Customer segmentation failure - Part 1

Not so long ago I was preparing for a wedding that had special significance for me. So I went out shopping and found myself a new suit I was happy about. The trousers were long and I had to find tailor to fix them. I opened the yellow pages and looked for tailors with reputation I could trust with my new suit. I called 3 or 4 and explained that it is very urgent for me to get the trousers fixed as I had to leave for a business trip in 4 hours and was coming back Saturday night while the wedding was Sunday at noon. I was offering 2 times the regular price, I was offering to pay for the extra trip plus premium for the time spend outside the shop just to get it fix in prompt time. No, I could not find 1 tailor that would leave the office and come to my home, nor anybody that will accept me to come to his office in 15 minutes and fix it in 1 hour. After all it was all about fixing the length of the trousers. Finally I went out driving around randomly, found a tailor, went in to the shop and asked him “ Can you fix the length of my trousers in 1 hour if I pay you 5 times the normal price, for sure you have express service” I was pushing the conversation by suggesting scenario that works for Me.

The shop was full of customers leaving their stuff and getting tickets for 2, 3 – 5 days fixing terms and also people who were coming – seeing the line and just going away. The old owner of the shop came to me and proudly said, “Sir, you look like young business man with fancy suit, willing to spend 5 times the normal price of the service BUT I treat all my customers the same” if you want to get served, you will have to get in to the line, get a ticket and we will fixed them in 6 days! That is what my ticket number was showing. That is 3 days after the important wedding I had to attend.

This was way pass My frustration level, the situation was getting to be funny and I started laughing. The old man looked at me and gave me curtesy smile while I could see he is getting curious why I am laughing. He approached me cautiously as being afraid of scandal and said: “Why are you laughing"? I presented myself and asked him a question, “I can see you produce suits also, not just fix other people suits? He said “yes I do” and have been doing it for 50 years now. “Well can you produce a suit, one and the same model and all the same number – let’s say 52 and sell it to all your customers?” I asked him! He looked at me astonished and said “of course no” we tailor our suits to fit the body and the taste of our customers. Then I asked him “if you cannot produce 1 product with 1 size and sell it to everybody because it will not fit their bodies and taste, why are you trying to sell 1 service with 1 service variation at the same fitting cabin to all your customers?” “Do they all have the same service needs?” He was quiet for some time, not so proud about his principle and just said: “What was it that you do?” I said “I make businesses profitable, by segmenting customer needs and serving them properly!” He then grabbed my trousers and said “come back in 1 hour”.

For sure the old tailor got my point. We are not the same, we do not have identical needs and although more visible at physical products level, so many businesses fail to identify the need for customer segmentation at service level. They treat all their customers the same! This would be an excellent principle if it could ever possibly be fully implemented in public services where people do not go by their free will, but because they have to. But whenever customers have the possibility and freedom of choice where they will trade their money and time for a value creating service in return – one size fits all will hardly make a success story. They all have a different relation to amount of disposable money and amount of disposable time. (Some have more money, some have abundant free time)

In a functional market economy a business creation process (product or services development) is all about identifying needs of customers segments and producing an efficient activity set that will service or satisfy these needs. In the story of my tailor, this would be identifying the need that so many people have the need to get things fixed fast, establishing a new counter – service cabin named express service and charging it accordingly (ex 2 times the normal price). Furthermore even “on call” home service that will be charged 3 times the normal service could fit customer’s money vs time preference and be point of growth in cases where express service is getting booked and you don’t have money or disposable new space to grow higher demand. In such cases the possibility is to grow it by serving them in their own home instead investing in new space - after all tailoring is not about the space but about the skills that could work anywhere.

The point: by identifying and not ignoring customer needs we can create up-sale products or attract bigger customer pools with higher margin products and boost the profit of the business. That is what doing business is all about.

About the author

Stojce Taskov is Financial services executive & investor

with long standing international experience in managing

companies across regions with diverse legislative & cultural matrix

has track record of 5 successful startup companies

in the financial services industry, records and data hosting industry

and child care & education