual measure of whether customers are good for the business - it can then establish what characterises those customers (called profiling) and set out to find and attract more customers like them.
Customer Profile
All customers in the market are not the same and, as the old adage goes, if you try to please everyone you'll end up pleasing no one. So it makes sense to try to group customers with characteristics that are similar. This will enable you to refine and tailor your products and services to meet the particular requirements of these groups more closely, and so too any communication you have with them.
Grouping and targeting customers in this way can help your business to:
- Meet the needs of larger numbers of customers as the business grows. Such an understanding shows these prospective customers that you have a product or service which suits their needs and can be tailored to meet any aspects particularly important to them.
- Maintain or increase profits as the business takes on more customers.
- Retain customers by providing products and services specifically designed for them.
- Focus marketing communications by communicating messages relevant to your target customers through channels (magazines etc) that you know they are using.
- Avoid competition from larger companies by focusing on specialist needs that are too small for those companies to serve profitably.
- Five steps for grouping customers and deciding which group you are going to target:
Step 1 : Establish which customers are profitable
Step 2 : Profile your customers
Step 3 : Define customer groups
Step 4 : Decide which customer group you will target
Step 5 : Compile a target list of prospective customers
Step 1: Establish which customers are profitable
It pays to use your own experience and knowledge of its customers, starting with identifying which of your customers are the most profitable. It will help you to identify your most important customers, your key customers. These are the customers on whom you should focus most of your efforts.
Step 2: Profile your customers
Then you should identify what it is that characterises your key customers.
- Is it the way they use or consume your products and services?
- Is it the way or the frequency they buy your products and services?
- Are they looking for a particular benefit that your product or service delivers?
- Is it the way they live their lives that makes your products or services appealing?
- Is it where they are based, live or work?
Step 3: Define customer groups
Having profiled your customers, you are now in a position to identify one or more groups. It pays to list a number of possible customer groupings for your business.
Step 4: Decide which customer group you will target
It is unlikely that you will be able to serve all the customer groups you identify. So you need to select the one or two groups that you are going to focus your resources on. For a customer grouping to be useful it needs to pass a number of the following tests.
- You should be able to satisfy their needs with the same marketing mix. For more take a look at the Marketing Mix.
- This group should be unique. It should react specifically to the marketing mix you are offering.
- It should be expressed in clear terms that are relevant to purchasing decision.
- It should be identifiable, that is, you can find data on this group.
- The group must be large enough for you to make a profit and cover fixed costs like marketing communications.
Any group that does not meet all these criteria should be rejected. It will not warrant the refinements to your product or service and special promotional activity or material.
All the customer groupings that do pass the test should then be subjected to further evaluation in relation to your objectives.
Step 5 : Compile a target list of prospective customers
Compile a target list of prospective customers in your target group.
Having identified which one or two customer groups you are going to target, you now have to find your new prospects. Direct mail is just one way of reaching target customers and is particularly effective when you can identify and reach customers individually.
Lists you buy are becoming more accurate as the quality of data improves. Even so, buying a list can be expensive and you may be limited in the number of times you can use the information. Think about the cost using the final 'cost per response' rather than the initial 'cost per contact'.
You can now put your target customer list to use. You need to decide how to initiate contact with people on the list and what process to use to take them through to an order. You need to think about the message, medium and presentation.
The concept of grouping customers, or segmentation as it is called, lies at the heart of marketing. Although some of the terminology and concepts may feel a little foreign.
- Segmentation - the process of dividing customers up into groups, based on their product or service usage, buying behaviour, life style, location and so on.
- Customer profiling - a technique for developing a profile of a customer group.
- Segmentation techniques - techniques for grouping customers in both consumer markets and organisational, industrial or business markets.
- Targeting - a process for deciding which customer group or groups you are going to target in your business.
- Positioning - the process of determining the position in the customers' minds that you wish to adopt relative to their needs and expectations and to the offerings provided by your competitors.
- The decision making unit (DMU) - The various roles that are involved in most organisational buying decisions and some consumer buying decision.
A good way to learn about grouping your customers is to see how other companies in your markets or industry group their customers. You can find out by reading their sales literature, looking on their websites, watching what they do at exhibitions and even talking to them. Their approach may not be right for you but it may give you some good ideas.
