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.