Customer Segmentation helps you with hyper-personalization of customer experience and delivers proactive customer service. It easily establishes a deep connection with your business and the end-user.
Communication Experts and Psychologists worldwide have said, "It is not what you say, but how you say it that matters!"
For instance, take an example of your workplace. On your Birthday, you're throwing a party at a bar down the lane from your workplace. And, you want to invite people from work.
The way you will invite your colleagues, close friends, acquaintances, bosses, and juniors will differ. Wouldn't it? (Considering you're not sending everyone a general email, WhatsApp, or a Skype message.)
This changing tone to pass the same message is commonsensical and intuitive to most of us, but strangely majority of us don't feel the need to imply this in our business.
Better late than never, if you want to know how to do this for your business, you need to know customer segmentation.
Customer segmentation is a marketing process of segregating your customers into different groups in accordance with their interests, habits, purchase behavior, psychological traits, demographics, employment type, income, etc.
Since, with customer segmentation, you understand your target audience better and know their specifics and details, you can effectively communicate with them.
It helps you deliver the right message to the right people in the right way. This will massively increase the likelihood of your target audience or customer taking action.
Carrying out customer segmentation will provide you with data to tailor your sales marketing and customer service activities. This will not only boost conversions, customer satisfaction but will also boost customer loyalty.
Note that you should implement customer segmentation when you have two or more types of target audiences.
For instance, If I have created a hyper-local social media app -- Unapp, that encourages people to make friends online and meet offline to encourage more real-life conversations. Here's how my ad copies would change while targeting two different groups, diversified based on their interests.
Let's now understand how to carry out customer segmentation…
To understand that, you will have to know about the types of customer segmentation.
The types of customer segmentation are:
1. Demographic Segmentation
While carrying out demographic segmentation, you segregate different people into groups based on a single attribute. This single attribute could be their gender, age, marital status, religious belief, location, and socio-economic status.
Demographic segmentation is one of the most common types of segmentation that brands and businesses indulge in, not even consciously knowing.
Here's an example of leading Fashion brand H&M carrying out demographic segmentation based on age in their marketing strategy.
Here's another example, again by H&M carrying out demographic segmentation based on religion. You can see how such advertisements are specifically targeting people of Jewish and Christian faith celebrating Easter.
2. Geographic Segmentation
As the name suggests, this type of segmentation is done based only on the visitor or customer's geographical location.
You can segregate the target audience based on large areas like countries and continents and even smaller areas like hyper-local divisions in a city. This obviously depends on the expansion of your business reach and customer base.
For instance, we saw geographical segmentation during this ongoing coronavirus pandemic.. When the pandemic started, mostly all offline businesses shut off and went offline (if they had an online presence). And later, when the government would lift off restrictions in certain areas with the situation getting better, these online stores would reopen. The communication done by businesses to the customers in their area is a part of geographical segmentation.
Here's an example to explain what I mean:
3. Behavioral Segmentation
The best way to sell is to understand how a potential customer has interacted with your website. Or, if they have at all, in the first place.
Behavioral segmentation is one of the most effective types of customer segmentation because it will help you find all the data needed from the website itself!
This type of segmentation will help you run a targeted campaign based on the following criterion of your target audience and customers:
To get all the insights mentioned above, you will need the following data, which, as I said earlier, you will get from your website itself:
Here's an example of behavioral segmentation. These are two instances wherein a home-decor website greets (through chatbot pop-ups, etc.):
4. Technographic Segmentation
Technographic segmentation is a bit tricky to understand but is also very helpful in offering hyper-personalization to customers.
In this type of segmentation, one identifies and clubs customers together with respect to the kind of technology they deal with daily.
It can help you identify segments of early adopters when launching new technologies. It can also be as simple as recognizing the device people access the site to reach out to them differently.
The term technographic segmentation was first coined. Dr. Edward Forrest first used the concept in 1985 in a study of VCR users titled "Segmenting VCR Owners," written in the Journal of Advertising Research. The study said that the profiling of technology consumers "should be done on a mixture of variables which might best be called 'technographic'... which focuses on the usage patterns, motivations, attitudes about the technology of individuals... as well as measures of a person's fundamental values and lifestyle perspective."
Let's take an example to understand this.
If you see people accessing your online mobile store from a Safari browser, they are most likely looking for an iPhone. (It was only recently Apple gave the option to choose a different default browsing option other than Safari.)
5. Psychographic Segmentation
In simple words, psychographic segmentation focuses on the WHY.
Here are some of the major WHYs psychographic segmentation focuses on and also gives you the answers to, so you can modify your marketing techniques accordingly.
Prospects and customers are segmented on the following in psychographic segmentation:
You will get the answers to the WHYs mentioned above after forming such segmented groups, helping you then modify your marketing endeavors accordingly.
Note that the data needed to segregate the audience based on psychographics is relatively hard, but once you get a hold of this data, you might have the most potent tool to increase your sales!
Here's one example. Omni Hotels and Resorts, through psychographic analysis, know about people who bounce off a landing page -- only because of the prices to compare the rates with other Hotels.
So, this is what they did.
Now that we have seen the major types of customer segmentation, let us see its benefits in enhancing CX and sales.
Here are eight major ways customer segmentation helps you reach massive sales by enhancing the customer experience of your prospects and customers:
1. Helps you gain better insights into your customer base
Knowledge is Power. Though however cliched it may sound, it is true!
Customer segmentation activities help you examine certain customer segments' performance that provides you with important knowledge of your customer base. It enables you to spot trends and detect underlying patterns in what is working and what isn't for your target audience. This knowledge can help you build rock-solid marketing, sales, and customer experience strategies going forward.
2. Helps in getting leverage over the competition
Only a few businesses indulge in customer segmentation analysis. Unfortunately, customer segmentation, despite being so potent, is not used generously by a business. They use the same marketing copies, ad copies, landing pages, and call to actions for their entire target audience.
This is your chance to stay ahead of the curve and start to get started with customer segmentation.
3. Better Brand Image
According to New Elipson Research, 80% of e-commerce users would prefer to buy from a brand that offers a personalized customer experience.
What does this mean?
When you implement customer segmentation and give a hyper-personalized customer experience, people are most likely to look to associate with your brand and also refer it to others.
This is because people love feeling connected. Hyper personalization and proactive customer service, both of which are results of customer segmentation, allow you to make your customers feel understood and connected with your brand.
4. Increased Customer Retention, Acquisition, and Loyalty
Customer segmentation leads to hyper-personalization and proactive customer service, amongst other things, both of which are the best customer retention strategies.
We already know that the cost of acquiring a new customer is 5 to 7 times than retaining an existing customer.
When we talk about segmentation, it helps businesses equally in generating new leads and converting them, and keeping the existing customers happy and loyal.
This is because a business can tailor every person's experience regardless of being a visitor or a customer.
5. Best Results of Marketing Endeavors
Braze, previously known as Appboy, carried out customer segmentation analysis of its crucial marketing data collected from over 30,000 campaigns and 10 billion marketing messages they ran over the course of two years.
What did they see?
They saw that the campaigns targeted to a segmented customer base gave 200% more conversions than those sent to vast audiences without customer segmentation.
6. Precise Targeting according to their position in the Sales Funnel
Another example of customer segmentation analysis offering great marketing results is Zillow. Zillow is a real estate service provider that offers a holistic range of residential real estate services, including buying, selling, renting, remodeling, and even home loans. This company has a database of 110 million-plus properties across the US that are up for rent or sale.
Zillow applies customer segmentation to ensure that only the right marketing messages reach the right people based on their marketing funnel position.
For example, to consumers actively looking to buy or rent a home who have also inquired about the same, Zillow sends emails about homes in their preferred locations and price range.
Those who have only saved properties and left also sent notifications about price changes to the saved properties.
With this strategy, they successfully reached a 161% increase in their open rate and an 18% increase in their click-to-open rate.
7. Choosing The Right Content Format
When it comes to sending modified messages, it is also important to know the type of content format you should choose. Customer segmentation can help you decide just that for your prospects and customers.
For instance, according to a 2018 Salesforce Report, B2C buyers are 1.3 times more likely to favor newsletters or emails, while B2B buyers are 22 times more likely to find them important.
And, when it comes to retargeting, B2C buyers are 1.1X more likely to favor them, while B2B buyers are 1.8X more likely to do so.
Now, if you are aware of these preferences of your different customer segments, you can send them information that they would more likely appreciate.
8. Keeps you up-to-date with the trends
With customer segmentation, you will never miss out on what's trending. This can help you keep your product line fresh and your services up-to-date. Changing constantly according to the changing preferences of your customers is something every business should do.
Once you get good at customer segmentation and know your customer segments enough, you might be able to predict the change in their needs first. And therefore be the first to design new products and services or modify the existing ones.
For instance, EMM Group helped a bank identify a new and rewarding customer segment, named "the confident entrepreneur" customer segment. They helped banks develop a card and a new service package considering this particular customer segment's emotional and functional needs and crafted a new value proposition that would resonate with these confident entrepreneurs' customer segments.
Six months into the new card launch, the Bank saw their client's portfolio share of cards increase from 8% to 51%. It generated a 36% incremental increase in spending per active account and achieved a 7% increase in active rates.
Due to globalization and the internet, the opportunities for anyone to start a business and find a target audience for the same are limitless. For instance, a college student sitting in Boston can start a business selling miniature Japanese gardens online. Also, every SMB and startup can scale reach out to a wider customer base than ever before. And when this is possible, it is only reasonable to effectively segment the audience and reach out to them with personalized communication pieces. The more personal you are with customers, the better the customer experience, and the better you will sell.
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