Winning new customers using loyalty‐based segmentation

Purpose – The article shows how to combine loyalty and segmentation tools to define attractive new customer segments. Design/methodology/approach – Bain's research shows how companies that use the combination excel at three skills. Successful firms: firstly, broaden their appeal by narrowing their focus. They seek new opportunities to deepen relationships with the loyal, profitable customers they know best before trying to appeal to new groups. Secondly, they grow faster by staying close to what they do best. They look inward to identify and tap the capabilities that enable them to meet target customers' needs in unique ways. Finally, they spur innovation by listening patiently. They engage customers in an ongoing dialogue that guides decisions about how their products, services and business evolve. Findings – Over a five‐year period, businesses that successfully tailor product and service offerings to desirable customer segments post annual profit growth of about 15 percent. By contrast, companies that fail to connect the right value propositions to the right customer segments have annual profit growth of only 5 percent. Practical implications – Innovative marketers study consumer needs and wants in detail to develop insights about a small, attractive customer set that becomes the focus of their product development, a group called the Design Target. Originality/value – The Design Target is the group that your company comes to understand so completely that when you design products and services for them, they say: “This is absolutely perfect for me.” They're the customers your company has the capabilities to serve better than your competitors.