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Identifying target customers

Identifying target customers is crucial for effective retail marketing. By understanding customer segments and selecting specific target audiences, retailers can develop tailored marketing strategies, improve customer satisfaction, and maximize profitability.

1. Market Segmentation

  • Definition: The process of dividing a broad customer market into distinct groups, or segments, with similar needs, behaviors, or demographic profiles.
  • Purpose: Helps retailers focus their efforts on specific groups, making marketing more effective and cost-efficient.
  • Criteria for Effective Segmentation:
    • Actionable: The segment should have clear needs and responses to marketing.
    • Identifiable: Retailers should be able to determine who is in the segment.
    • Substantial: The segment must be large enough to be profitable.
    • Reachable: The segment must be accessible for communication and product distribution.

2. Common Segmentation Approaches

  • Geographic Segmentation: Dividing the market based on customer location (e.g., regions, cities).
  • Demographic Segmentation: Using objective characteristics like age, gender, income, or education to define segments.
  • Psychographic Segmentation: Grouping customers by lifestyle, personality, and values, often using tools like VALS (Values and Lifestyles).
  • Behavioral Segmentation: Based on customer behaviors, such as purchase frequency, brand loyalty, and usage patterns.
  • Benefit Segmentation: Groups customers by the benefits they seek from a product. For example, customers focused on price may form one segment, while those prioritizing quality form another.

3. Composite Segmentation

  • Definition: Combines multiple segmentation criteria (e.g., demographics, lifestyle, and benefits sought) to create more specific and actionable customer profiles.
  • Example: CVS uses composite segmentation with customer personas like “Caroline,” a young mom focused on affordability, and “Vanessa,” a higher-income customer seeking convenience and quality for her family. These personas allow CVS to tailor products and promotions to each customer type.

4. Customer Lifetime Value (CLV)

  • Definition: An estimate of the total profit a retailer can expect from a customer over the course of their relationship.
  • Purpose: Helps retailers identify their most valuable customers and prioritize resources accordingly.
  • Application: Customers with high CLV are often segmented as VIPs and receive tailored loyalty programs and rewards.

5. Data Collection for Segmentation

  • Transactional Data: Tracks what customers buy, how often, and at what price points.
  • Customer Interactions: Records of in-store visits, online interactions, and responses to marketing campaigns.
  • Customer Feedback: Information gathered through surveys, reviews, and social media sentiment analysis.
  • Example: Retailers like Kroger use loyalty programs to collect purchase data, which helps in creating personalized promotions and identifying high-value customer segments.

Identifying target customers through effective segmentation allows retailers to develop tailored strategies that enhance customer satisfaction and drive profitability. By analyzing data and focusing on segments with clear needs and high potential value, retailers can optimize their marketing efforts and strengthen customer relationships.

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