Author: Laird Reed
Contributors: Barbara Bilodeau,
Dorie Krawiec
bc
Segmentation
Customer
March 1998
Copyright© 1998 Bain & Company, Inc.
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Competitors
• Customer Segmentation
• Purchase Criteria Rating
(Importance Analysis)
• Company Positioning
(Effectiveness Analysis)
• Attractiveness Analysis
• Value Proposition
Development
• Customer Retention and
Loyalty
• Customer Acquisition
Customers
• To identify cost
reduction
opportunities
Customer segmentation is an important tool for customer analysis.
Cost Capabilities
Strategic
Purpose:
Tools:
• To identify
revenue and
profit maximizing
strategies
• To achieve
differentiation
and to preempt
competitors’
moves
• To determine the
strategies that fit
best with a
company’s core
competencies
Context
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS *In some cases, there will be only one target segment
Customer segmentation is a process of identifying homogeneous groups of
customers. Once customers have been segmented, a company chooses
target segments and approaches each segment with a value proposition that
meets the segment’s needs.
•Each customer segment describes
a homogeneous group of
customers
Segment customers
(existing and potential)
Choose target segments*
Create value proposition
for each target segment
Determine profit potential
•Target segments are the most
attractive customer segments for a
given company to focus on
•A value proposition is the
combination of product, service,
and delivery offered to the
customer
•The potential profit from serving the
target segments with proposed value
propositions must be determined
The Process
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Customer segmentation is valuable because all customers are
not created equal.
•Each customer segment has a unique set of
needs and requires its own value proposition
•The profit potential differs by customer segment
Customer segmentation helps
companies focus scarce resources
where they can be most leveraged
Why Do Customer Segmentation?
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Customer segmentation is useful for both customer
retention and customer acquisition.
Segment customers
Choose target segments
Create value proposition for each target segment
Retain target
customers
Acquire target
customers
Retention and Acquisition
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Bain caseteams have used customer segmentation to:
• Identify gaps or redundancies in the product portfolio
•Screen out unacceptable new products
•Choose product features
•Determine product pricing
•Establish appropriate service options
•Determine optimal distribution strategy
•Advise on advertising strategy
Applications (1 of 2)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•A large European beer manufacturer was faced with increasing
competition and low market growth. Bain used segmentation to
identify product portfolio gaps and determine optimal positioning
for new and existing brands. This resulted in an 8% market
share increase.
•An international cosmetics company wanted to identify
opportunities in the high growth skin care market. A Bain team
identified unmet consumer needs for anti-aging creams and
proposed an optimal strategy for targeting the appropriate
customers. This resulted in approximately $145MM in value
creation.
Bain’s customer segmentation work has brought
significant results for many clients. Examples of Bain’s
work include:
Applications (2 of 2)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
• Choose
segmentation
method (needs
-based,
behavioral, or
demographic)
based on
underlying issues
Process:
Tips:
• Choose target
segments based on
attractiveness and
ability to serve in a
differentiated way (in
some cases, there
will be only one target
segment)
• Create value
propositions
based on
customer needs
(each target
segment requires
its own value
proposition)
• Determine the
revenue and cost
impacts of
offering the
proposed value
propositions to
the target
segments
• Segments should be
– meaningful
– MECE (only one
segment per
customer)
– measurable
– substantial
– actionable
• Attractiveness is
based on profit
potential (revenue
potential and cost to
serve)
• Ability to serve in a
differentiated way
recognizes both the
client’s and the
competitors’ core
competencies as well
as regulatory factors
• Each value
proposition
should address:
– product
– service
– distribution
• Profit potential
should include
profit as well as
“hidden costs”
(., increased
training and
marketing costs
for new products)
Segment customers
(existing and
potential)
Choose target
segments*
Create value
proposition for each
target segment
Determine profit
potential
*In some cases, there will be only one target segment
Customer Segmentation Steps
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Customer needs
(., preferences
for low price vs.
high service)
–psycho-
graphics
–attitudes
Needs-based Behavioral Demographic
Type of data
used to
segment:
Examples: •Value high service
over low price
•Value low price over
high convenience
•Value brand name
over low price
•Buy on sale only vs.
at full price
•Behaviors (.,
purchasing patterns,
usage patterns)
•Use ATM vs. use
branch
•Shop weekly vs.
monthly for
groceries
•Drink coffee vs. do
not drink coffee
•Demographics
(., age, income,
home ownership)
•Young vs. old
•High income vs. low
income
•Home owners vs.
renters
There are three main types of segmentation:
Segmentation Methods
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Primary research
necessary
Needs-based Behavioral Demographic
Segmentation
process:
Usefulness in
creating value
propositions:
•High (shows
causation)
•Descriptive and
actionable
(describes
customers and
drivers of
purchase)
•Primary research
necessary only if
behavioral data not
available from
client database
•Moderate (shows
correlation, not
causation)
•Descriptive, not
actionable (describes
purchasing behavior,
but does not address
drivers or purchase)
•No primary research
necessary
•Demographic data
sometimes readily
available from client
•Low (occasionally
shows correlation,
never causation)
•Descriptive, not
actionable (describes
customers but does
not address drivers of
purchase)
Needs-based segmentation is the most time consuming to execute, but also
the most valuable. Most of Bain’s work involves needs-based segmentation.
Comparison of Segmentation Methods
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Make a complete list
of potential customer
and non-customer
needs
– focus groups or a
small number of
unprompted
customer
interviews
–brainstorming
–previous client
work or Bain
research
Create a needs list Collect data
Conduct Factor/
Cluster analysis to
determine statistical
segments
Steps: •Ask a representative
sample of customers
and non-customers
a battery of
questions designed
to gauge their needs
concerning a
product/service
•Customers and
non-customers are
placed into
segments based
on their responses
to the key
variables that drive
purchase behavior
Defining customer groups in a needs-based segmentation begins
with identifying the likely customer and non-customer needs.
Needs-Based Segmentation
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The Bain Research and Data Analysis Group in Boston should be
contacted when running a needs-based segmentation to ensure
proper, statistically valid analysis
•These tools could generate a number of statistically valid
answers. In that case, the segmentation options must then be
screened using business judgement.
Factor Analysis and Cluster Analysis are statistical tools used to
determine appropriate needs-based customer segments.
Factor/Cluster Analysis
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
There are two methodologies for segmenting a database of
behavioral or demographic information.
CHAID - an analytical tool that uses
the Chi-Square statistic to find the
drivers of a dependent variable
80/20
Process:
Statistical
validity:
Drawbacks:
• Divide customers according to their
profitability
• Hypothesize as to the variables that
drive profitability. Combine
variables to create segments.
• Low
• Iterative, manual process
• Requires solid intuition
• Risks leaving out important
variables
• Does not address causation
• Choose dependent variable (.,
profit), hypothesize as to the
segmentation variables, collect data
on variables, run CHAID, reality
check results, and create segments
based on the CHAID
• High
• Process requires contacting the
Bain Research and Data Analysis
Group in Boston for software/
statistical expertise in conducting
CHAID analysis
Behavioral and Demographic Segmentation
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•CHAID analysis determines and ranks all of the statistically significant
drivers of a chosen dependent variable (., profit, retention, productivity)
•Specifically, it groups independent variables into subgroups
– independent variables are categorized according to their statistical
significance (., store location, age)
–CHAID identifies interactions/effects between variables
–CHAID yields subgroups which are statistically significant and MECE
CHAID is a statistically robust method used to segment a
demographic or behavioral database.
CHAID
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Meaningful - there should be enough differentiation among segments such that
each segments seems unique
•MECE - each customer should belong to one, and only one, segment
•Measurable - clearly defined with a market share that can be quantified
•Substantial - there should be enough volume in a segment to merit analysis
•Actionable - we should be able to design a value proposition for each segment
Regardless of the type of segmentation used, the customer groups
determined by the segmentation process must have the following
characteristics:
Segmentation Requirements
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS Note: In some cases, there will be only one target segment
The target segments should be chosen based on their attractiveness to a given
company and that company’s ability to serve the target segments in a
differentiated way.
Attractiveness
(profit potential)
Ability to serve in a
differentiated way
Revenue potential Cost to serve
Client’s core
capabilities vs.
competitors’
External factors
• Size
• Growth potential
• Buyer power
• Product
requirements
• Price sensitivity
• Advertising
requirements
• Channel preference
• Service
requirements
• Strategic objectives
• Ability to leverage:
– technology
– costs
– skills
– existing resources
• Existing market
perceptions
• Existing base in
segment
• Legal restrictions
• Regulatory
requirements
Target Segment Selection
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Develop
Capabilities
to Serve this
Segment
Target this
Segment
Avoid this
Segment
Adjust Value
Proposition to
Improve
Attractiveness of
this SegmentLow
Low
High
High
Ability to Serve Segment in a
Differentiated Way
(Lever = Capabilities)
S
eg
m
en
t A
ttr
ac
tiv
en
es
s
(L
ev
er
=
V
al
ue
P
ro
po
si
tio
n)
Target Segment Selection Matrix
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Features
•Price
•Quality
•Brand
•Positioning
•Promotion/
advertising
Product Service Distribution
•Before sale
•During sale
•After sale
•Delivery channels
•Speed
After customers have been segmented and the most attractive segments
have been chosen, a customized value proposition should be created for
each target segment by trading off among the following elements:
Actions should leverage strengths and optimize resources with
the goal of increasing market share of the target segments
Value Proposition Development
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Once the value propositions have been established, the potential
profit to be gained from providing them to the target segments
should be quantified.
Determine profit
potential
Calculate revenue
increase
Calculate cost
to serve
Current
customers
New customers
Current
customers
New customers
Profit Potential Quantification
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS *Disguised client case
Smith’s Fashion Center is a large discount women’s retailer in the Northeast
that wants to understand its customer base to determine expansion options.
A list of the drivers of retail purchasing
behavior was made
Customers were asked ~20 questions to
record their needs
Factor/Cluster analysis was used to determine
the segments
Segment size and revenue potential were
calculated
An expansion market was chosen and the
merchandise strategy was adjusted based on
the segmentation results
Smith’s Fashion Center* - Process
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
A five segment solution was chosen from the Factor/Cluster analysis.
Female apparel shoppers
Bargains UtilityFashionPrimary motivation:
Bargains Efficiency/serviceFun
(love to shop)
Secondary motivation: High quality
bargains
Service FashionBargainsNot motivated by: Fashion
“Fashion
Forward
Shopping
Lover”
Segment name: “Fashion
Value”
“Fashion
on a
Shoestring”
“Unfashionable
Bargain Lover”
“Rich but
Unfashionable”
$950 $750$1,400
Average spending
per year: $850$1,350
Smith’s Fashion Center - Segments
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Smith determined that its target segments were “Fashion Value” and
“Fashion on a Shoestring”.
*In this case, spending was a good proxy for profit
Ability to serve in a
differentiated way
Smith's Fashion Center - Current Customers
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Chosen Expansion City
Smith chose an expansion city with a high mix of its target segments.
Smith's Fashion Center - Expansion City Customers
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Importance of Accessories
Merchandise Quality
Based on the needs of the target segments, the merchandise strategy
was adjusted to include accessories and more low quality brands.
Smith's Fashion Center - Merchandising Strategy
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS *Disguised client case
Situation:
Complication:
Question:
Hypothesis:
•The client, Highland Hotels, has high margins and is one of
the five largest hotel/conference center chains in Europe
•The market is coming to the end of a period of rapid growth
and Highland’s relative cost position is worse than its
competitors’
•How can Highland preserve its high margins in a slowing
market where it finds itself at a cost disadvantage?
•By offering a differentiated value proposition to the most
profitable customer segment, Highland can preserve its high
margins
Bain used customer segmentation to determine the
target segments for Highland Hotels and to create
value propositions for those target segments.
Highland Hotels* - Background
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Bain conducted an 80/20 behavioral/demographic
segmentation for Highland Hotels.
High profit customers were segmented based on
their behavioral and demographic characteristics
A target segment was chosen based on its
attractiveness and Highland’s ability to serve it
Customers were divided into groups based on
their profitability
The behavioral and demographic drivers of
profitability were determined
A value proposition was created for the target
segment
Highland Hotels - Process
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
One third of Highland’s customers account for
more than 60% of its total profits.
Highland Hotels - Customer Profitability
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Occasion
Visit Frequency Length of Visit
The primary drivers of profitability are visit
frequency, length of visit, and occasion.
Highland Hotels - Profitability Drivers
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Highland identified four types of high value
customers based on the profitability drivers.
High Profit Segments Annual Frequency Length of Stay Occasion
• “Hotel-aholics”
• “Honeymooners”
• “Hello again”
• “One-timers”
Very frequent
()
Infrequent
()
Frequent
()
Infrequent
()
Medium
( days)
Long
( days)
Short
( days)
Long
( days)
Business/leisure
Leisure
Business
Business
Highland Hotels - High Profit Segments
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Highland decided to target “hotel-aholics” because they were
the most attractive segment and a good fit with the company’s
capabilities.
Ability to serve in a
differentiated way
Highland Hotels - Target Segment
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Bain designed a value proposition for the “hotel-
aholic” segment that differentiated Highland from its
competitors.
Priority service Special services
•Favorite room ready
• “Permanent” electronic
key
•Complimentary dry
cleaning
•Two phone lines
•Fax machine in room
•One 20 minute
complimentary call to
home
Rewards
•Frequent flier miles
• “Kids Stay Free” days
Highland Hotels - Value Proposition
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•The customer segmentation concept
•Applications
•Customer segmentation steps
–segment customers
–choose target segments
–create value propositions for target segments
–determine profit potential of serving target
segments with value propositions
•Examples
–needs-based
–behavioral
•Key takeaways
Agenda
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•There are three main types of customer segmentation: needs-based, behavioral and
demographic. Needs-based segmentation is the most difficult to execute, but the most
valuable. Most of Bain’s work involves needs-based segmentation
–needs-based segmentation involves creating a list of needs, collecting data, and conducting
Factor/Cluster analysis to identify segments
– there are two methodologies for segmenting a database of behavioral or demographic
information
8the 80/20 method involves dividing customers according to their profitability,
hypothesizing as to the variables that drive profitability, and combining variables to create
segments
8the CHAID method involves choosing a dependent variable, hypothesizing as to the
segmentation variables, collecting data, running the CHAID, reality checking the results,
and creating segments
•Regardless of the type of segmentation used, the resulting segments must be meaningful,
MECE, measurable, substantial, and actionable
Customer Segmentation Steps
Types of Segmentation
•Customer segmentation involves separating customers (existing and potential) into
homogeneous groups, choosing target segments (or one target segments), creating value
propositions for each target segment, and determining the profit potential of serving the target
segments with the proposed value propositions
Key Takeaways (1 of 2)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
•Target segments are chosen based on their potential profitability and the
client’s ability to serve the segments in a differentiated way
•Determining the profit potential of serving the target segments with the
proposed value propositions consists of calculating the revenue and cost
impact of serving both current and new target customers
•The three major elements of a value proposition are product, service, and
distribution
Target Segments
Applications
•Customer segmentation, done properly, helps companies focus scarce
resources where they can be most leveraged
•Bain uses customer segmentation for both customer retention and
customer acquisition
Key Takeaways (2 of 2)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Customer Segmentation Steps Comparison of Segmentation Methods
Needs-Based Segmentation Behavioral and Demographic Segmentation
Segment customers
(existing and
potential)
Choose target
segments
Create value
proposition for
each target
segment
Determine profit
potential
• Choose
segmentation
method (needs-
based, behavioral,
or demographic)
based on
underlying issues
• Choose target
segments based on
attractiveness and
ability to serve in a
differentiated way (in
some cases, there
will be only one
target segment)
• Create value
propositions
based on
customer needs
(each target
segment requires
its own value
proposition)
• Determine the
revenue and cost
impacts of
offering the
proposed value
propositions to
the target
segments
• Segments should be
– meaningful
– MECE (only one
segment per
customer)
– measurable
– substantial
– actionable
• Attractiveness is based
on profit potential
(revenue potential and
cost to serve)
• Ability to serve in a
differentiated way
recognizes both the
client’s and the
competitors’ core
competencies as well as
regulatory factors
• Each value
proposition should
address:
– product
– service
– distribution
• Profit potential
should include
profit as well as
“hidden costs” (.,
increased training
and marketing
costs for new
products)
Process:
Tips:
• Primary research
necessary
Needs-based Behavioral Demographic
Segmentation
process:
Usefulness in
creating value
propositions:
• High (shows causation)
• Descriptive and actionable
(describes customers and
drivers of purchase)
• Primary research
necessary only if
behavioral data not
available from
client database
• Moderate (shows
correlation, not causation)
• Descriptive, not actionable
(describes purchasing
behavior, but does not
address drivers or
purchase)
• No primary research
necessary
• Demographic data
sometimes readily
available from client
• Low (occasionally shows
correlation, never
causation)
• Descriptive, not
actionable (describes
customers but does not
address drivers of
purchase)
• Make a complete list
of potential customer
and non-customer
needs
– focus groups
or a small
number of
unprompted
customer
interviews
– brainstorming
– previous client
work or Bain
research
Steps: • Ask a representative
sample of
customers and non-
customers a battery
of questions
designed to gauge
their needs
concerning a
product/service
• Customers and non-
customers are
placed into
segments based on
their responses to
the key variables
that drive purchase
behavior
Create a needs list Collect data
Conduct Factor/
Cluster analysis to
determine statistical
segments
CHAID - an analytical tool that uses
the Chi-Square statistic to find the
drivers of a dependent variable
80/20
Process:
Statistical
validity:
Drawbacks:
• Divide customers according to
their profitability
• Hypothesize as to the
variables that drive
profitability. Combine
variables to create segments.
• Low
• Iterative, manual process
• Requires solid intuition
• Risks leaving out important
variables
• Does not address causation
• Choose dependent variable
(., profit), hypothesize as to
the segmentation variables,
collect data on variables, run
CHAID, reality check results,
and create segments based
on the CHAID
• High
• Process requires contacting
the Bain Research and Data
Analysis Group in Boston for
software/ statistical expertise
in conducting CHAID analysis
Takeaway Slides (1 of 3)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Segmentation Requirements Target Segment Selection Matrix
Value Proposition Development Profit Potential Quantification
• Meaningful - there should be enough differentiation among
segments such that each segments seems unique
• MECE - each customer should belong to one, and only one,
segment
• Measurable - clearly defined with a market share that can be
quantified
• Substantial - there should be enough volume in a segment to
merit analysis
• Actionable - we should be able to design a value proposition
for each segment
Develop
Capabilities
to Serve this
Segment
Target
this
segment
Avoid this
segment
Adjust Value
Proposition to
Improve
Attractiveness of
this SegmentLow
Low
High
HighAbility to Serve Segment in a
Differentiated Way
(Lever = Capabilities)
S
eg
m
en
t A
ttr
ac
tiv
en
es
s
(L
ev
er
=
V
al
ue
P
ro
po
si
tio
n)
• Features
• Price
• Quality
• Brand
• Positioning
• Promotion/
advertising
Product Service Distribution
• Before sale
• During sale
• After sale
• Delivery
channels
• Speed
Actions should leverage strengths and optimize
resources with the goal of increasing market share of
the target segments
Determine profit
potential
Calculate revenue
increase
Calculate cost to serve
Current
customers
New customers
Current
customers
New customers
Takeaway Slides (2 of 3)
bc
Copyright© 1998 Bain & Company, Inc.
Customer Segmentation
BOS
Client
Competitor
Comb Chart
Attractiveness
A
B
C
Target
segmentSegment
Financial
Attractiveness
Ease of Implementation
Hi
Lo
Low price
High quality
Fast delivery
A B C D
Segment Needs
Segment
Segment Share
Total market = $
C
om
pe
tit
or
s
(%
o
f T
ot
al
S
al
es
)
Client
$ $ $ $ $
Satisfaction Over Time
P
er
ce
nt
o
f R
ep
lie
s
100%
Time
Good
Okay
Bad
Value Proposition
Segment A
Segment B
Segment C
Segment D
Product Service Channel
Customer Retention
A
cq
ui
si
tio
n
C
os
t
Size of
segment
Revenue and Profit
# $$
C
Takeaway Slides (3 of 3)
