Source: (Itracmarketer, 2016)
Segmentation is the subdivision of a market into discrete customer groups (Company, 2015). The customers in the same group will react the same way to marketing stimuli and they have the same buying behaviour. Segmentation is used for customers to become more satisfied and loyal to spend more. Not all companies use segmentation in the right way because the customers insights are lacking (Peelen & Beltman, 2013).
For dividing the customers, you can use segmentation criteria. Kotlet and Keller use geographical characteristics, demographic characteristics, socioeconomic data, behaviour, psychographic characteristics or buying motives to divide the customers. There is a guideline for good segmentation solutions, the segmentation has to be measurable, substantial, accessible, differentiable and actionable. It is important to do qualitative research for more insights and make a persona of each segmentation group after. The persona is important because marketers and other employees can see the world through the eyes of the customer (Peelen & Beltman, 2013).
Segmentation is used to find out who the company wants to approach for a certain marketing campaign activity. A theory for finding out who you want to approach is recency frequency monetary value (RFM). Marketers think that behaviour is important to segmentation. Observing historical behaviour seems to be more reliable than other methods for predicting the future purchasing. The RFM method focusses on the frequency and the most recent transaction date in addition to the annual amount spent. Big data is necessary because of the collection of data from various sources. Most of the companies already have this information because these are common aspects to measure. The method works with scores, weighted for their importance. The scores need to be given to the following aspects:
- Last purchase date
- Purchase frequency
- Amount spent
To make this theory clear, you find an example below.
The conclusion is that companies definitely can create profit through the use of segmentation and selection. The objective of segmentation is that customers become more satisfied and loyal and as a result, the customers will spend more. By using the RFM method, the company can look which division they want to approach. If the company attracts the right division, it will lead to more profit.
This is also for the hotel industry. By using the segmentation criteria, the hotel can choose the division they want to attract and make more specific action towards this group. If the hotels choose the right group to approach their campaign by using the RFM method, they can definitely make more profit.
Company, B. &. (2015). Customer Segmentation. Retrieved from bain: http://www.bain.com/publications/articles/management-tools-customer-segmentation.aspx
Itracmarketer. (2016). Hit your targets: Using data segmentation to increase your bottom line. Retrieved from Itracmarketer: https://itracmarketer.com/wp-content/uploads/2016/01/audiencesegmentation.png
Peelen, E., & Beltman, R. (2013). Customer relationship management.