This paper examines customer experience as an emerging segmentation basis, analyzing conventional segmentation platforms — demographic, geographic, psychographic, and behavioral — in the context of heightened competition, private label growth, and e-tailing. Drawing on a luxury market case study, it compares the VALS and PRIZM models, evaluates differentiation and customer engagement strategies, and distinguishes between Customer Relationship Management (CRM) and Customer Experience Management (CEM). The paper argues that CEM is most effectively applied in service sectors such as tourism, hospitality, and healthcare, and considers whether customer experience should function as a complement or substitute for traditional segmentation bases within the modern experience economy.
Segmentation is primarily based on aspects of geography, behavior, and psychography, all of which are considered conventional bases for segmenting a target audience. Segmentation platforms remain vital because customer needs are constantly changing, and companies must adopt innovative approaches to improve customer satisfaction. This enables a company to better position itself across different markets (Gambhiraopet & Chowdary, 2015). Effective segmentation creates a significant effect on a company's market share and further builds brand loyalty (Walden, 2017). Segmentation platforms also help predict customer values and behaviors — including the attitudes and values crucial to identifying a target audience — and allow companies to focus on distinct customer sets over time.
The VALS and PRIZM models are systems used to segment consumer markets based on attitudinal variables and geo-demographic factors. These approaches draw on principles related to the influence of past beliefs and future consumer behavior (Gambhiraopet & Chowdary, 2015). These models are particularly crucial in an era of increased competition because they help organizations gain a competitive advantage and maintain a clearer understanding of consumer behavior. They also create productive rivalry with the unorganized sector, since organized industries are better equipped to understand customer expectations (Gambhiraopet & Chowdary, 2015). Overall, these models simplify segmentation, help define product targets, support media strategy development, and make advertising more effective.
The nature of competition and the effectiveness of segmentation can be characterized in several ways. The first is through differentiation approaches, which are vital for gaining market share. A differentiation strategy is a business approach focused on offering customers something unique and distinct from competitors' offerings in the marketplace (Lafrenière, 2019). The primary objective of a differentiation approach is to increase competitive advantage.
Another way to characterize competition is through the varied application of technical competency in adopting a market approach. Technical competency simplifies business activities by providing efficient methods for problem-solving (Walden, 2017). These competencies represent the knowledge and skills required to apply technical information and principles to specific job roles and functions — proficiencies typically developed through education and hands-on experience.
A third way is through customer engagement strategies deployed regularly. Examples include discounts and schemes launched off-season, as well as in-season promotions designed to attract customers and stimulate competition between companies (Lafrenière, 2019). Customers tend to develop loyalty toward organizations that offer savings, making discounting a key competitive lever. Additionally, several product mix strategies are adopted to build brand loyalty. These include price, product, place, and promotion (Lafrenière, 2019) — the tactical and controllable tools companies use to generate a more favorable response from target markets and to influence overall demand for their products.
The companies featured in Exhibit 1 of the case study, positioned across the product-price pyramid, appear to segment their markets, target their customers, and position their products through several key strategies. The first is research and development, primarily conducted through customer satisfaction surveys. These surveys allow companies to gauge how satisfied their customers are and to identify areas for improvement.
"R&D, feedback mechanisms, and product design for market positioning"
The right mix of CEM and CRM is essential: together, they keep customers satisfied and create a more complete understanding of the customer journey (Pine II & Gilmore, 1998). CEM gathers, tracks, and organizes every step of the customer's perspective and journey — primarily through surveys, direct feedback, reviews, and other communication methods (Lafrenière, 2019). CRM, meanwhile, helps organizations run efficiently and improves customer loyalty by managing an online presence and tracking key aspects of the customer journey.
More specifically, CRM is a focused tool whose primary role is to enhance customer experience through information management systems that promote effective customer bonding. CEM, on the other hand, facilitates customer interaction by delivering high-quality services on an ongoing basis. The industries where customer experience is most ideal as a segmentation basis are service-oriented sectors, including tourism, healthcare, and hospitality.
CEM is best applied in the service sector rather than in the manufacturing sector. In the service sector, CEM is particularly effective because service delivery is directly tied to how customers experience a company's offerings (Peel, 2002). CEM plays a vital role in client retention and in increasing product repurchase rates. In the manufacturing sector, products are designed and produced in advance based on anticipated customer preferences — even though those preferences may evolve over time — making real-time experience management less central to the core value proposition.
There are three key components of Customer Experience Management (Lafrenière, 2019). The first is success, which involves assessing whether the interaction between the company and the customer is effective — gauged primarily by understanding how the customer perceives that interaction. The second is effort, which refers to the degree of ease or difficulty in the customer's relationship with the company (Lafrenière, 2019). The third is emotion, which captures the emotional outcome of the customer experience. Understanding what customers feel during an interaction — and the range of those emotions — provides critical insight for service improvement and customer retention.
"Why CEM fits service industries better than manufacturing"
"Customer experience's role alongside traditional segmentation bases"
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