Introduction
The practice of segmenting a company’s customer base into groups that reflect commonalities among the clients in each group is known as customer segmentation. To optimize each customer’s value to the company, it is important to select how to interact with each category of customers. Customer segmentation is the process through which you separate your consumers into groups based on shared traits, such as behaviors or demographics, to market to those customers more successfully.
The subject of creating a marketing persona can also be introduced using these customer segmentation groupings. This is because, for marketing personas to be effective, they must be closely related to the consumer groups that are often used to guide a brand’s messaging, positioning, and efforts to increase sales.
Need for Customer Segmentation
Customer segmentation is well-liked because it makes marketing and sales more successful. This is so that you can have a better grasp on what your customers want and need.
This has even greater financial implications, and using efficient customer segmentation will help you raise client lifetime value. This implies that they will spend more money and stay longer.
Marketers can better target different audience subgroups with their marketing efforts by segmenting their audiences. Both product development and communications might be a part of those efforts. In particular, segmentation benefits a business by
-Develop and distribute targeted marketing messages that will appeal to some client groups but not to others (who will receive messages tailored to their needs and interests, instead).
-Based on the section, choose the most effective communication medium. This might be emailing, social media posts, radio advertising, or another strategy.
-Identify chances for new or improved products or services.
-Develop stronger connections with your customers.
-Examine price ranges.
-Pay attention to your most lucrative clients.
-Boost customer support.
-Promote and cross-promote additional goods and services.
A one-off is far less effective than little and often. Additionally, it is a more accurate predictor of behavior, which will assist in informing corporate decisions. In addition to increasing customer value and loyalty, this will also raise the lifetime value of the customer.
Market Segmentation VS Customer Segmentation
Market segmentation is broader and considers the entire market than customer segmentation. Customer segmentation is your area of the market, as opposed to market segmentation, which deals with the entire market.
When you’re developing your buyer personas, customer segmentation provides far more detail. An archetype, in comparison, provides a considerably more comprehensive description of the ideal client. Because market segmentation provides such a broad picture of the customer, the market as a whole, and your position within it, it is not advised to utilize it to create buyer personas.
Types of Customer Segmentation
The various segmentation elements should be carefully considered. There are no universal solutions, therefore you should choose what is best for your company.
Types of Customer Segmentation Models
Two categories of customer segmentation are distinguishable:
Customer segmentation- Based on characteristics
Demographics are frequently emphasized in the process of knowing who clients are. This will take into account things like:
-Age
-Geography
-Urbanization – city or rural?
-Income
-Relationship status
-Family
-Job type
Customer segmentation- Based on behavior
Customers can also be divided into groups according to their proportion of wallets, frequency of purchases, and product preferences (this allows you to see how much you can increase spend). This has a stronger behavioral focus.
To further break this down, behavior can vary, thus you would want to consider separating as follows:
-Basket size
-Share of wallet
-Tenure
-Long-term loyalty
Advantages of Customer Segmentation
Every client is unique. You can be sure you’re sending the right marketing messages to the right customers at the right moment in their customer journey by segmenting your customer base into distinct sorts of customers.
Customers can be segmented to:
-Based on client needs, determine which segments are the most useful.
-Increase marketing ROI by focusing exclusively on clients who are likely to make a purchase.
-Significantly increase your customer loyalty by introducing new products just for your most loyal consumers.
-Provide superior customer service, which enhances the client experience.
-Increase sales.
-Minimize waste.
Customer Segmentation Analysis
The method used to find insights that characterize particular client segments is known as customer segmentation analysis. This method is used by marketers and brands to decide which promotions, deals, or items to use when speaking with particular target audiences. By examining a segment’s estimated Future Value, average order worth, loyalty tier distribution, and other factors, a corporation can utilize customer segmentation analysis to assess the value of specific segments.
Types of Customer Segmentation Models
To segment customers accurately, it is necessary to monitor dynamic changes and periodically add fresh data. Although it is advised to segment consumers based on their CLV, there are many different customer segmentation models. There are numerous models to investigate, including:
Demographic Segmentation
Population-related factors including income, level of education, gender, and age are known as demographics. Brands that sell a variety of items will find the most benefit from segmenting their consumer bases using numerous demographic traits.
Behavioral Segmentation
Instead of using external demographic characteristics to group consumers, behavioral segmentation does so. Purchasing patterns and favorite social media sites are two examples. To target and/or send reminders or sales emails for habitual or repeat online purchasers, you might concentrate ads on a specific social media site.
Psychographic Segmentation
By putting your customers into groups based on psychological traits including personality, habits, beliefs, and interests, psychographic segmentation delves even further into the inner workings of your customers. For lifestyle firms that want to connect with customers who already live or aspire to live the lifestyle they promote, psychographics is a terrific tool. For instance, companies that offer camping supplies want to connect with people who enjoy the great outdoors and traveling.
Geographic Segmentation
Brands in a variety of industries place a premium on location. For instance, real estate agents want to get in touch with homeowners selling their houses, possible purchasers, and persons moving to a certain area. Products from other companies may be sold to customers who reside in specific climates. To successfully promote your goods or services in various areas, it is essential to comprehend the wants and difficulties of the consumers there.
Segmenting by technology
Technographic segmentation or grouping customers and establishing customer profiles based on the technology they use is a strategy that is gaining popularity. The expansion of sectors like SaaS and online marketing analytics has been made possible by more firms moving their operations online. Utilizing technological segmentation enables highly individualized marketing to users of various software or internet services.
Company-Level Segmentation
Boomers versus Millennials versus Gen X versus Gen Z versus We’re getting used to the idea of these generational gaps more and more. So much so that firmographic segmentation, or grouping customers based solely on the decade or era in which they were born, is increasingly becoming more popular.
Needs-Based Segmentation
A fantastic method to keep your marketing communications closely focused on your products or services and how they answer those demands is to group your consumers into groups according to their needs. A clothing firm may sell kids’ apparel to families, yoga aficionados, and office casual attire to businesspeople.
Value-Based Segmentation
With this model, your brand is seen through a lens that is more sharply focused. You may target your marketing messages to the customers who are your strongest supporters by using lifetime value as your yardstick, and you can concentrate on sustaining that loyalty and trust.
Whatever types of segmentation models marketers choose to employ, all of them call for marketers to first group customers to segment the customer base.
Customer Segmentation and Machine Learning
Using machine learning algorithms to find new segments is another method of client segmentation. Machine learning customer segmentation, in contrast to marketer-designed segmentation models like the ones discussed above, enables cutting-edge algorithms to surface insights and groupings that marketers might find challenging to uncover on their own.
Additionally, marketers who establish a feedback loop between their segmentation model and campaign performance will see their client groups get better and better over time. In these situations, the machine learning model will be able to optimize marketing effectiveness by both improving the definition of segments and determining whether a certain subset of the segment is outperforming the others.
Magistral’s Services on Customer Segmentation
We provide customer segmentation services by following these steps for effective targeting & positioning:
Magistral’s Services on Customer Segmentation
Carry out Initial Research:
In this phase, we analyze your company to determine the optimum type of segmentation for you. We select the best segmentation process for your organization from tactical and rules-driven segmentation to complex modeling strategies.
Analysis of Customer Segmentation:
In the second part of our method, we choose the factors (such as firmographics, behavior, psychographics, and demographics) that will best suit segmenting your market. Before categorizing your clients, we look for answers to the questions of who, why, what, how, and when they connect with your goods or services. This will allow us to understand their mindsets and preferences.
Improve the Segmentation Model:
The quality of the data you have is the lone determinant of a successful segmentation model. Our extensive expertise in segmentation modeling enables us to comprehend how to separate the appropriate data for your company’s demands. We rely on a variety of sophisticated data filtering methods to remove extraneous information and improve your model for better analysis.
Test & Iterate:
Evaluating your segments is a crucial step in good segmentation. This guarantees that your segmentation is accurate and practical. By evaluating the effects of various contact techniques among your segmented base, we make sure of this. To capture and incorporate outcomes into planning and strategy, we follow up. This is a constant activity that aids in improving your segmentation requirements and providing more precise insights into your customers’ wants.
About Magistral Consulting
Magistral Consulting has helped multiple companies to reduce operations costs through its offerings in Procurement and Supply Chain.
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com