Firms today know that it is not possible to serve all customers. They instead focus on customers who have similar needs with a suitable product. Firms may also attempt to target multiple segments using multiple products. Whether they are targeting single or multiple segments, a proper segmentation scheme is at the root of a solid channel strategy. A firm has to effectively choose a channel frequented by the target segment.
One popular segmentation scheme used these days, is based on the margins that can be extracted from the customers. For example, an online apparel retailer can segment its customers based on margins as budget, premium, and super-premium. It is obvious that budget customers will be most price-conscious and will only be willing to pay low prices. Premium and super premium customers may be willing to pay higher prices and can thus give better margins to the firms.
But it is less obvious where these customers are purchasing from while considering the omnichannel availability. The differences in the places of purchase between budget, premium, and super-premium customers are less understood. Here, I am trying to focus on the difference between channel choice – offline and online – of these segments.
For most product categories, the budget segment mainly buys from offline channels. This is because online channels would need to mark up for personalized delivery, making it more costly. Another reason is that small players in the offline retail segments will be able to invest enough capital only to stock low-value items, which constitutes the budget segment. The third reason is that customers buying budget products will be having access only to areas or shops serving the budget products, due to access limitations.
The premium segment of customers will buy from both offline and online retailers. The markup for the premium products for delivery can be adjusted in the high prices of the products themselves. Also, the premium customers will be willing to pay high prices from online channels. Another differentiating factor of premium customers would be their willingness to search and compare the offering across different channels. Their superior access to resources helps them in doing that. As a result, these premium customers are willing to buy from both offline and online channels.
For the super-premium segment, each purchase is about the experience, and are willing to pay for it. This contributes to the firm’s margins. Providing good experiences and enjoying such experiences are better done in the offline channel than online. Therefore, most of the super-premium customers buy from offline channels, due to access to superior resources. Geographical and other resource constraints do not hinder them from seeking a good experience.
In this article, I have tried to explain the difference between online and offline channel choices between budget, premium, and super-premium customers. While this would not apply to all products; this can be treated as a general behavior and context-specific variation in such behavior is to be expected. For example, in the context of banking, instead of doing repeated visits to the bank, a super-premium customer will choose online for enjoying a personalized experience at their convenience.