Slime cleans House! Importance of Customer Segmentation

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My daughter’s school put together an event called “business day” in the school’s gymnasium, and boy was it an event!  It reminded me of an open air market in a small beach town where everything on display was for sale! Food, trinkets, clothing, and many other items.
The concept was quite interesting, kids were encouraged to buy products and sell them to visitors of this event.  Outside of selling age inappropriate items, the rules were straight forward: kids should sell their hearts out maximizing profits!  The school did not charge a fee or percentage which created a free flowing market for those kids with minimal restrictions.  I thought to myself, what an amazing learning experience this must be for these young bright minds!

So my daughter resorted to the sound approach of sourcing stationary items (mechanical pencils, pens, funky erasers) and selling them for a 50% – 70% margin which is excellent by many industries standards.  Other “merchants” sold gourmet foods, clothing, while one kid in particular focused on niche products: slime in a bucket, slinkys, light wands, and similar novelties.

It was quite a sight and presented a clear case study for Customer segmentation, all you had to do was stand there for 5 minutes and watch for it to become clear!

If you were to take a look across the hall, you will see polarization of “customers” gravitating towards one side of the hall or the other.  Adults were clustered around the food and clothing stations while kids were clustered around the slime & novelties table.  Every now and then kids would sneak over to the food station to fuel up and then hurry back to the slime table.  They made the a stop along the way between the two stations to stock up on pencils, erasers, and pens (stationary).  So my daughter leveraged customers’ conversion between food and slime and capitalized on having interesting merchandise to slow them down for a purchase.

I am sure profiting kids, and their parents, did not consciously think about segmentation, nonetheless they applied good common business sense to understand customers and their buying habits.  Those kids that didn’t apply the similar logic, left home with most of their merchandise in hand.

This brings us to the topic of this blog which is segmentation and its importance.  There is no set method or approach to segmentation, but I like the straight forward approach of Bradford and Duncan in their book Simplified Strategic Planning – 2000, where they look at segmentation based on customers who think and behave in the same way, possible segments include:

  1. Customer needs & preferences
  2. Commodity & specialty behavior
  3. Product type
  4. Market type
  5. Demographics
  6. Geography
  7. Customer type or buying channel

They go further in the book to advise against following a standard trade association segmentation because this will inevitably end up in a price war and head-to-head competition…a losing proposition!  The idea is that you want to use segmentation and understand your customers to create a new segment where you can rule as king!

Let’s go back to my daughter’s business day, and apply segmentation on Customers needs & preferences and Product type.  We would end up with Customers and preferences as follows:

  • Adults (parents & teachers) prefer a bargain price for commodities on their shopping list
  • Kids prefer a reasonable price for funky gadgets (price is not as sensitive because they got to have it…right!)

The second segment would identify products as:

  • Commodities: Gourmet Food, Garments, Stationary, & Similar items
  • Specialty or Niche: Slime buckets, slinky, light wands, and similar items

The kid selling slime created a new market segment that attracted customers who were not price sensitive, the kids.  Interesting to note that kid made more than 400% margin across their products! In other words, the kid cleaned house with their “slime” strategy leaving other “merchants” in the dust.

Makes sense? I believe so…and we all would say, well this is just common sense.  The question is why aren’t organizations doing this effectively? Why do large conglomerates make deadly mistakes of launching lousy products across markets?

Fadi Hindi

Author: Fadi Hindi

Fadi is an Executive Leader with a proven track record of bringing large Transformation Programs to the market and providing thought leadership globally in the areas of Innovation & Strategic Planning. He has over 22 years of experience across multiple industries including Financial Services, Consumer Products, Manufacturing, Pharmaceuticals, & Government (Federal & State). Span of Expertise include Management Consulting, Executive Management, Executive Board Advisor, Organizational Change Management, & Business Development. He founded the Strategy & Enterprise Architecture Society (SEAS) Inc. a not-for-profit organization incorporated near the Research Triangle Park (RTP) area in Raleigh, NC. Fadi won numerous awards including the Forrester/InfoWorld/Penn State University EA 2013 Global Award, CIO20 award, He is also a public speaker at global conferences including Gartner, Forrester, ID World, Gitex, & others.

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2 Comments

  1. Love the analogy Fadi. Makes one wonder how much we can actually learn if we pay more attention to the little ones! They didn’t have to go to college to learn Customer Segmentation, but they did it anyway.

  2. Fadi Hindi

    That’s the ticket Tariq. If you think about how much gets in the way of our common sense sometimes you would be alarmed, we must recognize that sometimes going back to basics, keeping it simple, and applying common business sense would solve complex problems.

    I believe we have to approach frameworks and methods cautiously making sure we use them as tools to an end and not get lost in them.

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