Customer segmentation for your business

23rd Aug 2017

Auto filling of online forms is proof positive that nowadays it is standard practice for businesses to collect customer data. Shrewd businesses will then analyse the data collected and use it to benefit their business, and ultimately their customers. One way of getting true value out of customer information is through segmentation and the benefits of segmentation are extensive.

No two customers are identical, but if customers can be divided into groups based on shared characteristics, it then becomes easier to identify unique needs and demands within the customer base. The characteristics your business chooses to focus on will be specific to your product, as well the type, sector and size of your business. For instance, depending on what you would like to find out about your customers, you may choose to group them according to demographics, location, lifestyle and personality, or behaviour.  

Segmentation enables you to gain a better understanding of the customer journey. There may be trends and patterns in your customers’ behaviour that you are unaware of. It saves making assumptions by examining a breakdown of the data you can really understand how a specific factor influences customer behaviour, purchasing and contact preferences. It then puts the power in your hands to tailor subsequent interactions if necessary. When customers receive relevant messages that chime this will make the customer feel understood and valued, as well as increase brand loyalty.

Loyal customers should be made to feel their custom is appreciated, and segmentation can help to identify the most profitable customer groups, as well the groups that present the most potential for the future growth of your company. You may be wasting valuable resources on customers who represent little or zero profit, so you can alter your focus and redirect these resources in a more efficient way.

How can you identify the most profitable segments? There are several questions you can ask when looking at individual segments: How well you can meet the needs and wants of the end users? Is the size of the segment large enough to produce future potential? Do you have enough company resources available to meet the needs of the segment? How intense is the competition? Develop a framework of analysis specific to your business to determine the attractiveness of customer groups.

Once you’ve decided whether certain segments require more attention, you can then concentrate marketing efforts on those specific groups. You could also develop a different marketing mix for different segments, so that customers are not put off by marketing materials that are unrelated to them. When your message becomes too generalised and doesn’t take individual needs into account, the risk is that the customer will disengage from all future content and dismiss your brand as irrelevant.

On the other hand, if you successfully use segmentation to show customers that your business is best placed to serve their needs, you will continue to reap the benefits. This isn’t a one off exercise,   it will be necessary to continue analysing the data so that you can hone and improve your marketing efforts by noting what works and what doesn’t for your defined segments. This will keep your approach fresh and appealing.  The additional commercial benefit is that you may even spot gaps in the market that would have otherwise have gone unnoticed, so you can look into developing products or solutions that better meet your customer’s needs.  Keeping an eye on opportunities for product development will keep you ahead of your competition.

However, it is important to approach segmentation strategically – grouping your customers into many segments may in fact produce confusion rather than insight, wasting time and resources instead of increasing efficiency. The objective should be to find out the real differences in the needs and demands of your customers, but remember that these differences cannot be forced or pre-determined.

When used properly, customer segmentation is an indispensable tool. Over time, it can be used by various functions within your business from product R&D to marketing, to customer service, to billing to improve their outcomes. An improved understanding of customers and prospects can also contribute to your planning – by making informed predictions about future developments, you can ensure that your business is always ahead of the curve.

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