Getting it right in marketing is still a struggle for most businesses. According to statistics, 19% of companies believe their content marketing was successful in 2021. 33% viewed their efforts as moderately successful.
So, what are most marketers missing?
Customer segmentation. Customer segmentation transforms how you approach marketing and makes the campaigns personalized and more effective. Data shows that 91% of customers expect a personalized brand experience. 76% get disappointed when communication from a brand is generic.
Adopting customer segmentation in your marketing campaigns is the most effective way you'll respond to these customer demands.
Read on and learn what customer segmentation is, why it matters, what models are available, and how you can apply it to your marketing campaigns.
What is Customer Segmentation?
Customer segmentation divides customers into groups or "segments" based on shared traits such as age, gender, buying habits, and needs. Customer segmentation models help businesses better understand their prospects and provide better-targeted marketing campaigns through emails, ads, and social media posts.
Personalizing marketing campaigns for each individual is practically impossible, given their diversity. However, by identifying common traits, customer segmentation brings your business closer to addressing individual customer needs and providing a more personalized buying experience.
Customer segmentation does more than help you reach a new audience better. It also allows you to reconnect with past customers and encourage new business through carefully targeted marketing campaigns.
Data shows that over 60% of customers often become repeat buyers after a personalized shopping experience.
Why Does Customer Segmentation Matter?
The following are reasons why customer segmentation should be a top priority for your business.
More Effective Communication
The messaging used for a 20-year-old male is not the same as for a 60-year-old. Different age groups require different forms of messaging to get a positive reception.
By deeply analyzing your customers, you can provide more effective messaging that will translate to higher response rates and engagement.
Optimizing your communication time based on when a given segment is the most responsive will also boost engagement and improve the customer experience since they'll be less annoyed by marketing messages coming in at odd hours.
Data shows that one in five customers abandon a brand after one poor customer experience.
Better Marketing ROI
Effective customer segmentation makes it easier to allocate capital and internal human resources to improve marketing ROI. Your business can determine which segment is most profitable, which is underserved, and which can be optimized to ensure revenue and the customer base grows.
Increased Customer Lifetime Value
Data shows that 79% of consumers are more loyal to a brand when they receive personalized marketing messages. Therefore, they have a higher customer lifetime value due to a better customer experience and increased engagement.
Customer segmentation also improves customer lifetime value by offering custom offers to various segments based on their likes and preferences. These include coupons, special discounts, and promotions.
This is different from most brands, which target only high-spending customers and reward them for their loyalty. Customer segmentation allows you to focus on an underperforming segment and increase its value to your business based on your intricate understanding of them.
Product Improvements
Customer segmentation allows you to understand what motivates customers to buy your products so that you can improve them and increase customer satisfaction.
A customer satisfied with your brand's offerings can be a great brand ambassador who recommends your products to friends, family, and colleagues.
Distinguishes Your Brand from the Competition
Effective customer segmentation makes your brand stand out from the competition. Moreover, your business is more prepared to adapt to market changes, given how impulsive clients can be and how quickly their thoughts, patterns, opinions, and behavior can change.
Therefore, your business stays ahead of the curve with upcoming trends and changing client behavior and priorities.
The Various Customer Segmentation Models
Several customer segmentation models are used to divide customers into groups based on various factors. Here're the most common ones.
Demographic Segmentation
This customer segmentation model is based on particular demographic factors such as income, age, occupation, and marital status.
For instance, if you want to run a social media campaign, demographic segmentation will help you determine the best platform to reach your target audience.
For instance, if most of your buyers are women, you can consider TikTok based on data that shows 61% of users on that platform are from that gender.
However, if your segmentation further shows that your target age group is above 50, then TikTok might not be the best channel for your marketing campaign since only 11% of users on the platform are above 50. Facebook might be the better option since 73% of 50 to 64-year -olds use it
Geographic Segmentation
Geographic segmentation groups customers based on geography, such as where they work, live, and shop. This geography typically includes the country, city, state, and town.
It's one of the most straightforward segmentation models, albeit too simple to reveal crucial information. It's often used alongside other models to create a fuller picture of the customer.
Psychographic Segmentation
This segmentation model groups customers based on psychographics such as attitude, personality, interests, values, lifestyle choices, cultural beliefs, and hobbies.
Psychographic segmentation gives you a better understanding of your customer's psyche. However, collecting and organizing the relevant data can be a challenge.
Technographic Segmentation
This customer segmentation model groups customers based on their devices, software, and hardware. It helps marketers know how consumers access their content and optimize for those platforms for a better user experience.
Behavioral Segmentation
Behavioral segmentation groups customers based on their behavior patterns. These patterns reveal the customer's perception of your business, enabling you to devise effective methods to address their concerns and build loyalty to your business.
This segmentation model is helpful in all stages of your marketing strategy, be it revamping your landing page or sending promotional emails.
Needs-Based Segmentation
Needs-based segmentation groups customers based on their needs, such as product and service must-haves. This model makes it easier to understand what customers want when buying your product or using your service and aligning yourself to those needs.
The biggest challenge is accurately identifying these needs.
Value-Based Segmentation
This customer segmentation model groups customers based on their value. Therefore, you better understand how much it costs your business to lose specific clients, allowing you to direct your marketing efforts better.
Based on the customer's value, you can direct more marketing resources to a specific segment and ensure excellent retention for the most loyal clients.
Data-Based Segmentation (CRM)
With advances in technology, businesses have begun using their unique data to develop customer segmentation models. Some of this data include the following:
· Stage of the customer journey
· Customer lifetime value
· Post-purchase behavior
· Satisfaction level
· Average order value
· Cart abandonment
· Product browsing history
· Customer acquisition cost
With this data, the customer segmentation models are more insightful and give the marketing team a deeper understanding of their prospects.
Tools You Can Use to Segment Your Customers
There are several software tools available to help you segment your customers. Here are a few of the most common ones you can use in your process.
Google Sheets or Microsoft Excel
You can use either of these tools to create a spreadsheet that lists the customers in a row alongside the corresponding segmentation data. You can then compile this list to get insights and inform how you approach your marketing campaigns.
Email Marketing Software
Many email marketing software solutions offer a customer segmentation feature that allows you to segment your customers based on the information the tool has about them. This is often the most efficient approach.
An ideal email marketing software solution will allow you to export the segments to other applications. For instance, it may sync directly with your Google Ads or Facebook Ads platform to help improve your marketing campaigns on those platforms.
A Primary Software Solution
Many businesses use a single piece of software to support most of their functions. This may be a point-of-sale, ERP, practice management, or dealership software. Often, these software tools have customer segmentation features and tools integrated that use the massive amount of customer information stored to provide accurate and up-to-date customer segments and insights.
How You Can Use Customer Segmentation to Grow Your Business
You can use customer segmentation to grow your business in several ways. Here're a few excellent ideas.
Know Your Regulars
Segmenting customers based on how they frequent your business is an excellent way of building brand loyalty and sending updates about your business to its ambassadors.
Your regulars are your best option for word-of-mouth advertising. Therefore, give them exclusive access to events, new products, and information concerning your business that they will pass on to others. Moreover, getting such exclusive access will make them feel special and retain them for longer.
Return Lapsed Customers
Grouping customers based on how long they haven't revisited your business will help you know who you need to reengage and why. Therefore, you will boost sales and increase repeat customers. You can use discounts or promotions to lure them back and start shopping.
Engage Category Buyers
A customer segmentation model based on the type of product or service a customer buys allows you to engage category buyers by giving them relevant information about the products they love.
For instance, a shoe company may target ads for men's shoes for men category buyers only, improving reach and engagement.
Alternatively, you can encourage the category buyers to diversify and try new things. For instance, an apparel company may target ads for a new sock lineup to men's shoes category buyers since they may be more interested in the accessory than any other group.
Spread the Word About a New Location
Geographic segmentation is excellent for determining who to market a new business location to. Often, customers living nearby will be ideal targets for the campaign, improving its reach, effectiveness, engagement, and ROI.
Get Customer Feedback
Customer segmentation can help you contact satisfied and dissatisfied customers differently and get actionable feedback on what your business can change, improve, or what it did right. Therefore, you improve your product or service, leading to more sales and revenue.
You also maintain a personal touch with the customers as the business grows, improving customer loyalty.
Increase the Frequency of the Most Impactful Marketing Campaigns
Customer segmentation helps you identify the marketing campaigns that work excellently for your business. This may be a monthly newsletter, recommendation email, or text-based promotion.
With information about your most-engaged customers, you can incrementally increase the frequency of the campaigns targeting them to improve the impact and performance of the campaigns.
However, the relationship is not linear. Increasing the frequency of a marketing campaign 4x won't necessarily result in a 4x increase in impact and performance.
Instead, incrementally increase the frequency and listen to feedback to determine how the campaign's impact and performance are improving.
Overdoing it can result in spamming, which can taint the brand's image and trust and hamper growth.
Examples of Marketing Campaigns Where You Can Apply Customer Segmentation
Customer segmentation will be helpful in almost every marketing campaign you run. However, it will be beneficial to identify the most impactful campaigns and start from there.
Here're a few examples of marketing campaigns that will benefit from customer segmentation.
The Welcome Series
Most businesses run a "welcome series" marketing campaign that targets new customers who've just shared their contact information or made their first purchase.
Using customer segmentation, you can send personalized marketing messages to different groups of customers based on factors such as the product they've purchased, the person in the team they've communicated the most with, or their location.
Using the information drawn from customer segmentation, you can insert specific information about the product they bought, mention relevant information about the business or community that they might be interested in, or structure the message to appear that it's come from the team member they were interacting with the most.
Appreciation Campaigns
Businesses run appreciation campaigns to reward their loyal customers and improve retention. With customer segmentation, you can share a special promotion with a group of customers who've made a purchase in the last 12 months as an appreciation campaign.
The campaign may be run via email, text, or any other appropriate channel for the customer segment.
Start Improving Your Marketing ROI
Customer segmentation will give you the confidence to approach marketing in your business, knowing who wants it and how to market to them.