Customer or Marketplace Segmentation?

What is the difference between Marketplace Segmentation and Customer Segmentation? There are some very important considerations and issues to understand before deciding which type of segmentation project you will conduct. Let's explore the highlights:

Marketplace Segmentation: This type of segmentation identifies different groups of consumers, including your customers and your competitors' customers. Consumer groups are identified based on their affinity for the product or service category, demographic composition, lifestyles, and relevant attitudes that influence their category involvement. This is traditionally performed utilizing primary research, and the results are usually four to six core segments, with analysis showing your customer penetration and the value of the segments. The results are used to drive strategic planning and broad-based marketing activities, to move the organization in the direction of the category's most important (valuable) target consumers.

Customer Segmentation: Your customers are analyzed with respect to their purchase behavior, demographics, and attitudes to generate insights relating to the types of relationships you have with your customers. This typically includes analysis of customer transaction history, promotion responsiveness, demography, and geo-demography. However, it can also include primary research to identify the strength of their relationship with you (and the types of considerations they have when purchasing). The resulting segments identify differentiating characteristics - customer value, lifestage, products purchased, for example - that may indicate differential marketing and CRM strategies. The segments also provide insights into the product relationship as well. When Customer Segmentation is properly conducted, all customers on your database can be coded with the segment membership AND the individual characteristics that determine that segment.

If your goal is to identify category insights to evaluate or identify alternative business strategies across the entire consumer space, Marketplace Segmentation is the solution. If your objective is to get the most out of your existing customer relationships by reacting and responding to their needs, and versioning communications to be most applicable to their relationship with you, then Customer Segmentation is most appropriate.



Can I use them together?

Yes and no. A Marketplace Segmentation does not need to be "mapped" to the database, so there is more flexibility in the design and development of those segments. Once we require that a Marketplace Segmentation be "mappable" to a database (to be useable in customer segmentation), we place a variety of restrictions from a data perspective that may not be desireable in terms of gaining insights.

That being said, there are useful ways in which to "link" the two approaches. The first is in the evaluation of Marketplace Segments. The marketplace segment can be described in terms of demographics, competition, geography, and other similar characteristics. However, the evaluation should include not only your market share with the segment, but the extent to which you have high-value relationships with your customers that are in that segment. This will provide insights in terms of how your customer base is different than the marketplace in its entirety.

The second method of "linking" is to include some overlapping characteristics in the segmentation solutions. That is, build a single lifestage component (for example) and use it for both the marketplace and customer segmentation solutions. This is mappable to your database, and also provides meaningful category insights.



Both Marketplace and Customer Segmentation projects result in meaningful insights for your organization. Make sure you know which one is most appropriate for you before you begin!