Introduction
All customers in your customer database are unique. Everyone in your customer database has their own unique traits and behaviors. Customers will come from different geographic regions, different demographic backgrounds, have different lifestyles and values and each one of them will exhibit different interactions with your company. For this reason, it’s necessary to personalize the marketing experience tailored for each customer. To drive this personalized experience, data will be the foundation of how you go about creating customer lifecycle segments that will benefit your customers and your business.
Defining Customer Segmentation
Let’s start off by defining what customer segments are. Customer Segmentation is the process of dividing a group of people into segments based on predefined criterias. Segmenting your customers by geographic regions, their age, their income, their purchase history or their interactions with your company. These are just some high-level segments or “cuts” of your customers.
The goal of segmenting your customers into different groups is to personalize their overall experience and interaction with your company. The more satisfied a customer is, the more they’re willing to spend and advocate for your company leading to a higher lifetime value.
An airline might send you an email that says “Since you took a trip to Hawaii last year, we thought these destinations might interest you as you book your Summer vacation this year…”
American Express has a customer marketing program grounded in data and always mentions the year the customer signed up for their credit card in their online and offline campaigns that read “Member since 1990”.
Foundational Customer Segmentation
There are hundreds of ways to create customer segments depending on the level of sophistication with your customer data. This is dependent on the data you have about your customers. You do not need to have a lot of data to do basic segmentation.
Here are four foundational customer segments any company can implement.
Behavioral Segmentation
Behavioral Segmentation is defined as a customer’s interaction with your company or brand. This could be based on their online activity through your website or mobile app; or through your retail stores at the checkout counter. When a customer has signed up for your email list or provided you their phone number at the checkout counter for the first time, that’s the start of their journey with your company.
Geographic Segmentation
Geographic Segmentation is based on the geographical location of your customer. Users who live in different parts of your state or country will interact differently across their entire lifecycle.
Demographic Segmentation
Demographic Segmentation is using basic demographic data like age, gender, education and income. Your brand or service might vary greatly across people with a wide range of ages or income and therefore require many different segments to see what personalized communications works for each group.
Psychographic Segmentation
Psychographic Segmentation focuses on the customers’ values, attitudes, interests and lifestyles. This is more advanced in a customer’s lifecycle stage with your company. Usually, you won’t know much about a customer if they are just beginning their customer journey with your company. As you learn more about your customers as they interact with your company you’ll be able to create an idea about each customer and their values and interests. Then you’ll be able to use this in future marketing outreach campaigns.
Implementing a Customer Segmentation Program
To implement a customer segmentation program, you’ll have to collect, sanitize and analyze and constantly update the data you have on your customers.
When collecting customer data, always make sure to capture quality data. If someone is signing up for your email list, make sure that the email address is in the right format with a proper username and domain name. To ensure the quality of the email address provided, implement a double opt-in email signup process. Send a confirmation email requiring the customer to click on a link to verify their email address.
If a customer is providing their phone number online or in a retail store, implement a SMS confirmation message requiring the customer to reply “Yes” to your messages. Confirming the quality of the customer data upfront will save your company a lot of data headaches down the road.
In addition to collecting and sanitizing data at the time of capture, you’ll want to analyze the data of your customers on an ongoing basis. Whether you have a few thousand customers or millions of customers in your customer database, the challenge is your data will always have gaps or missing pieces of information. As you collect more data on your customers, this will inform the personalization strategy for each customer. As more information becomes available, constantly analyze it and create customer segments on an ongoing basis. People will fall into different segments from month to month or year to year. It’s imperative to have a person or teams of people doing this on an ongoing basis.
Benefits of Customer Segmentation
Key benefits of customer segmentation will lead to an overall improved customer experience, better product development, efficient use of resources and increased effectiveness of marketing campaigns.
Improved Customer Experience
Understanding the specific needs and preferences of different segments, companies can create more personalized experiences. A good example of this might be when a high lifetime value customer calls into your customer support line, route the customers call immediately to a team to address his or her needs without having to wait.
Better Product Development
Insights from segmentation can guide product development to better meet the needs of different groups of people. You might have users that fall into different customer value groups; each group might see a different page or set of services available to them on your website.
Efficient Use of Resources
Creating customer segments will allow you to identify the most valuable segments in your customer database. People who are engaging more with your company or product and providing a high lifetime value will allow your teams to treat these segments with a higher level of care.
Increased Effectiveness of Marketing Campaigns
Personalizing your marketing campaigns will increase the effectiveness of the messaging out to market. If you can create segments of customers who might fall into lapsed segments or very loyal customers, you’ll want to personalize the messaging to each group.
A great example of this is McDonald’s and their mobile app. They have a wealth of data on their customers and they send very targeted mobile push or email messages to both loyal and lapsed customers. Loyal customers might get great offers like 20 Chicken Nuggets for $5 while lapsed customers get messages about their points expiring and to use it soon.
Final Thoughts
Customer segmentation is a very simple but powerful way to create groups of your customers to help personalize the overall customer experience. It allows you to create unique and dynamic messaging tailored for each individual experience while also providing a one to one relationship with your customers. By implementing some sound foundational customer segmentation strategies across your company from the point of data capture to the arc of a customer’s journey with your brand, you will see higher engagement which will lead to more satisfied customers.