A 101 On Customer Segmentation. Yep, It’s Important!
You can no longer just target your chosen customer, you must create distinctive value and tailored experiences at a minimum. Customers aren't all the same. To meet their needs and market to the appropriate audience, a business must evolve away from a one-size-fits-all approach. Stay tuned for more on my opinion on a ‘one-size-fits-all’ media approach.
Benefits of Customer Segmentation
Better Products and Services: Understanding the needs of different customer groups, a client's products and services can evolve to better fit those needs. This approach generates higher customer satisfaction, leading to sales growth
Increased Revenue and Profit: Segmentation identifies the customer groups that best align with the client business needs, ultimately leading to media efficiency. If a client is looking for increased revenue, it would behoove the account manager to identify segments with the largest revenue potential or the highest conversions rates. Additionally, creating lookalike modeling from these segments ensures the funnel is always being filled and the client is growing market share.
Improved Marketing Strategy: Segmentation feeds into the development of positioning strategy that resonates strongly with a clients target audience. Through grouping customers where they live in the customer life cycle the client is better personalizing the experience they customer has with the brand. This also defines the marketing tactics that work best to reach each segment.
Lower Costs: Many clients are looking for ways to make their spend go further. Segmentation will avoid wasting efforts on potential customers who are not a good fit for the offering or who are not a brands most profitable. This tactic improves customer retention and reduces a brands cost per acquisition.
Types of Customer Segmentation
As with anything, there are a variety of methods by which you can group customers, however we will only cover the overarching segmentation methodologies.
Concentrated Strategy: The goal behind this approach is to concentrate on a niche market or a tightly-defined customer set. The approach works well if the offering is for a narrowed customer group, if the business is small with limited resources and has a goal to maximize revenue and finally if a business is launching something new and wants to focus on those who are most likely to convert. I have noticed this strategy works well for early adopters.
Differentiated Strategy: This strategy targets two or more customer segments at the same time. This approach allows a business to address multiple niche markets, it is a useful approach to capture customers beyond a narrow focus of a concentrated strategy but doesn’t over-extend its resources by creating too many segments.
Hyper-Segmentation: For those businesses who can operate at scale, creating many segments might be beneficial. A real world example of this could be a company that offers many different products, the company is planning to execute a personalized marketing strategy where the messaging is tailored to each individual customer (think dynamic advertising) or where the customer exists in many dimensions and for this reason warrants separate segments. An example of this is if customers have overlapping demographics but live in varying geographies.
Segmentation isn’t a one-time exercise. Customer characteristics change as new technologies are introduced or the competitive landscape evolves or you want to upsell your customer base. It is vital that a business react to these changes by revisiting segmentation on a regular basis. Depending on your industry, revisiting quarterly may allow for greater yields. By mastering segmentation you are weighing the scales in your favor for maximum business success.