In today’s market, companies must be on their toes to keep the customer experience unique and personal. In fact, 77% of companies deem customer experience to be a key differentiator. But there is a gap between customer expectations and the reality of the experience provided.
Customers need to be engaged throughout all stages of the buyer’s journey. Companies need to dig deeper to understand their customers’ preferences and cater to them to achieve that.
It might seem to be an overwhelming ordeal to focus on every unique customer’s needs. But here’s where customer segmentation comes in.
Creating a customer segmentation strategy tailored to your customer’s needs will help you outperform your competitors.
If you are wondering how to go about it, you are in the right place. Let’s get into how to get started with customer segmentation.
What is Customer Segmentation?
Customer segmentation is a method of grouping customers into distinct categories based on similar characteristics. Customers are usually segmented based on the area they live in, their age, the industry they belong to, etc.
We often segment our tasks into smaller categories to make it easier for us to plan our activities. Similarly, we put our customers in separate groups through customer segmentation to better cater to them.
It is simpler to analyze and understand the needs of a smaller group. It will help you create a marketing strategy personalized to them and improve customer retention.
Benefits of Customer Segmentation
1. Enable Target Marketing
It isn’t easy to target each customer individually. But when 73% of consumers expect companies to understand their unique needs, customer segmentation comes through.
It lets you create targeted campaigns and showcase your product in a way relevant to them. Customer segmentation is a great way to convey better messaging to your audience.
This ultimately lets you have improved engagement and click-through rates. For example, according to a study segmenting email campaigns resulted in 94% open rates and 38% click-through rates.
2. Enhance your customer connections
A well-planned customer segmentation strategy can help you foster better customer relationships. It can help you understand what approach works best for what segment.
You can allocate strategic sales efforts and initiatives to well-performing segments. This focused approach will help you drive better results.
Moreover, customer segmentation can aid you in creating loyalty campaigns. Providing personalized benefits to high-value customers enhances customer satisfaction and forges long-term loyalty.
3. Identify untapped markets
While segmenting your data, you dive deep into your customer’s needs and preferences. This might lead you to identify underrepresented or overlooked use cases.
By analyzing customer characteristics, you can uncover unique and specific requirements that need to be addressed.
You can then tailor your products and messaging to appeal to these audiences. This way, you can make yourself a go-to solution for that audience.
4. Improve the product
By leveraging customer segmentation effectively, you can gather targeted feedback. This can help prioritize enhancements to the product that better align with their customers’ expectations.
You can engage different customer segments through surveys, interviews, etc., to understand where you could improve.
You can also prioritize enhancing features that are relevant to your high-value customers. Thus, Customer segmentation becomes a beneficial tool to understand your product better and make significant improvements.
Now that you know how customer segmentation can help your business grow, let us look at how to get started with customer segmentation.
How to Conduct Customer Segmentation Research
1. Define an Objective
Before you start with your research, you need to set up a business objective. You can’t dive into customer segmentation without a goal in mind. It is important to understand the outcomes you expect from this process. You can then create KPIs that are measurable and actionable.
To help you figure out your priority, here are some questions that you should consider:
- What is the need for customer segmentation?
- Is this segment large enough to experiment with different buying persona’s/behaviour?
- Is the segment already saturated with competitors?
- How much can the segment grow?
- Are there any segments that are untapped in the market?
These questions aid in identifying your key goals and provide clarity on the strategies your organization should prioritize.
Doing this process first will make it easier to choose the suitable customer segmentation choosing the suitable customer segmentation model for you easier model for you.
2. Segment Customers
You might be wondering how to figure out the answers to the above questions.
The primary resource that will help you with the process is your own customer data. In your repository, you must have details like age, gender, area they belong to, etc.
If you are starting out and do not have this information, you need to first understand your market.
Gather information using secondary sources. You can use resources like government records and information from trade organizations. Or you can always buy the data from Market Research organizations like Nielsen, Gartner, etc.
It will help fill the data gaps and cross-check your data.
Once you have the required data, you will be able to find the objective for segmentation. There are multiple ways to segment customers.
3. Finding the Best Segmentation for You
It is not possible to arrive at the best model that works for you on the first go. It requires a lot of re-evaluations of data to arrive at the ideal model.
Data is complex, and a lot of customers may be a part of multiple segments.
But to make it simpler for you, there are many software that can help you segment better. Like LeadSquared can help you segment customers based on their leads, location, interest, etc. It also uses lead scoring based on customer interactions and enables you to prioritize high-quality leads.
You may book a quick demo and our experts will help you understand how to leverage the tool to optimize your business’s sales and marketing
There are other tools too like Segment, Qualtrics, and Optimizely that can help you with this.
Now that we have covered what is customer segmentation and how it is done, let us have a look at few of the well-known customer segmentation models.
Types of Customer Segementation Models
The following are a few popular models of customer segmentation:
1. Demographic Segmentation
This is one of the simplest ways of segmenting customers. It involves segmentation based on age, gender, location, occupation, etc.
For example, a clothing store might run different campaigns for teens and for people in their 20s. The platform they run campaigns on will also differ based on the demographics.
2. Psychographic Segmentation
This goes deeper than Demographic Segmentation. You look at the psychological preferences of the consumer. Segmentation is based on their attitudes, values, lifestyles, and behavior.
For instance, a travel company would want to run getaways campaigns for people who prefer to relax. At the same time, they would sell adventurous packages to thrill-seekers
3. Technographic Segmentation
People are segmented based on their technological preferences and usage. This focuses on the digital behavior of the customer. It not only focuses on what technology they are using but also on how they are using it.
Let’s take Healthcare CRM as an example. Large hospitals using legacy systems, will highlight the benefits of upgrading and compatibility with the system. But for small businesses who are already tech-savvy will focus on ease of use, affordability, etc.
4. Behavioral Segmentation
It involves segmenting customers based on their actions and behaviors with the product. This includes looking at their buying patterns, how long it takes them to make a purchase, etc.
For example, customers in different stages of buying behave differently. They would weigh the prices, read reviews or talk to friends depending on the brand’s perception and time of the year. Therefore, they need to be targeted depending on what stage they are on.
5. Need-based Segmentation
This approach segments customers based on their specific needs and motivation. It focuses on the problem they are trying to solve and aims to offer solutions for them.
Like a skincare brand will target different products based on the type of skin and problems a customer has. Someone with dry skin would look for something nourishing and so on.
6. Value-based Segmentation
Here, you focus on your brand rather than the customer. You evaluate the customers based on their willingness to pay for your products or services.
Luxury brands create outlet-only-items of their products to sell them at a cheaper price. Although they are made of inferior materials people pay for it for its brand value.
7. Firmographic Segmentation
This is more of a B2B segmentation approach. It is more based on the features of an organization rather than individuals. Here the customers are divided based on their employee size, industry, location, etc.
The needs of large corporation would differ than those from of a small enterprise. Therefore, the messaging will differ.
How to Create Customer Segmentation Strategies
1. Understand Customer Needs
Once you have defined your segments, you now have to address their needs. A comprehensive analysis of what value your customers derive from your product is essential.
Here are some ways you can figure out your customers’ needs:
This will give you deeper insight into what your customers think. Create a questionnaire aligned with your objective. It will provide you with insights on exactly where to focus.
Interviews can be time-consuming and expensive. Surveys are quick and effective. You can use tools to create surveys, get feedback and engage leads.
- Keyword Research:
You can conduct research with common keywords relevant to your business. This will help you find common complaints, needs, and grievances.
Once you have gathered all the data, brainstorm with your team. Evaluate and see how your products/services cater to their problems. Create use cases for each of the features of your product and provide solutions.
2. Evaluate Top Performing Segments
Only some of your customer segments will be an ideal fit for your product. Therefore, you need to identify your High-value Customers (HVCs). HVCs are the segment of customers who contribute significantly to your company’s revenue.
To figure out who they are, you can conduct an RFM (recency, frequency, monetary) analysis.
RFM analysis gives your customers an objective rank based on three factors:
It shows how recently did the customer make a purchase from you. The recent purchasers are most likely to still have your business in mind. Therefore, they are more likely to respond well to your campaigns.
It talks about how frequently do they buy your product? This usually depends on the purchase cycle of your product. Like for example, if it is a subscription-based program, do they renew every month?
It tells you about how much the customer spends on your product and helps identify the customers who spend the most money.
The RFM analysis scores customers on a scale of 1-5(5 being the best). This will help you identify high-value segments that can be your focus and generate higher returns.
3. Develop Campaigns for Different Segments
Now that your data is analyzed and segmented, it is time to develop campaigns. You should create different campaigns aligning with the needs of particular segments.
You can create personalized marketing automation strategies for each segment. Plan different forms of marketing to target separate segments aligned with your objective. Go back to the segment’s customer journey and determine your customers’ ideal value proposition.
Once you have set up and sent out your campaigns, it’s time to track their efficiency. Let’s understand how to track and analyze campaigns to constantly improve your strategies.
How to Analyze Customer Segmentation
1. Constantly track your Campaigns
For any strategy to be truly successful, you must monitor and tweak your campaigns as and when required. There are many ways to do this.
Like setting up a UTM tracking system, through this you can track the source and the channel you traffic is coming from. You can effectively keep track of all your leads and get insights on what needs to be changed.
You can also analyse the performance of your email campaigns. You can use tools like LeadSquared to understand what subject line the most open rates and what time works best for it. This way you can gauge what email is performing well for which segment.
Ensure your PPC campaigns are reaching the right segment. You can measure bounce rates, click-through rates or any other metrics relevant to your goal and segment.
Additionally, you can take customer feedback through surveys and focus groups to understand their customer journey.
After monitoring your campaigns throughout the campaign duration, it’s time to analyze and create relevant reports.
2. Analyze your Campaigns
It is essential to analyze the information collected during the tracking stage to understand if you achieved your goals. You need to compare the actual performance of your campaign to the planned performance of your campaigns.
You can evaluate the performance in the following ways:
Conduct sales analysis to see how much sales were made over the period of the campaign. Check what segment of customers responded well to which marketing activity.
Cost per acquisition (CPA) is another metric you can use. It calculates the cost of acquiring each new client. The lower the CPA, the better return of investment you have on your campaigns.
There are many other metrics, you can use campaign management tools to analyse and create reports of your campaigns all at one place.
Now, what are the actions to take if your outcomes don’t match your expectations?
Let’s look at what you can do to refine your strategies for the next round of targeting.
3. Refine and adjust your strategies
Tracking your marketing efforts helps you assess what is working and what is not. You must tweak and optimize your existing strategies for them to perform better.
When your campaign is complete analyze what factors helped you get closer to your goal. This will help you plan a better campaign for the future.
Here are the things you need to do if your campaigns are not working the way you want them to:
Revisit your goals and determine if they are suitable for your organization. Ensure your goals are realistic and achievable. Check if your messaging is aligned with your segment. Understand if the channels you are using for your segment are the right ones.
Have an unbiased discussion with your team to restructure your strategies. Explore all possibilities of what could have been wrong. Once you have identified the challenges, implement the changes.
Ensure to make customer segmentation an integral part of your marketing process.
Customer segmentation will help you create unique and personalized experiences to help your organization stand out from your competitors. It is an ever-ongoing process that will help you drive long-term success.
To streamline your marketing process, ingrain customer segmentation in your organization. Make use of tools to segment and analyse your campaigns effectively.
While market segmentation similarly divides the market, it is much broader. Customer segmentation is done on a deeper level.
Customers’ past purchasing habits and interactions they’ve had with the companies are looked at.
Whereas market segmentation is more generalized and is not ideal for personalization.
While there is a difference in the buying cycle and the customers of B2B markets, the process for segmentation is similar. It would differ in the segmentation model you use.
Some of them are firmographic segmentation, technographic segmentation, value-based segmentation, etc.
The research and analysis you conduct would be similar but a bit complex because of the stakeholders involved.
Analysis should be done periodically. Whether every week or every 15 days, whatever works best for your organization.
You can use tools like LeadSquared reports to automate this process with customized reports and take corrective measures when necessary.