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Segmentation - Shedding Light on Your Market While Competitors Remain in the Dark

chessIn a recent post, my colleague Bob Hull reported that many of his clients start talking about segmentation by emphasizing all the data on their customers they already have. Bob pointed out that such demographic and behavioral data can often answer "what" questions, what customers do and what they look like, but to understand "why" customers do what they do, and how apparently similar customers differ from one another, survey research to collect attitudinal and needs-based information is necessary. 

In segmenting business markets, we have found another major advantage of including attitudinal and need-based information in segmentation studies. Very likely, a company's competitors have demographic and behavioral data similar to what the company has.

As a result, segmenting using the firm's internal data may offer, at best, a minor and temporary competitive advantage. But particularly in industries where few firms carry out much primary market research, competitors are unlikely to know how attitudes line up with other characteristics.

For this reason, taking the extra steps to understand attitudes can provide a major advantage in targeting the most profitable prospects. For example, in one study we found six segments that overlapped a great deal in terms of size, industry, spending on the services our client provides, and other factual dimensions. However, one of the segments was more interested in a deep relationship with their provider of those services and less likely to shop frequently for a new provider. By looking at our client's customers, we confirmed that these attitudes were reflected in the segment's actions-that they were more loyal and more profitable. Thus, identifying a segment that could only be seen in attitudes provided a competitive advantage for our client.

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