How to Effectively Use Customer Segmentation to Boost Your Marketing Campaigns
“Customer is king” has a deeper meaning in the digital marketing era. Unlike the traditional marketing days when generic marketing messages worked, modern customers demand more special treatment.
According to a study by McKinsey, 71% of customers expect personalised messages from brands, with 76% expressing disappointment whenever they receive generic marketing messages.
However, to send personalised marketing messages, you must know your audience well. You need enough accurate information to classify them into appropriate groups and send personalised content that resonates with their likes, habits, and what matters to them.
This is one of the biggest challenges for modern businesses.
But there’s a solution – customer segmentation.
Here’s a rundown of everything you need to know about customer segmentation, why it matters in marketing, and how you can effectively apply it in your marketing campaigns.
What is Customer Segmentation?
Customer segmentation divides customers into groups or “segments” based on shared traits such as buying habits, age, needs, and gender.
Customer segmentation models help businesses better understand their customers and target them with relevant, personalised marketing campaigns from social media posts, emails, ads, and other marketing channels.
Customer segmentation allows businesses to reach a new audience effectively and reconnect with a lapsed one. Therefore, it encourages new purchases for both audiences through carefully targeted messaging.
What’s the Importance of Customer Segmentation?
Customer segmentation comes with several benefits.
Firstly, it improves customer service. Since you better understand your customer’s needs and wants, you’re in a better place to understand their problems and offer practical solutions.
Nailing this is crucial since customer service sits at the core of a business’s success. According to a study, one in five customers will abandon their cart if unsatisfied with the customer experience.
Customer segmentation also builds customer loyalty. According to a study, 79% of customers state that the more personalised messages they get from a business, the more loyal they become to it.
Loyal and happy customers translate to more sales and higher profits. Therefore, customer segmentation wins you more dedicated customers with higher conversions over time.
A study shows that 60% of customers who receive personalised marketing messages become repeat customers.
Is Customer Segmentation Always Necessary?
You don’t always need to segment your customers despite most campaigns benefitting from it. In some cases, the segmentation cost may outweigh the marketing campaign’s returns, making the exercise impractical.
The best approach to customer segmentation is using it for your business’s most effective marketing campaigns. These campaigns yield the most significant returns. Thus, improving them will cover the segmentation cost and improve your business’s bottom line.
For more straightforward campaigns, you can afford to forfeit segmentation in some cases and still yield good returns.
However, modern businesses need more than simple marketing campaigns to break even in a cut-throat competitive market.
The Various Models of Customer Segmentation
Customer segmentation can be broken down into several models. Here’re seven of the most common ones.
1. Demographic Segmentation
Demographic segmentation is the grouping of customers based on specific demographic factors such as income, age, education, gender, and marital status.
Gender is the most common customer segmentation starting point for most businesses. The modern challenge for businesses is ensuring their gender segments are inclusive.
Age is another common factor used to segment customers. Age gives a lot of information about your target customer and their needs. For instance, a 30-year-old bachelor in Boston will have a different budget and interests from a 70-year-old retiree in Texas.
Occupation gives businesses insight into a customer’s availability, interests, and budget based on annual income.
Despite being the easiest-to-use customer segmentation model, demographic segmentation risks making erroneous assumptions about a particular segment, leading you to lose your brand voice.
Therefore, you should use demographic segmentation with other models.
2. Geographic Segmentation
Geographic segmentation categorises your audience based on where they live, work, and shop. Therefore, you get details such as the customer’s location, transportation, preferred language, and workspace.
Transportation is an essential metric because, for instance, if you establish that your customers often take the subway, you can buy advertising space on digital billboards or trains in popular subway stations in the area.
Preferred language ensures that you always communicate clearly to your customers and prospects in the language they understand best.
The biggest downside to geographic segmentation is its simplicity which often doesn’t reveal much about your audience. Therefore, you should use it alongside other models.
3. Psychographic Segmentation
Despite having unique personalities, we share common characteristics or traits. Psychographic segmentation groups customers based on common traits such as hobbies, personality traits, lifestyle choices, values, and cultural beliefs.
Therefore, in psychographic segmentation, you seek to identify the customer’s interests, values, and personality. These details are perhaps the most difficult to gather. However, if well understood, they can be used to deliver compelling, relevant, and highly-focused marketing messages.
4. Technographic Segmentation
Technographic segmentation groups your customer base based on the hardware, devices, and software they use. This data is essential because according to statistics:
- It takes one bad mobile experience for customers to switch to a competitor
- 79% of U.S. consumers made an online purchase through their mobile phones in the last six months.
Online purchases made on tablets will also cross the $64 billion mark in 2022. Knowing the software and hardware your customers use to access your online store will help you optimise their experiences and target them effectively.
5. Behavioural Segmentation
Behavioural segmentation gives you insight into how your customers interact with your business. Therefore, behavioural segmentation groups people together based on behaviour patterns. You use details such as website activity, life cycle stage, e-commerce activity, and last customer engagement.
You can use behavioural segmentation at any stage of your marketing strategy, such as sending promotional messages or revamping your landing page.
Behavioural segmentation can also help you list and calculate the number or percentage of active, infrequent, or lapsed customers.
6. Needs-Based Segmentation
Needs-Based segmentation is based on the rationale that the best way to sell to customers is to show them how your product or service fulfills their needs. Therefore, you group your customers based on their pain points and problems they want to be solved.
The biggest challenge with needs-based segmentation is accurately identifying the customer’s needs. Some details you can take include service needs, product attributes, and delivery methods.
Service needs tell you the services the customer requires from your brand or business. Delivery methods allow you to categorise customers based on their shipping and delivery needs. Product attributes tell you the specific features your customers use or need from your products or services.
7. Value-Based Segmentation
Value-based segmentation allows your business to understand the cost of losing business with a specific client. It groups your customers based on their value to your business. Therefore, you can place reasonable effort toward marketing to each segment.
Some details you use to determine value-based segmentation include the number of purchases, customer satisfaction scores, and average purchase value.
There are two crucial advantages to value-based segmentation.
Firstly, you establish which customers spend the most on your product or services. Then, you get to know which customers you can’t afford to lose and direct excellent customer service and highly targeted ads their way.
Secondly, you identify the most loyal customers and the costs of retaining them in your business. According to statistics, acquiring a new customer can cost up to seven times more than retaining one.
Marketing Channels That Can Be Segmented
There are numerous marketing channels where customer segmentation can be effectively used. They include:
You should build your email list based on what you know about your subscribers. You should have a good idea of the products they’re interested in, their purchase history with your brand, and their position in the sales funnel.
The email you send to a first-time client should differ from a regular client you’re trying to retain.
Social media platforms attract various users and demographics. For instance, women make up 61% of TikTok users, while 73% of 50 to 64-year-olds use Facebook. Therefore, your messages to users on each platform should be different and targeted to that platform’s demographic.
PPC works effectively when you know the appropriate keywords you should target. One of the best ways to know the keywords to target is through customer segmentation. Your ad should speak to relevant users and direct them to a relevant landing page.
Content marketing can benefit significantly from customer segmentation since your content strategy is driven by your knowledge of your users and the topics and keywords they’re most interested in.
You’re able to create content for customers in your marketing funnel and drive them further down to converting using accurately worded CTAs.
Podcast ads are one of the new and most effective digital marketing channels. According to statistics, 67% of podcast listeners remembered a brand or product advertised through a podcast.
However, you should consider the podcast you’re advertising on. Customer segmentation allows you to target suitable podcasts based on your customer’s interests and the podcast’s tone, theme, and style, making it easy to integrate your brand’s message and make it sound like native advertising.
Traditional Offline Marketing
Even traditional offline marketing can still benefit from customer segmentation. You get an idea of whether you should purchase billboards or a newspaper ad and where you should place the ad based on geographic segmentation.
Tools You Can Use to Segment Your Customers
There are several software tools you can use for customer segmentation. Some of the most common ones include:
Google Sheets or Microsoft Excel
You can use either of these tools to create a spreadsheet that lists each customer in a row alongside their corresponding data that you’ll use for segmentation.
Email Marketing Software
Most email marketing software features customer segmentation tools. These systems typically store a decent amount of information about your customer, making them more efficient than complicated spreadsheets.
Some email marketing software allows you to export your customer segments to other applications or sync directly with other marketing tools such as Facebook and Google Ads.
One-Piece Software Solution
Many businesses rely on a primary piece of software to support most business functions. This software may be an ERP, dealership, point-of-sale, or practice management software.
Some of these tools have customer segmentation functionality to store large amounts of customer data and help you draw insights from them.
How to Use Customer Segmentation to Grow Your Business
Here are a few ideas for using customer segmentation to boost your marketing campaign and grow your business.
Capitalise on Your Regular Customers
Using customer segmentation to know your regular customers can help you build brand loyalty, ask for referrals, and send updates about your business to interested customers.
Your regular customers are also the best targets for word-of-mouth advertising if you send them information that makes them feel unique and part of the business. You can do this by setting up a loyalty program or inviting them to exclusive events.
Know and Attract Lapsed Customers
Lapsed customers are buyers who haven’t bought a product or service from your brand in at least one year. Customer segmentation enables your business to identify and reengage them through various techniques such as a promotion or discount.
Launch a New Location
Geographic segmentation is crucial for determining whether and where you should expand your business. Based on where your customers come from, you can open a new storefront and direct relevant traffic to boost sales and revenue.
Improve Customer Experience
Customer segmentation allows you to collect negative feedback, group dissatisfied customers, and reach out to them for constructive criticism on what you can change in your business. This approach allows you to maintain a personal touch with your customers and improve their shopping experience.
Get All the Help You Need from an Expert
For customer segmentation to yield significantly, it must be accompanied by effective messaging. Effective messaging will drive your targeted customer to action and increase the ROI of your marketing campaigns through better conversions.
Get in touch with an expert today who’ll guide you on approaching every user segment in your business with the right messaging.
Over to You…
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