Customer segmentation (also known as market segmentation) is a marketing practice of dividing a customer base into sub-groups. It could be according to geographic, demographic, psychographic, behavioral, and other characteristics. The key to effective segmentation is to divide customers into groups based on; the prediction of their value to the business. After that target each group with different strategies in order to extract maximum value from both high and low-profit customers.
“Selling to people who actually want to hear from you is more effective than interrupting strangers who don’t.”
Seth Godin – American author and former dot com Business executive
When using a one-size-fits-all approach to marketing, even the smartest strategy may not bring the desired results. No matter how effective your marketing efforts are to some, they could fail with others. This is where customer segmentation comes in to play. If done right, it can bring numerous benefits for businesses:
Customer segmentation enables businesses to craft more focused marketing messages, customized to each particular segment. According to a Mailchimp survey, campaigns segmented based on customer interest have on average, a 74% higher click rate. This is in comparison to non-segmented campaigns.
Have a clear idea of who your customers are and what they want to get out of using your products/services. It allows you to fine-tune and optimize your offerings. Thus being able to meet customers’ needs and expectations, which would further result in improved customer satisfaction.
Segment potential and existing customers into specific sub-groups. As a result, businesses can then get a better understanding of things customers could be interested in. This, in turn, promotes the expansion of new products and services relevant to their target audiences.
Customer segmentation can help businesses develop more targeted customer retention strategies by identifying a company’s top-paying customers. Therefore, creating personalized offers for them, or re-engaging those who haven’t purchased anything in a while.
Identify the social and financial status of customers. It makes it easier for businesses to determine appropriate pricing for their products/services that their customers would consider reasonable.
Spend less time, resources, and marketing efforts on less-profitable customer segments and more on a company’s most successful customer segments. As a result, it increases revenue, profitability as well as lowers sales costs.
Customer segmentation analyzes specific data about customers in order to identify patterns and group customers into segments. However, some of that data can be obtained from purchasing information (geography, company, job title, products purchased, etc.). Or on the other hand by asking customers to fill out a customer evaluation form. For more advanced data customer segmentation analysis, there is a number of tools that can be used. For instance; Google Analytics, Kissmetrics, Segment, Piwik, Yandex, etc. Many content marketing tools have also built-in segmentation and targeting features.
Once the segments are defined, it’s important to estimate the size and the value of each segment. Compare segment size with the average revenue generated by each segment. It’ll allow you to determine which customer groups are more profitable for your business. Let’s consider that around 80% of company sales come from 20% of customers. It’s critical to identify those high-value segments. Therefore, being able to prioritize your marketing efforts and adjust your products/services to better meet their needs.
Want to learn more? Then, check out our in-depth article about Customer service theory.
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