100 GREAT BUSINESS IDEAS • 195Market segmentation involves analyzing groups of current and
potential customers. It is valuable for understanding the organization
and composition of the market, to improve the effectiveness of
marketing plans, and to target potential customers.
The idea
A senior marketing colleague once remarked that he wanted to see
“all of our customers broken down by age and sex,” until I pointed
out that most of them were already. What he meant was he wanted
to better understand our customers: who they are and what they
valued. This enabled him to match products with customers, as
well as informing his thinking about many other issues: from
new product development to pricing and distribution. This is the
challenge of segmentation.
Many industries and businesses are improving their market
segmentation, for example, by using psychographic profi ling that
divides customers into “groups” according to personal needs,
preferences, and lifestyle. Some of the best segmenters are fi nancial
service businesses, such as credit card companies, insurers, and
banks. The business of lending money is diffi cult: match the wrong
loan or product to the wrong people, and either you miss a sale or
they default. There is a vital need to target the right people from the
start. This has the great benefi t of increasing marketing effi ciency.