Ever since businesses have learned the importance of processing and leveraging data to cater to their customers, the world of marketing has seen a revolutionary transformation. Marketing is no longer a one-size-fits-all affair. Several new products are entering the market every day, but surprisingly about 75% of those products vanish without a trace or fail miserably. The failure is attributed to the negligence of the business/product owners towards the requirements and expectations of the customer.
Marketing is no longer about pushing the advantages and merits of the products. It is all about giving customers what they exactly need. But how do we identify what customers want? Not all customers are the same. So how do we identify and approach every customer and fulfil their individual needs?
The answer to all the above questions is customer segmentation.
Let’s take a brief look at what exactly customer segmentation is and understand how you can perform customer segmentation effectively to deliver a personalized marketing experience.
Table of Contents
What is Customer Segmentation?
Customer Segmentation segregates customers into small groups based on common factors they share. The factors include demography, gender, age, spending behavior, and much more.
Any huge business needs to know the customers well to serve them better and improve and sustain their market, thereby increasing their profits.
How Does Customer Segmentation Help in Business Marketing?
Before getting into how to do customer segmentation, let us look at how it can improve brand marketing.
1. Customer retention strategies
Even well-established businesses incur heavy losses due to customer loss. Therefore, customer retention is one of the key aspects of marketing strategy. An estimated cost of $1.6 trillion was lost to customer loss by businesses in 2016. In most cases, the customers, once lost, are lost forever, and they do not go back to that brand.
Well-performed customer segmentation helps in developing more focused strategies to improve customer retention. For example, customer segmentation helps in identifying customers with high spending impulses. Businesses can target them and provide them with personalized recommendations. Also, customers who were not engaged for a while can be identified and engaged with good strategies.
2. Improving consumer experience
A business needs to put the” Customer is King” tagline into action. Brands need to make their customers feel superior by attending to their every need. Here, customer segmentation helps in identifying those requirements to enhance customer service.
This is the day of social media, and any sub-par customer service will be vented out on the internet. Naturally, this will hurt the brand reputation badly. So, customer segmentation is the most effective way to know and understand the customers and their liking.
3. Creating customer-specific ads
A well-devised marketing message sent to perfectly segmented customers is likely to yield significant benefits. Conversely, without customer segmentation, even a good marketing strategy can lose its vigor and fail to fetch desired results.
Customer segmentation helps in making sure that people receiving the ads are of commercial importance.
Types of Customer Segmentation
Now, coming to the most vital part of the article, let us talk about different types of customer segmentation and how they are done.
1. Demographic Segmentation
The customer base of any business is undoubtedly humongous, but it can be segmented into sizable portions based on demographics like gender, age, education, location, etc. Demographic segmentation is all about breaking the customer data into small groups. Some businesses also segment the customers based on religion, ethnicity, marital status, etc., to identify what interests people with common factors.
2. Geographic segmentation
This is another type of customer segmentation where the customers are segmented based on their country, region, state, the market potential of their area, climate, and so on. The geographic details of the customers are essential to determine which product or service is viable in that area and to know what kind of business can thrive in a particular location. This allows brands to tweak their services and marketing strategies for various geographic locations to tap and cater to a range of customers from all parts of the world.
3. Behavioral segmentation
This type of customer segmentation is based on how they interact and engage with a brand. For instance, there may be customers who have shown interest in a particular brand but for some reason end up without buying. On the other hand, some may just look at all the details of the product but do not buy anything.
These types of customers are segmented under one group, and their behavior is studied to determine which product or service they are interested in. Below are the factors upon which behavior segmentation is done:
- Occasion – people exclusively purchase on special events like weddings, Halloween, or Christmas.
- Frequency of purchase
- Factors that influence or drive purchasing decisions.
4. Segmentation based on the customer journey
Apart from preferences and needs, the particular stage of a customer in buying a product should also be identified. This type of customer segmentation is called lifecycle or journey-based customer segmentation.
This type of segmentation helps in devising strategies to explore less frequent buyers. They can be targeted by giving them huge discounts or offers.
How Do We Perform Customer Segmentation?
Here is how customer segmentation can be done effectively to provide a personalized marketing experience:
1. Establishing business goals
While it is important to focus on customer requirements, it is equally important to prioritize and develop the business goals and objectives.
2. Practically approaching segmentation
While segmenting the customers, it is important not to deviate from the goal and only engage in customer segregation. Instead, efforts should be simultaneously made to devise strategies for tapping the segregated customers. Any business is vulnerable to losing time and focus during the customer segmentation process as it is exhausting.
3. Segmenting without any prejudice
It is crucial to segment the customers equally without any bias. Every single person should be segmented. Inclusivity is the key to customer segmentation. This helps in reaching out to every type of customer beyond any boundary.
4. Positioning apt product
Product positioning plays a vital role in customer segmentation. The idea of segmenting customers will not work if the right product is not pitched to the right customers.
What are the Common Mistakes to Avoid When Performing Customer Segmentation?
Here is the list of points that you should avoid while segmenting customers:
- Deviating from the business goals while aligning and segregating the customers.
- Studying and analyzing only the past behaviors.
- Segmenting people in broad groups. Broad classification might give inaccurate results.
- Not getting rid of old data before segmentation.
- Not collecting enough data. Insufficient data defeats the purpose of segmentation.
How Can We Improve Customer Segmentation?
Below are a few points that you should keep in mind to improve the efficiency of the segmentation process:
- Segmenting the customers via an omnichannel without any bias.
- Using appropriate segmentation parameters.
- Segmentation and personalization methods should be done in real-time for better efficiency.
- Prioritizing the segments based on their value.
- Data should be enriched with valuable tools to identify the potential audience.
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Why is customer segmentation crucial to marketing?
Segmentation enables businesses to effectively use their marketing budgets, secure a competitive edge over their competitors, and, most importantly, understand the requirements & expectations of customers, which helps them serve better and improve their profits. Customer segmentation is the process through which businesses identify and understand their customers. This will assist in determining the target audience and potential customers.
How to identify the market potential through customer segmentation?
Customer segmentation gives an idea of the number of potential customers in a particular segment, their vital statistics like income, and the number of people in a segment that might need your product. Marketing strategies are devised after analyzing all these details.
How can customer segmentation impact customer satisfaction?
By segregating the market, the benefits offered by the product to each segment can be increased. Customer segmentation helps businesses meet the requirements of their segments and offer high-value propositions, thereby increasing sales potential. In addition, segmentation is a powerful tool that helps a company to develop trust and loyalty from customers when used correctly.