Customer Segmentation

1. What is Customer Segmentation?

Customer segmentation is the process of separating clients into groups based on shared characteristics so that businesses can efficiently and accurately market to each group. A business could segment customers according to a wide range of variables in business-to-business marketing, including:

  • Industries
  • Number of workers
  • Items purchased from the company previously
  • Location

Companies also segment consumers in business-to-consumer marketing according to demographics that include:

  • The Age
  • Gender
  • Matrimonial status
  • Location  (urban, suburban, rural)
  • Stage of Life (single, married, divorced, empty-nester, retired, etc.)

2. Why Segment Customers?

Segmentation makes it possible for advertisers to better target their marketing campaigns to different subsets of audiences. Both communications and product creation may contribute to those efforts. Create and share targeted marketing communications that resonate with various client groups. Depending on the segment, pick the best contact medium for it that could be submitted via email, social media messages, radio ads, or another approach. Identify ways of enhancing goods or new markets for products or services to -

  • Establish better relationships between clients.
  • Options for test pricing.
  • Rely on the most profitable clients.
  • Improve support for customers.
  • Upsell and cross-sell additional goods and services.

3. How to Segment Customers?

Customer segmentation allows a business to collect particular customer information and analyze it to define trends that can be used to create segments.

Any of this can be obtained from the purchasing of information, such as job title, geography, purchase items, etc. Part of it could be gleaned from how the framework was entered by the client. For instance, an online marketer operating from an opt-in email list might segment marketing messages according to the opt-in offer that attracted the client. Other data, however, would need to be collected in other ways, including customer demographics such as age and marital status.

Typical information-gathering methods include:

  • Face-to-face or telephone interviews
  • Surveys
  • Focus Groups
  • General research using published information about market categories

4. How to use Customer Segments?

Popular customer segment characteristics can direct how a business markets to individual segments and what goods or services it promotes to them. For example, a small business selling hand-made guitars might decide to promote lower-priced goods to younger musicians and higher-priced premium guitars to older guitarists, based on segment awareness, which tells them that younger artists have a lower disposable income than their older counterparts. Similarly, a meals-by-mail service could emphasize convenience to millennial customers and 'tastes-like-mother-used-to-make' benefits for baby boomers.

Both firms, regardless of size or sector and whether they sell online or in-person, may practice customer segmentation. It starts with collecting and analyzing data and ends with acting on the information collected in a way that is acceptable and efficient.

5. How Customer Segmentation Can Help You?

a. Establish efficient strategies for retention

Did you know that losing customers cost companies $1.6 trillion in total back in 2016? And as soon as consumers leave, 68 % of them never go back to the same brand again. If that doesn't inspire you to keep your customers, you may also consider that acquisition of new customers would be 5 times as expensive.

Customer segmentation will help you develop more customer-oriented retention strategies. For example, you might want to recognize and build exclusive deals for your top-paying customers, or you might even want to re-engage customers who haven't made a purchase in a while. There are infinite possibilities.

b. Provide with Superior Customer Service

Customers reported being disappointed while working with brands that do not have good customer service. A significant concern is that some consumers who are disappointed with the experience will express the same on social media. This could hurt your image and credibility. So delivering a great customer experience needs to be a top priority for your company.

This problem can be solved with customer segmentation. You can create different consumer segments based on individual needs and customize your contact accordingly. Simple items like personalized product reviews, discounts, or reminders of your wish lists can make a big difference.

c. Better Ad Targeting

Marketing messages sent to well-considered consumer groups had 200% more conversions than those sent to the general public. If you can build well-defined consumer segments based on common attributes, you can get better marketing performance.

For example, customer life-cycle segmentation will help you deliver the right messages that matter most to them. If you build consumer segments based on the social networks they use, you can connect with them at the right time and place.

Resources such as Google Analytics, Matomo, and Yandex will help you build consumer segments efficiently.

6. What are the most common types of Customer Segmentation?

When you have gathered enough data about your customers, use it to separate your customers and prospects into segments. Here are four forms of consumer segmentation that all marketers should be aware of.

Type #1: Demographic Segmentation

Marketers believe that the segmentation of the audience is highly beneficial in delivering a high degree of customer service. The segment of customers using demographic data is one of the most common forms of customer segmentation. You may consider criteria such as age, generation, gender, education, occupation, income, marital status, or ethnicity to build customer segments.

Data for demographic segmentation is easier to collect and calculate than other forms of consumer segmentation. An easy way to obtain data is to ask your customers or email subscribers to fill out a form.

Type #2: Geographic Segmentation

Geographic segmentation includes the grouping of customers by nation, country, region, environment, or market size. You need to tailor your messages to different regional divisions, keeping in mind the local culture or weather. Modifying the deals and marketing messages for various regional markets gives customers greater value and allows them to shop with ease.

Type #3: Behavioral Segmentation

Behavioral segmentation involves segmenting consumers based on how they engage with your brand. You may be able to create a section for customers who have added goods to their cart but have not completed the checkout, or those who didn't even add any items to the cart, but instead browsed through it. You may also group by-products or services that the customers have purchased or shown interest in.

Some common variables that decide the segmentation of actions include:

Occasion: Segmentation focused on transactions made on a particular occasion, such as weddings, Christmas, or Halloween.

Usage: Segmentation depending on the frequency of transactions made.

Thought Process: A segmentation focused on the driving force behind their buying decisions.

Besides, a lack of actions, such as an incomplete survey form or an abandoned cart, helps you to re-engage customers through personalized messaging. For example, Amazon has mastered the art of targeting its consumers based on recent sales and recently viewed items.

Type #4: Lifecycle or Customer Journey-Based Segmentation

Besides knowing the buyer's needs and desires, you also need to know which stage of the purchasing process are they in. This form of customer segmentation is referred to as life-cycle or customer-based segmentation.

You may create several categories, such as customers who have visited your online store but haven't made a purchase, or consumers who have purchased only once in the last 12 months, or people who haven't made a purchase in the last 12 months.

Customer-based segmentation is a powerful approach to targeting them with more specific and useful recommendations.

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