Accurately and effectively segmenting your customers allows you to engage with each customer in the most effective way possible. After all, much like you wouldn’t speak to your boss in the same way you’d speak to your best friend, different groups of your customers will have different expectations about the way your business communicates with them.
Put simply, customer segmentation involves dividing your company’s customers into groups. In doing this, you put customers with shared characteristics in the same segment. Once the process of segmenting your customers is complete, you can then decide how to tailor your marketing efforts so that you can effectively communicate to the customers in each segment. By doing this, you’ll be able to maximise the value each customer brings to your business.
When practiced effectively, customer segmentation can positively affect your customer retention rates, profits, and customer lifetime value. However, segmenting your customers into groups is only half of the job. Once you’ve done this work, you must perform a customer segmentation analysis. By doing so, you’ll gain an in-depth understanding of how each of your segments is performing. After all, without regularly checking your customer segmentation analytics, you’ll never identify problems, find improvements, or improve your processes.
But, how do you perform a customer segmentation analysis effectively? Here are four simple steps to follow:
1. List all segments and sub-segments
Before you start to analyse whether any of your segments are performing well, it’s best to list them. Although this might sound a bit obvious, it can be easy to forget about some sub-segments (particularly if you’re regularly re-categorising). By listing all the segments and sub-segments you’re analysing, you will ensure that you don’t miss any crucial insights or comparisons. If you’re using a CRM or piece of software to help you perform the analysis, then you may be able to do this automatically.
If you’re struggling to find the best or most effective way to segment your customers, ask for feedback from your sales and services teams. If you like, you can also gather additional data from customers. By running surveys and receiving first-party data from them, you can more accurately organise your customers based on their specific behaviours and beliefs.
2. Identify the criteria for analysis
The criteria you select for analysis will largely depend on the type of business you’re working for and the goals of your marketing campaigns. However, selecting the criteria for analysis is a vital part of the process, as it can help establish some consistency in your marketing efforts and can help you compare your results over time. Popular criteria to analyse include:
- Segment growth – If your segments are not growing, your segmentation may be wrong or you may not be putting enough effort into reaching the people in a particular segment.
- Customer lifetime value – If this figure is lower than your customer acquisition cost, then it may show a problem with your product/service or the customers you’re acquiring. Customers with the highest lifetime value should be the focus of your efforts.
- Churn rate – If a segment has a high churn rate, then these customers may be dissatisfied with your product or service. Alternatively, you may be marketing to the wrong type of customer.
3. Analyse your results
In order to analyse whether your segments are performing well or not, you need to set KPIs that will drive the analysis. Once you have these KPIs, you can then use your data to back each decision you make, rather than acting on a hunch.
The easiest way of analysing your results is to use a piece of software like Apteco FastStats®. With the help of a data analysis tool like this, you can explore all your data records in seconds. Plus, you can improve your understanding of patterns with the help of data visualisations and predictive modelling.
4. Take action
Once you’ve made your conclusions, you then need to take action. After all, if you conduct your analysis but your marketing activity continues as usual, then your strategies will not improve.
As a result of the analysis you’ve carried out, you should take an evidence-based approach to modifying your segments and the way that you target customers within each segment. This may result in you either reviving or discarding low-performing segments, or altering your budget to further improve performance in high-performing segments.
At this stage, you should also set a date for your next round of analysis, where you should assess the changes you’ve made. Performing regular analysis and putting learnings into action is crucial, so we recommend that you run a customer segmentation analysis on a quarterly basis.
If you follow all the above steps, you’ll find that regularly running a customer segmentation analysis provides your business with a number of benefits. These include:
1. Identifying your best-performing segments
By analysing the data provided by your analysis, you can discover which of your segments has the highest conversion rate. This is vital information because you can then spend your time prioritising campaigns for customers in this segment.
2. Building your ideal customer profile
Using the data you’ve analysed to find your highest-performing segments, you can build (and then continually improve) your ideal customer profile.
Once you’ve built this profile, you can then focus your marketing efforts on targeting customers who fit the profile.
3. Receiving feedback on potential product or service improvements
Your customers use your product or service on a regular basis. As a result, their knowledge is really important in driving your business forwards. By identifying your most satisfied customers and asking them questions about how your product can be improved or what they like about your current offering, you can make sure you’re staying ahead of the competition.
4. Highlighting areas for improvement
As well as digging through the data and analysing the segments that are performing well, you should also look for segments that are performing poorly.
If you find that one of your segments has a high churn rate, then you need to analyse why this is the case. It may be that customers that fit this profile don’t suit your product or service. If so, it may be the case that you shouldn’t be targeting these customers.
Alternatively, it may show you that your current product or service isn’t meeting the needs of a section of your target market, and needs to be adapted. If this is the case, you can try simple steps like tweaking the messages you’re sending out or talking to your customers about the issues they’re facing.
5. Finding information gaps
To create personalised experiences and messages that convert, you need to know as much about how your product or service fulfils customer needs as possible.
Thankfully, as a business, you can gather an almost endless amount of data from your customers when they are interacting with you. However, don’t collect data just for the sake of having lots of data. Carefully consider which data you need for which purpose first. So, when viewing your customer segmentation analytics, think carefully about what additional information your business needs to know. You can then send out surveys to help gather this data and improve your analysis.
By gathering all this additional data and filling in the gaps you’ve found, you’ll be able to divide large segments into smaller sub-segments. By carrying out this process, you can then make your customer segmentation more effective.
Types of customer segmentation
Now that you understand what customer segmentation is and why analysing your customer segmentation efforts is worthwhile, let’s take a more detailed look at the types of customer segmentation that businesses normally employ.
Although customer segmentation models can be very complex, others are far simpler and can be used for a variety of business reasons. Popular types of customer segmentation include:
Using this method, customers are segmented based on their age, gender, income, education, occupation, and marital status.
Here, customers are split based on their geographic location. Depending on the size of your company, its client base, and its marketing efforts, this can be done on a country-wide level or a city-wide level. Alternatively, this can also be done using time zones or by shared language.
This tends to look at softer methods, such as attitudes, beliefs, or even personality traits. These thoughts are often gathered from surveys.
This looks at the technologies customers use when engaging with your brand. You can segment via device type, browser type, or original source.
A customer’s past behaviours may indicate their future actions. As a result, this form of segmentation looks at each customer’s tendencies and frequent actions, including their product use and buying habits.
6. Purchase history
At a minimum, most companies will categorise customers as ‘active’ or ‘lapsed’. However, customers can also be categorised using their purchase patterns, including when, what, and why they purchase your products or services.
In summary, segmenting your customers can help you tailor your offering, improve the customer experience, reduce churn, and boost your revenue. However, in order to experience these benefits of customer segmentation, you need to analyse the data you’re given and take affirmative action.
To do this, you need to regularly conduct a customer segmentation analysis. This will allow you to optimise your segments, focus on your highest-performing segments, and eliminate segments with a high churn rate. As a result, running a customer segmentation analysis will allow you to optimise your marketing efforts and improve the way you speak to your customers.
If you would like to find out more about how technology can help you to effectively analyse your segmentation efforts and which segmentation methods are available, then book a demo with us today and speak to one of our marketing experts.