Segmenting the market

The most effective marketing is targeted to the people who are most likely to buy your products and services. Within that group, there is a range of customers, from those who might be interested to those who are most likely to buy from you. This refining or sub-dividing of customers into different groups is sometimes called market segmentation or customer segmentation.

And even within the smaller group of good prospects, there are those you especially want to attract because they represent greater revenue opportunities if they become customers — for example, because they have an ongoing need for your product or service and will purchase from your business repeatedly. The revenue from such customer loyalty is sometimes referred to as the “80/20 rule” — that 80% of a business’s revenues are generated by 20% of its customers.

To run a successful business, it’s important to know not only which customers make up this 20%, but also to continually ensure they remain satisfied. For example, if you run a pizza shop and a customer who usually orders from you every Friday night calls with a complaint about a late delivery, you may wish to offer free delivery next time or perhaps even send a free pizza. The point is that it’s important to protect the loyalty of your best customers.