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One of the most important steps for any small business is identifying who your customers are. What area are you serving? What demographics are most drawn to your business? Once you have determined who your customers are, you can target those customers to help your business grow faster.

Last week, John Grey published an interesting piece on his “Small Business Marketing Strategies” blog. The provocative title? “Using Price Discrimination to Increase Business Sales.”

Discrimination, of course, is one of those words that can be an immediate turnoff. But what he’s really talking about is customer segmentation. There are a variety of ways you can segment your customers, and then using that information you can adopt strategies to get your best customers to come back more often to buy more.

One of the key principles for your business is that your best customers should get your best value. It doesn’t necessarily mean your lowest price, but they should get the best value. When you’re dealing with your best customers, go above and beyond. Make them passionate advocates for your business, and they’ll drive other people to become customers, serving as free marketing.

In his blog post, Mr. Grey talked about three different strategies you can use to achieve these goals. Here is a brief summary:

1. Quantity Discount: You can offer price breaks to customers who buy in bulk. This is a standard practice at warehouse clubs like Costco, which offer different membership tiers. The lower tiers cost less, but the more expensive tiers offer bigger discounts which will pay for themselves if the customer buys enough. So in this strategy, you are rewarding the customers who buy from you the most.
2. Location/Affiliation Discount: You can offer special deals to customers who live in a certain area, or are affiliated with a particular group. So if you are targeting, for example, students at a local college or university, you could offer student discounts. A small business might use local discounts for area residents as a way to encourage customers to think local when they shop. This strategy rewards specific demographics.
3. Price Sensitivity Discount: A third option is to charge more for products to customers who can afford to pay more. For example, residential services or personal licenses for software are typically cheaper than the equivalent for a commercial enterprise.

Whatever you do, it’s important to remember to make sure that your best customers are getting your best value. Those customers will bring a huge return in positive word-of-mouth and recommendations, while coming back again and again to do business with you. Know who your customers are, and look for the most effective ways to reach them.

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