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Market segmentation is about classifying customers and then deciding how you will treat customers that fall into each classification. The airline industry does segmentation best. While the segment names may vary from one airline to another, the principle stays the same.
Most airlines classify customers into five common statuses, for example:
Even though the airplane carries all segments at the same time, takes off at the same time, and lands at the same time, each segment is treated differently before the flight, in the air, and after the flight lands. That is segmentation in action.
Market segmentation – benefits at the airport (example image/caption)
(And of course, no benefits are available if you don’t have status.)
In many cases, the criteria to qualify for each status is published on the airline website. However, in a business setting, you don’t always have to publish segmentation criteria. You can keep your criteria internal and use it only for operations and decision-making.
Market segmentation – status qualification (example image/caption)
Also, segmentation is not always based only on monetary criteria. Non-monetary criteria can also be applied. For example, customers who are on active duty, families traveling with small children, or customers needing assistance may receive special treatment such as boarding earlier. This shows that segmentation can be driven by revenue, value, risk, need, or experience.
(And of course no benefits are available if you don’t have status.)
The criteria to qualify for each status is published on their website, (copy below). But you don’t have to publish the criteria and can keep your criteria internal.
HOWEVER – there is non-monetary criteria that is applied as well. For example, you are active duty, family traveling with small children, need assistance etc. you get to board the plane first!
Getting segmentation right is critical. If segmentation is wrong, you will have missed revenue opportunities, customer satisfaction issues, and retention problems.
For example, imagine the customer satisfaction issues that arise when you treat a high-value customer as if they belong to a lower category. Also, imagine how upset leadership will be if you lose an important customer because you did not focus on them and treat them appropriately.
The flip side is also true. If you treat a lower-value customer as if they belong to a higher category, you may end up wasting corporate resources (time, service levels, discounts, account coverage, and attention).
A common scenario is when accounts are evaluated individually. Each account may not qualify for premium treatment, such as a dedicated account manager, because the account is not “big enough.” However, when those accounts are viewed together (as part of a group, parent organization, or combined spend), they may actually represent a “big” client that requires a dedicated account manager—both to sell more and to manage retention.
Segmentation by revenue or geography is relatively easy, but additional criteria may exist. For example, need can be the segmentation criteria. In that situation, customers are grouped based on what they require and what level of support or service they need.
Finally, segmentation goes hand in hand with the coverage model. The lost opportunities to increase margins or revenue often come from not segmenting customers correctly and not aligning service, focus, and attention to the right groups.
