Why Use Customer Segmentation?
Let’s address the first thing – why use customer segmentation? Why put the effort and time into breaking up your customer base into smaller pieces or for that matter rethinking how you target customers generally.
We live in a world where people are flooded with messages and use multiple screens to access information. So how do you make sure your words stand out?
Customer segmentation is about understanding your customers’ unique characteristics and behaviours so you can come up with a marketing message that communicates with them effectively. In a nutshell, it means that:
- Your communications will be relevant to your audience.
- Your messages will be personalised to their needs.
- Your content will add value.
- You will reduce customer churn.
- Marketing investment will deliver a better return (ROI).
- You will get higher click-through rates and social shares.
Regarding social media, it helps you build a community around it your brand, your business and build the connections between people that are like minded. If you build your tribe, you can create brand advocates, and in turn, they will grow your business. The mindset you need is to think about the lifetime value of a customer; segmentation then is the way to help you focus on them. You can use marketing personas once you have built your segments to help facilitate your marketing.
How To Use Customer Segmentation
There are some ways to segment your customers and how you tackle this will depend on your product/service, level of resources you have, the amount of data and of course your objectives. If you don’t have much data now, don’t worry there are ways to build on what you have which I will cover later in this post. We will start with the basic (which you probably know) and build out.
5 Tips Before You Begin
- Start with the end in mind: determine how your segmentation will be used.
- Take a step by step approach: match your segmentation to your capabilities, resources and current data. Gain some successes then build out and use this to learn and improve.
- Let the Segments determine the priority: The segments will evaluate themselves as you analyse the data
- Start with the data you have: It is not only more natural but provides the start point, and you can be amazed at what information you already know.
- Build a long-term plan: to add in data you need to make your segmentation richer.
Ways To Segment Your Customers
For segmentation to work it needs to be:
- Measurable: size, access to data and the ability to profile.
- Accessible: You can reach them easily via marketing/comms channels (within your budget).
- Substantial: significant enough to warrant investment from you, your team and other resources.
- Different: Each segment will justify being its segment and respond differently to your marketing.
- Actionable: Effective marketing programs can be developed towards them.
Customer Segmentation – Demographics
Demographics are the basic forms of information most businesses collect: age, gender, level of education, job classification (blue vs white collar), income, marital status, and ethnic or religious background. It may not be necessary to use all of these criteria, but you want to focus on those that are best for your product or service.
Simple ways you can use these data sets:
combine two sets of data, e.g. age and gender see if you have any clusters plot on an X – Y-axis.
As an example, if you have a product or service with a high number of women, then you might consider using different social networks to reach them, e.g. Pinterest.
Customer Segmentation – Geographic
The geographic location of your customer base is essential in determining what methods you use to market your business. Customers can be local, regional, national, or international. Now it gets interesting if you match in your demographic and geographic data to see again if you have clusters, e.g. income and location are often plotted by large organisations against postcodes to determine specific direct mail targeting – oh how I hate direct mail.
Customer Segmentation – Purchase or Usage Patterns
Often how a customer buys or uses a product or service can provide an excellent way of segmenting a customer base. A typical example would be for a mobile company to segment users based on usage and offer different packages to each. Usage and high purchase segmentation easily lends itself to tailoring loyalty schemes to different user segments
Try plotting purchase frequency vs time as an example. Again much of how you develop your analysis will depend on your tools, resources and capabilities. Alternatively, you can outsource this.
Customer Segmentation – Psychographics
For many organisations, the best way to segment your customer database is using psychographics (often called lifestyle segmentation): the personality and emotional behaviours that influence customers to buy, e.g. attitudes, interests and opinions.
Below is an example psychographic model developed by the Stanford Research Institute
Customer Segmentation – Build Your Tribe
You can use these methods to segment your customers and understand which parts are most profitable. By focusing your time and efforts on those that make you money you are then able to grow.
The critical point of customer segmentation is that you stop treating your customers as a one size fits all approach. Further work can be done on segmenting your customers using landing pages, email marketing, surveys and by using a blend of data, e.g. demographics and psychographics.
The more you can personalise your communications and demonstrate the value the more you will be seen by your customers as understanding their needs. The more you know them, develop and tailor your products/services and communications the more likely they are to be brand advocates. The more brand advocates you have, the more new business and referrals you will get. You will then build your tribe.