Customer experience is now a top priority for businesses around the world. Consumers won’t buy products or services from companies that treat them poorly.
However, it’s now more important than ever for businesses to go above and beyond in customer experience. Customers are aware of their favorable brand experiences, meaning lousy customer service will be difficult to forget.
Numerous factors contribute to providing a competitive and high-quality customer experience, but knowing your customers and how to reach them is the critical first step. Here is where customer segmentation comes into play.
What is customer segmentation?
Customer segmentation categorizes customers based on their behavior, needs, and preferences. Customer segmentation is an effective marketing strategy that allows you to identify your customers’ various needs and tailor your marketing strategy to each group.
For instance, if a customer only purchases from you twice a month, they may be a new customer unfamiliar with your offer. However, if they make multiple monthly purchases, they are likely devoted customers who believe in your brand enough to make repeat purchases on time every time (or at least try).
Why segment customers?
The primary reason for segmenting your customers is to understand them better. Customer segmentation helps you understand the needs of your customers and their wants.
Segmentation helps you plan a customer relationship management (CRM) strategy personalized to each segment, which results in higher customer satisfaction levels, loyalty, and brand perception, among other benefits.
When making changes based on feedback from those who interact with them regularly during day-to-day activities such as online shopping via their website, etc., you can also use this information to improve on-the-ground operations. You can replicate it across various teams or locations as needed by analyzing what works well with different groups of people or locations within an organization at any given time.
Types of Customer Segmentation
1. Demographic segmentation
This divides your customers into groups based on age, gender, income level, and other demographic characteristics. You can use this information to better understand your customers’ needs and ensure that you’re serving them with the right products or services at the right time.
2. Behavioral segmentation
Behavioral segmentation involves understanding how people make buying decisions—for example, whether someone is primarily a home buyer or an online shopper—and then tailoring marketing messages accordingly.
3. Technographic segmentation
Technographic segmentation is the process of dividing customers into groups based on their usage of technology.
4. Need-based segmentation
Need-based segmentation divides customers into groups based on their needs, such as whether they want to buy a car or travel.
5. Value-based segmentation
Value-based segmentation divides customers into groups based on their values, such as whether they have a family or are single.
Benefits of customer segmentation
Customer segmentation is a powerful tool that can help you improve marketing efforts, increase sales and grow your business. Here are some of the benefits of customer segmentation:
1. Gain a deeper understanding of your audience
Customer segmentation helps you build a profile of each group to understand better who they are and what they want. This allows you to create personalized marketing messages for each group.
2. Increase customer loyalty
The primary purpose of customer segmentation is to create different groups with similar needs and interests who will eventually become loyal customers of your brand. Having these types of users as your target audience helps you increase loyalty towards your business by providing them with what they need to stay loyal. This also enables you to achieve a better ROI from any marketing campaigns or other efforts that you put into place.
3. Improving your whole product
Knowing who your customers are and their wants will help you build a better product. This will give you a better understanding of what to look for when improving your product. It can also help you find new ways to improve it – maybe even ones that have never been explored!
4. Increase customer retention
Using this strategy correctly will help you retain more customers than those who do not have their needs met by another product or service offered by a competitor (or even another type). This can be achieved through identifying those areas where there’s room for improvement within current offerings; then improving those areas until they’re perfect! This makes sense because when people feel like they’ve received value from something they’ve purchased before, they’re less likely to stop buying things altogether suddenly. After all, nothing else compares anymore…and we all know how frustrating that can get sometimes!
Steps to create customer segmentation
Businesses that use market segmentation to create targeted marketing campaigns are most effective when they have a strategy. Although identifying your best current customer segment is important, it means nothing unless you act on that insight or engage in other wasteful (as opposed to helpful) activities.
While there are numerous ways to begin segmenting your customers, you must implement the best customer segmentation process driven by a clearly defined set of objectives and outputs to be effective. Here are the ways to segment your customers effectively:
1. Determine your customer segmentation goals and variables
Identifying your customer segmentation goals and variables is the first step in any data analysis project. Knowing what you want to accomplish can determine which variables are most relevant for your business. Some small businesses, particularly those with a clear idea of their target market, find that segmenting customers into buyer personas is helpful for marketing and sales.
However, segmenting can become more complicated if you use customer segments to solve specific business problems. You may not have enough or the right kind of data to provide effective and profitable customer experiences.
Customer-centric strategies help grow the top of your funnel by focusing on what makes a customer value your specific business. Answer these three questions to start thinking about it:
- What is more important: the size of your customer base or how much money you make?
- Are they loyal customers making repetitive purchases?
- Do their online activities demonstrate a solid connection to your brand?
Before moving on, you should examine the variables within a target segment. Those variables may seem small, but they can make a big difference in marketing and sales messaging.
2. Break goals into customer-centric segmentation projects
Once you clearly understand your segmentation goals and variables, it’s time to translate those into customer-centric projects. For example, if you want to increase sales by 10%, you could create a project to increase revenue from existing customers. This may involve offering exclusive benefits or discounts that encourage customers to spend more money with you. If your goal is to grow revenue by 45% over the next five years, then focus on improving customer retention rates and increasing the average order value (AOV).
Remember that you might only have one goal at any given time as you create these projects. You might find yourself juggling multiple goals simultaneously as you continue to sift through your customer data and find fresh opportunities for improvement, whether with customers or internal processes (or both!).
Achieving customer segmentation can take longer than expected—but the results are often worthwhile.
3. Set up and prioritize each customer segmentation project
Once you’ve created a list of customer segmentation projects for your business, it’s time to set them up and prioritize them.
As companies collect more data, they often struggle to use it effectively. Some businesses go through the effort of segmenting their customers, only to send them all the same message—not realizing that such a strategy is unlikely to grow revenues significantly in today’s competitive marketplace.
One way to prioritize your segmentation projects is by volume. You would organize the most significant segments in this scenario and rank accordingly. Another option is prioritizing according to performance, like purchase value (which can lead to a consistent revenue stream). Once you have the order for each project, it’s time to focus on setting them up with analytics and training data.
4. Customer’s data collection and management
This is one of the essential steps in the process, as it ensures you have all the information you need to segment customers effectively. You’ll want a solid understanding of your customer data to create the segments required.
For example, suppose a company has a database of information about its customers’ demographics, past purchases and order history. In that case, setting up segments based on this data will be much easier. You can also use third-party sources for additional information about your customers—like their interests, social media habits and even where they live.
You can also use this opportunity to collect new data by sending out surveys or online forms where customers can provide their insights.
Kapture’s customer profiling system develops a better way to categorize and divide your clients based on unique criteria like zone and type of business.
5. Segment your customers into groups of your choice
Once you have your customer data, it’s time to segment it. This is where the fun begins! You can segment your customers into groups—it depends on what makes sense for your business and how many segments you need.
For example, if you’re selling t-shirts online and want to create a new segment of customers who like Star Wars shirts, that will probably not be very helpful. But if specific groups of people buy certain products more than others (like women’s clothing), those might be promising segments.
For customer segmentation to be helpful, there are a few things that you should remember.
- Make segments readable and usable – While a segment might be complex, it should also be understandable. If the segment isn’t easy to understand or use, you won’t measure it properly or put its insights into action.
- Use machine learning – Machine learning can help you build more effective customer segments. Setting up relevant triggers—such as when a user takes action or the circumstances surrounding that action, such as location and weather factors—helps you update your segmentations in real time.
- Balance the size of your customer segments – If each segment is too large, you won’t be able to tailor content for them and create a meaningful connection. But if each group is too small, there isn’t enough profit potential.
- Segment customers for greater efficiency – Segmenting your customers helps you tailor marketing and sales efforts to target groups.
6. Target and market to your client and user segments
Once you’ve segmented your customers, it’s time to start marketing to them. You can target your customers with marketing materials and sales efforts by segmenting them. This allows you to reach customers with relevant messaging and offers tailored to their needs.
7. Run regular customer segmentation analysis
Analyzing your customer segments will help you understand how they have changed and developed over time. Using this information, you can update existing segments, create new ones, and find opportunities for new marketing approaches and products. You’ll also be able to avoid creating either too big or too small segments and ensure your marketing initiatives reach the right customers.
Divide and Conquer
Customer segmentation is a great way to help businesses make more informed decisions about their customers and what they want from them.
The help desk ticketing system from Kapture allows you to better understand specific customers, their purchasing habits, demographics, and the decisions they make (filters). All this while tracking their transactions and product purchases, protecting their personal information and developing a tiered model to simplify enterprise functionality.
To learn more about how we can amplify the performance of your business using Kapture’s customer support software, schedule a demo with us immediately.
About the Author
|Chandan is a Content Writer at Kapture CRM who enjoys writing about various niches that help businesses achieve their mission and vision.|