Customer segmentation is a critical step in organising how you promote your products and services to your customers. Once you know who your customers are, you can start understanding how best to talk to your different customer types.
Think about the different types of people you interact with through your life: family, friends, coworkers and strangers. Chances are you don’t speak to them in the same way. You also probably understand that they respond to you and your actions differently.
This works the same for your business customers too. Different types of customers have different needs, pain points, and expectations on how they expect you to communicate. For example, a customer spending £1m with your business will expect to be treated differently to someone spending £100.
The key to creating and sustaining successful relationships with all your customer types is to understand their uniqueness and tailor your communications to exceed their expectations. However, treating each customer individually can be time-consuming and expensive. This is why customer segmentation is so important.
What is customer segmentation?
Customer segmentation is the process of grouping your customers (and potential customers) based on shared characteristics. For example, this grouping could be based on:
- Demographics (age, gender, occupation)
- Behaviour (loyalty, readiness to buy)
In understanding who your customer is, you will have created a customer avatar (an image of what your ideal customer looks like). Segmentation expands on this by allowing you to link and group similar customers types together.
Why is segmentation important?
Segmenting your customers provides a simple way of organising and managing relationships with your customers. This process also makes it easy to tailor and personalise your marketing and promotional efforts to the needs of specific groups. This can help boost customer loyalty and conversions – you’re no longer using a broad brush approach; instead, you are speaking directly to the customer.
Following on from our example in The importance of understanding your customer, where we look at a flower company. Flower customer A who wants to show appreciation/sympathy to someone else (occasional/circumstantial purchase) – let’s say Valentine’s Day.
With segmentation, we can add this customer to a group called: Valentine’s Day customers. Next year, before Valentine’s Day, you can send them personalised information about any Valentine’s Day offers – increasing the probability of them buying from you again.
In fact, most companies with loyalty schemes will use segmentation to show you personalised offers. Think about Tesco, each time you buy a product; they know you like it. When that product is next on offer, they can tell you about it and encourage you back to the store.
How can small businesses use segmentation?
Segmenting your audience can seem like a lot of time-consuming work for a busy small business. However, think of segmentation as working smarter, not harder. In fact, today, segmentation can make you appear like you’ve done more work than you probably have.
One of the simplest ways a small business can see the benefits of segmentation is through email campaigns. Email marketing platforms, such as MailChimp, allow you to create different customer segments so that you can send tailored emails to customers. You can even send one email to your whole database with sections that will change based on the recipient’s segment – meaning you only need to create one template for everyone, but it looks like you’ve sent a personal email.
Sending personalised emails based on segmentation can increase your email open rates by 203%, and according to Campaign Monitor, marketers who use segmented campaigns note as much as a 760% increase in revenue.
Segmentation can also work for paid advertising campaigns on platforms such as Facebook and LinkedIn. Your detailed customer information will help you narrow down your audience, allowing you to create more focused marketing communications and spend less money.
How ETC can help
If you need help with your marketing and understanding who your target customer is and how to group them into meaningful segments, please get in touch.
If you are new to ETC, why not contact us for a free new business review? We’ll spend two hours with you, giving you professional coaching and will leave you with actions for immediate implementation.