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How to price segment your customers

Jiro Osuga

Customer segmentation allows both you and your customers to match expectation and experience, write Thomas Stewart and Patricia O’Connell for Strategy+Business.

Like every business leader, you are undoubtedly aware of the need to identify your target customers and clearly define the service your business provides to them. In an ideal world, the service your customers expect and the service your business provides to them is identical. But it’s not always that simple, is it? Because different customers have different needs.

This is why customer segmentation is essential. For example, when you book an airline ticket, you will almost always be offered a choice. Options might include economy, premium economy, business class, first class and, in the last 12 months or so, basic economy. Thanks to these clearly defined offerings, when you book an air ticket, you know what to expect and airline staff know what is expected of them.

Want to make customer segmentation work for your business? Thomas Stewart and Patricia O’Connell, co-authors of Woo, Wow, and Win: Service Design, Strategy, and the New Art of Customer Delight, suggest following these four steps:

1) Create tiers of service. Customers willing to pay more expect and should receive a higher level of service than those customers paying less. For example, you could automate services for low-paying customers and offer high-paying customers a more personal touch.

2) Clearly set and communicate offerings. It’s vital your customers know what experience to expect and your staff know what experience they are expected to provide. Make sure all promotional materials clearly outline what is offered to each segment and provide staff with strict service guidelines.

3) Encourage tier jumping. Make sure potential customers know what perks they’ll receive if they opt for a “status bum”. For example, basic economy customers can’t reserve a seat and often aren’t provided space for their luggage in an overhead bin. Faced with the prospect of the worst seat on the plane and travelling with nothing but a backpack, many customers would opt to fly economy.

4) Examine customer requests and employee complaints. If customers offer feedback, whether positive or negative, don’t ignore it. Instead, analyse it and use it to improve your service.


If you clearly define your offerings, customer segmentation could boost both profits and customer satisfaction. People like to have options.

Source Article: The Power Of Price Points
Author(s): Thomas Stewart and Patricia O’Connell
Publisher: Strategy+Business