Customer segmentation

Benefits of Customer Segmentation:

Enhance a competitive marketing edge: customer segmentation unveils the unique preferences of each customer, allowing you to customize your marketing messages and pinpoint the exact communication channels for effective engagement. Overall, this approach enhances the customer experience throughout the entire journey.

Enhance Marketing ROI: tailoring marketing strategies to specific customer segments enhances the probability of success, thereby improving the return on investment (ROI) in marketing initiatives.

Enhanced Revenue and Profitability: elevating sales is achieved through the alignment of products and services with the needs and preferences of each customer segmentation. Concentrating on high-value customer segments enables businesses to allocate resources more efficiently, thereby boosting overall profitability.

Types of Customer Segmentation:

Demographic segmentation: demographic segmentation categorizes customers into groups based on significant life circumstances. Examples of demographic segmentation include age, gender, income, education, and marital status.

Geographic Segmentation: geographic segmentation categorizes customers based on their location, encompassing factors such as country, state, city, town and neighborhood.

Psychographic Segmentation: psychographic segmentation involves categorizing customers based on factors such as personality, attitude, values, and interests.

Technographic Segmentation: particularly beneficial for online marketing, technographic segmentation involves categorizing customers based on their technological preferences. Examples include mobile use, desktop use, apps, and software.

Needs-Based Segmentation: segmentation by customer needs involves identifying essential product or service requirements and catering to the specific needs of distinct customer groups.

Value-based Segmentation: segmentation by customer values involves evaluating the economic value of distinct customer groups for the business. This can be achieved by using metrics such as Return on Investment (ROI), Average purchase value(APV), Customer Lifetime Value (CLV), and other relevant financial indicators to categorize customers based on their economic contribution to the company.

Relationship-based Segmentation: relationship-based segmentation classifies customers based on their potential profitability for the company. This approach guides the management of relationships with different customer categories in a manner that aligns with their respective value to the business.

customer relationship-based segmentation

Behavioral Segmentation: behavioral segmentation takes into account customer purchase history, responses to marketing campaigns, and patterns of product or feature usage when forming groups. This can include factors such as website activity, e-commerce engagement, frequency of purchases, or recent customer interactions.

Customer Segmentation Strategy

Define Your Customer Segmentation Goals: clearly articulate the objectives you aim to achieve through segmentation, whether it's personalized marketing, improved customer experiences, or enhanced product/service offerings.

Select Your Segmentation Method: choose a segmentation approach that aligns with your goals. This could involve demographic, geographic, psychographic, behavioral, or other methods.

Collect and Organize Customer Data: based on your scope, gather relevant data from diverse sources and organize it systematically. This may include customer demographics, purchasing behavior, preferences, and interactions with your business.

Segment Your Customers: apply your chosen segmentation method to categorize customers into distinct groups. Consider using tools or software to assist in this process.

Test the Results: evaluate the effectiveness of your segmentation by assessing how well it aligns with your goals. This may involve analyzing customer responses, engagement metrics, or other key performance indicators.

Continuous Modification: customer behavior and market dynamics evolve, so regularly revisit and adjust your segmentation strategy. Stay flexible and adapt to changes in customer preferences or industry trends.

Customer Segmentation Examples

There are various methods for conducting customer segmentation, and here I'll introduce some of the most commonly used approaches.

Customer Survey:

Customer surveys efficiently provide tailored insights into demographics, preferences, and behaviors for segmentation. They offer cost-effective, objective responses, validating and refining strategies in real-time. Careful design ensures clarity, while integrating survey data enhances segmentation depth.

How to create a customer survey? Click here:Leveraging Customer Surveys as Effective Marketing Tools

A specific type of survey is known as Customer Satisfaction Scores (CSAT). Whether utilizing CSAT or NPS, these scores provide insights into recent service interactions. Higher scores indicate customer satisfaction, while lower scores signal a risk of churn. Segmenting customers into promoters and detractors can enhance the value of your most loyal customers.

NPS (Net Promoter Score)

Customer Journey Stage

Segmenting customers based on their Customer Journey Stage is effective for personalized engagement, targeted marketing, and understanding behaviors at different touchpoints. This approach optimizes conversion funnels, aids in customer retention, and ensures a cohesive experience throughout the entire customer journey.

HHL group work: customer journey and touchpoints created in 2018

Cohort Analysis

cohort analysis is a valuable method for segmenting customers. It enables businesses to group customers based on common characteristics or behaviors over specific time frames. By analyzing cohorts, companies gain insights into customer trends, enhance marketing strategies, and make informed decisions for sustained growth.

How to conduct the cohort analysis? Click here: Customer Segmentation through Cohort Analysis

cohort analysis

RFM (Recency, Frequency, Monetary) Analysis:

It categorizes customers based on their recent purchase behavior, frequency of transactions, and the monetary value of their purchases. This approach helps identify high-value segments, tailor marketing strategies, and enhance overall customer engagement and retention efforts.

How to conduct the RFM analysis? Click here:Customer Segmentation through RFM Analysis

RFM analysis

In conclusion, selecting a combination of these approaches aligns segments with business objectives, enabling personalized marketing. Regularly reassess and adapt your segmentation strategy as customer behaviors and preferences evolve for sustained success.