The Importance of Segmentation

Banking Profit

If there’s one business concept that you need to get familiar with to be successful in case interviews, it would be segmentation.

To segment a market is to break it up into different parts that have common needs and objectives. The purpose of segmentation is to devise individual offerings for each part of the market. And in the context of case interviews almost all of the insights are found by segmenting your data and figuring out the behavior of different customer segments.

Always, always, always ask for information about customer segments and make sure to segment the financial information you get (profits, revenues, costs) as well.

Some typical ways to segment include by location, race, gender, age, behavior, socioeconomic status, length of time as your customer, etc.

The above graph gives us a picture into why customer segmentation is so important. As you can see each segment of your customers has different profitability because they buy a different array of products.

Hidden amongst the aggregate revenue and cost data was the insight that this company takes a loss on the majority of its customers. That’s an extremely valuable insight, because you can now come up with a way to make those segments profitable by studying them further.

So, remember, always segment your customers and your financial data. You’ll be amazed what you find.

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