Most companies understand that targeting a pre-defined audience with their direct mail and other marketing materials is essential for generating a successful return on investment. But what may be less appreciated is that many businesses these days have more than one target audience. Taking advantage of customer segmentation offers some huge marketing benefits that range from better allocation of your advertising dollars, to making the most of upselling and cross-selling opportunities.
As a natural extension of creating an effective buyer persona for your company, establishing customer groups based on shared qualities is key. While collecting feedback about the simple likes and dislikes of the people who buy from you is a great start, expanding, refining, and segmenting your client data is what will propel your advertising efforts to the next level.
Segment for Success
If a company had the time and resources to market to each of their customers and prospects individually, ROI rates would likely soar to 100%! But since this tactic is a long way from practical, segmenting your clients into small, closely related groupings is the next best strategy. The more defined your target group, the more likely your messaging is:
- to be relevant to their specific needs, and
- to entice them to make a purchase from you
Consumers appreciate marketing interactions that acknowledge a pre-existing relationship, or that demonstrate some degree of knowledge about who they are. And the best way to reveal your understanding of that connection is to offer your customers something that holds real value for them.
Even someone who has yet to cement a buying relationship with your company wants to know you’ve taken the time to figure out what’s important to them. And in the end, it’s this level of personalization that will make your buyers, leads, and prospects feel valued.
Customer Segmentation Benefits
One of the biggest benefits of customer segmentation is that it promotes more efficient customer management. When you subdivide your clients into groups based on their demographics, location, interests, or buying behaviors, it allows you to stay up-to-date with their purchasing needs – and to respond to those needs in a timely fashion.
Today’s customer wants their relationships with the businesses they buy from to:
- reflect their priorities, and
- solve their problems
And marketing emails, website deals, and direct mail offers can – and should – be tweaked to appeal to what a specific buyer needs right now.
As a customer management tool, segmentation offers a couple of other key benefits:
- Fine-tuning your customer base will give you the flexibility to direct your marketing budget where, and how, it’s most likely to be effective at a given time
- Developing a better understanding of your clients’ needs will help to improve the quality of your customer service
And that’s an important consideration where customer loyalty and retention are concerned.
It’s a well-documented fact that it’s far less expensive for the average business to hang on to a current client than it is to go out and find a new one. Taking advantage of customer segmentation plays a pivotal role in helping your company to:
- improve its goods or services to better meet the needs of clients
- offer new or complementary products most likely to appeal to potential buyers
- stay one giant step ahead of the competition
Keeping tabs on how satisfied your individual customer groups are will make it easier for you to reach out to those clients at just the right time – whether it’s to extend a relevant offer, or to keep them from jumping ship and running off to your competitors.
Customer Segmentation Basics
Now that we’ve recognized the importance of customer segmentation, how do you set the wheels in motion for making it part of your marketing plan?
Regardless of the segmentation practice you choose, your business will need to:
- establish a reliable means of collecting and analyzing the necessary customer data,
- manage your client information in real-time, and
- ensure relevant data is shared among your sales, marketing, and customer service staff
There are many ways to segment your clients, and some time and research will likely be necessary to determine which approach is the best fit for your business. The secret to successful differentiation is to figure out which common elements of your customer profiles yield the best response rates.
Some of the most widely used customer breakdowns are based on:
- Demographics (including age, gender, income, and education)
- Psychographics (including lifestyle choices and personality traits)
- Behavioral Data (including spending habits and benefits sought)
- Revenue Potential (to improve budget allocation)
For clarity, let’s take a brief look at these last two segmentation categories.
Segmenting customers by their buying behaviors is largely based on defining the criteria they use to choose a specific product or service. Unlike straightforward information about a customer’s age or gender, behavioral segmentation requires a larger investment of time to fully understand the factors that drive their purchasing decisions.
Some of these factors may include:
- how often the customer uses a product or service
- whether the purchase is attached to a specific event or occasion
- what the buyer hopes or expects to gain from their purchase
- how loyal they are to your brand
Value Based Segmentation
Value based segmentation is all about figuring out which client categories contribute most significantly to keeping your company profitable. This information is vital for making the right choices for the budget you have on hand. The best way to determine their revenue potential, is to look at the earnings generated by each of your customer segments, and to weigh this value against the cost of managing a company-client relationship with that group.
It’s true that you can’t please every customer, all of the time, and many smaller businesses may not have the financial luxury of marketing to each of their customer groups equally. But when you focus on the areas of your business that offer the greatest returns over time, all of your customers will benefit in the long run.