In practice, it looks different. Many companies do not segment at all (or so they claim), others have identified segments based on highly sophisticated procedures that have no relevance in daily operations, and still others have defined segment-specific responsibilities, services, or communication measures that differ only marginally.

The benefit of segmentation lies not in the different treatment of members of individual segments (which is also not sensible due to instability in segment membership, cross-segment expectations, or efficiency considerations), but in the effective coordination of specific parts of market cultivation (e.g., personal support, services, price, communication) to the specific demands of the segment members.

We are convinced that...

In many companies, a formal segment solution exists alongside the segmentation practiced day-to-day (employees typically know what they can use to score points with customers). Based on certain criteria, customer groups were defined that are relatively homogeneous in themselves and whose members differ from those of other groups. There are, of course, countless segmentation variants. The art (!) lies in finding those criteria that allow for meaningful segmentation. Meaningful in this context means that the segments justify market cultivation tailored to them because demands are so distinctly different that separate handling is more promising than a cross-segment approach.

Ideally, segments are not just formed (and given a catchy name), but also understood; i.e., employees can conclude from a potential customer’s segment membership whether they want to serve them at all. This is a central benefit of segmentation: recognizing which customers you want and which you don’t, and if so, what expectations a typical member of this group has of a provider.

• What segmentation currently exists in our company?

• Are the demands of customers in our segments really so different that we must serve them differently?

• What is the history behind this grouping?

• Do these considerations still have any relevance at all?

• Does segmentation help us decide which customers we want and which we don’t?

Ideally, a “profile” exists for each segment to provide a vivid and understandable representation of the segment for all employees. This profile should provide information about the most important expectations of the segment members, their typical behaviors, typical members, and central competitors. In this context, it should be noted that segment membership is fluid. A component of clean segment profiles is therefore also information on which situations or purchasing decisions the segment is particularly present in.

Target groups (and knowledge of their demands and characteristics) provide valuable information for a whole range of entrepreneurial decisions (e.g., for decisions on product developments, investments, communication priorities, etc.).

The relevance of segmentation is also shown by how much it is taken into account in opinion-forming and decision-making processes:

• For which segments are certain new product developments particularly attractive?

• What impact do pricing or distribution decisions have on existing relationships with segments?

• Which segments can be reached better in a new geographic market than competitors have managed so far?

Segmentation can manifest itself through a comprehensive description of the segments in profiles, but also in the processes and structures within the company: for example, in the segment-dependent structure of sales/distribution (and the associated specialization of account managers), in the focus of product development on special requirements of target groups, in the daily work of brand and product management (target-group-relevant communication, service design, pricing, etc.), in segment-specific distribution design, as well as in the design of target systems and controlling. This aspect is of particular importance—only when reporting can also be broken down to the segment level can a company truly be managed in a segment-oriented manner.

By integrating segment thinking into the daily work of organization members, the defined segments achieve acceptance, and a shared reality can develop within the company. Segments are not given a priori; there is no “the” right or wrong solution. Through a shared understanding of which customer types exist, what characterizes these customer types, and how an organization can and wants to effectively address these groups, the effectiveness of entrepreneurial action increases.

• What priority do segments take in decision-making processes within the company?

• Is the impact on different segments explicitly considered in decisions?

• Does our conception and description of customer segments allow for meaningful planning and implementation of (segment-specific) measures?

• Are the segments also reflected in structures and processes?

Customer expectations are neither homogeneous nor stable. They can change depending on the purchasing situation as well as over time. Accordingly, a segmentation that was still meaningful last year may be obsolete this year.

At the same time, a company’s capabilities change due to technological improvements, international expansion, or new employees. Segments that could previously only be inadequately served may become more attractive due to these changes. Therefore, segmentation is not a one-time exercise but is sensibly questioned at regular intervals. In addition, it is important to remain permanently attentive in order to be able to make possible adjustments in direction should customer requirements or the capabilities of one’s own company and competitors change.