How to Segment When All Customers Look Alike | Strategic Pricing Solutions

Customer segmentation is a simple concept – identify groups of customers who tend to have similar levels of price sensitivity and set distinct prices for each group.  Unfortunately, many companies either think all their customers are the same, or they don’t have enough information to create segments.  In particular, we often see this in retail businesses.  Unfortunately, assuming all customers are the same results in missed profit opportunities.  With a little creative thinking, it is possible to let customers segment themselves and capture more profit.

Airlines are great examples of businesses that have figured out how to let their customers segment themselves.  The customers are all asking for the same thing, a flight between two cities; but some customers are very concerned about the price while others are not.  So, the airlines offer a variety of price points.  First class seats are the highest priced and non-refundable middle-seat economy class tickets purchased well in advance are the cheapest.  There are more options in between.  If other businesses think about their customers the same way the airlines have, they can find differences among their customers.  Let me give you some examples.

I previously lived in a small town in Western PA whose residents spanned the entire spectrum of economic status, from the top 1% down to some with no income. There was a Mexican restaurant that we frequented, enjoying the food and margaritas.  Some of the staff knew my wife and me by name, and would prepare our preferred margaritas when they saw us enter.  Obviously, we liked that service.  Since the area included many lower income residents, the restaurant owner believed he had to keep prices low.  However, I told the owner I thought there were many customers, like my wife and me, who would purchase more expensive, upscale items if they were available.

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How to Segment When All Customers Look Alike.