Manage Customer Segments

Over the past decade, customer segment management has escalated into a topic of major importance. This essay tries to analyse the factors that impacted companies’ ability to manage customer segments, expound its roles, and urge companies to strengthen customer segment management.

Today’s marketing environment is becoming more sophisticated and proliferating. The phenomenon of market polarization is one of the most important challenges which companies should respond to. As Knudsen et al. (2005) pointed out, more and more middle-of-the-road products and services are being squeezed from many industries, while the growth rates of high end market and low end market are so strong. Facing to this changing environment, a company has to make a choice вЂ" “focus on one of the market’s extremes and concede ground elsewhere or learn to serve both premium and value customers” (Knudsen et al., 2005). StrÐ"Ґberg, the CEO of Electrolux, who has achieved to success in selling high-end and low-end products in the same channel, thought that the middle market was just on the verge of disappearing, not really vanished (Knudsen & Riiber, 2006). However, other practitioners like Bosch, Sub-Zero, Viking, Haier, Nokia gave different answers (Knudsen et al., 2005; Knudsen & Riiber, 2006). Market polarization is a megatrend. In front of this fickle social structure, it is very difficult to measure the extent of customer migration. It is important for marketers to manage customer segments effectively according to the environmental threat.

Customer needs are heterogeneous. The fact that large number of brands means customers could seek for different product benefits. Since the mass market is split into a multitude of demographic, socioeconomic and behavioural fragments, customer needs, desires and expectations must be (re)understood by marketers. Doole et al. (2005) argued that one of the advantages of the strategies of market segmentation for marketers is to meet the demands of customers in order to overcome the shortcoming of mass marketing. “Segmentation is the vehicle by which companies know and manage their portfolio of customers” (IBM Business Consulting Services, 2003). Mercedes-Benz produced the Smart car which gets preferences from urban runabout, while the S series meets the demand for luxury executive car (Doole et al., 2005). As Goller et al. (2002) stated, because sometimes customer needs are too small or the market is dominated by heavy users or by a single brand, and also the application of Internet brings out the complexity of micro-segmentation, companies may ignore customer segment management. The variety of customers’ needs determines the diversity of approaches in the development of contemporary marketing theory, Niche marketing, database marketing, micro-marketing, relationship marketing and mass customization have been employed extensively. Customer needs is becoming the basis for (re)segmenting the limited market. Customer needs could be found and understood by managing customer segments.

Cross-functional collaboration is often required in an effective customer segment management. As a survey from IBM Business Consulting Services (2003) showed, over three-quarters of today’s companies are actively using customer segmentation across multiple functional areas, from marketing, manufacturing and R&D to strategic planning, finance and marketing research. Kotler & Keller (2006, p.39, citing Katzenbach & Smith 1993) argued that “Strong companies are also reengineering the work flows and building cross-functional teams responsible for each process”. Furthermore, Kotler & Keller (2006) suggested that a segment manager should be appointed with sufficient authority and responsibility, and the manager should show a cooperative attitude with other managers. In early 2002, in order to target products and services, Sony optimized organizational structure by creating a new division, called the Consumer Segment Marketing Division, which tasks were to provide segmentation research and analysis for marketing communications across each segment, and develop a better understanding of Sony's end consumers (IBM Business Consulting Services, 2003). This is an innovation to the Porter’s theory of value chain (Kotler & Keller, 2006). Customer segment management becomes the company’s tenth value-creating activities. Restructuring and cross-functional cooperation could change the fact of unclear responsibility and strengthen the delivery of value chain. The team with clear objectives and a systematic approach (Barron & Hollingshead, 2002) would help rational allocation of resources.

In a geographically oriented organization, collaboration across functions is more critical. According to Hassan et al. (2003), customer segments may be global, country-specific, or based on clusters of countries with similar characteristics. How to judge the patterns of new products and the similarities in cross-country market segments becomes a critical issue. As Lado (2004, citing Johanson & Vahlne, 1977; Nordstrom, 1991) stated, the effective flow of information was hampered by physical and psychological distances between a company and foreign target markets and the company was prevented from understanding the external environment. Both of the three different segmentation strategies stated in Hassan et al.’s article (2003) exhibit disadvantages of either high cost of differentiation or limited economies of scale. However, advanced information technology makes it possible for a geographically oriented organization to identify buyers’ preferences and leverage the financial cost of segments. More and more enterprises are beginning to create more efficient distribution networks through using the internet, e-commerce and information systems. This makes the customer segment management more easily. As Chow (2007) pointed out, e-collaboration is deemed to be a critical successful factor for executing an effective customer segment. However, how to choose suitable collaborative system to manage customer segments is becoming more and more important. Only could communication and information sharing make cross-functional collaboration work.

Effective segment management could bring out dramatic changes in customer experience. Regarding service design and promotion, expectation-based segmentation in which customers could attain the highest degree of satisfaction makes itself efficient and useful for the companies (DÐ"­az-MartÐ"­n, 2000). One of the roles of segmentation is that “the companies can presumably better design, price, disclose and deliver the product or service to satisfy the target