5 Reasons Why You Should Do Customer Segmentation?

It is crucial for a business to have a deep understanding of how its customers are segmented. This allows a business to focus on its target customer segment, thus enabling it to efficiently allocate and spend its resources. Without the right market focus, a business will have diffused product development and marketing strategies, resulting in impeded business growth.

Many resort to mass marketing to reach as many customers as they can. However, while mass marketing tactics still get results, some may be inefficient and costly in the long run. Per a study, around 65 to 75 percent of new products fail or miss their profit targets due to a lack of understanding of what customers want.

Rather than employing a one-size-fits-all approach, businesses must focus their efforts on specific groups of customers to drive effective content personalization tactics and better revenues. And this can be better actualized with customer segmentation.

What is customer segmentation?

Customer segmentation, also known as market segmentation, is the process in which a business evaluates its customer base, identifies commonalities of mutually exclusive groups (i.e., age, preferences, behaviour, etc.), and splits its customers into distinct groups. This division is done based on customers’ needs, buying habits, and characteristics.

The goal of segmenting customers is to directly connect to the specific customer segments through highly targeted and customized marketing tactics. This way, a business gets a strong position to improve its customers’ journey, gain and retain their custom, and in turn, increase its revenues.

Customer segmentation is categorized into different types:

• Demographic: gender, age, marital status, occupation, and income
• Geographic: country, state, and city
• Behavioral: product purchased, spending or consumption habits, feature use, purchase frequency, etc.
• Psychographic: activities, lifestyles, and interests
• Customer journey: touchpoints and behavioral patterns

Now, let’s identify how customers are segmented.

Why you should segment your customers

By conducting customer segmentation research, you allow your business to have a competitive edge. To further aid you, we’ve listed down key reasons why it’s important to do customer segmentation. Let’s read on.

1. Deliver tailored messages to customers

Without customer segment focus, marketing can be comparable to casting a net in the sea and hoping to get more of the right catch. Simply put, you’re not always targeting relevant and interested customers.  

Customer segmentation can make it easier for you to craft and deliver more focused marketing messages that speak better to your potential customers. This means that your products and services become more relevant to the subset you are targeting, resulting in better consumer receptivity and response.

A study by Infosys shows that 59 percent of customers say that personalization has a huge impact on their purchase decisions. If you want to reach your customers better, personalizing your messaging is the way to go.

2. Provide exceptional customer service

Gladly’s recent survey reveals that 68 percent of customers say they’re willing to spend more for products or services from a business known to offer good customer service experiences.

Segmentation will allow you to have a better understanding of your target customers and their interests. From this, you will be better equipped to provide them with the experience and service they desire. For example, if you know that your customers favor a certain industry trend or celebrate a specific holiday, you can hinge your marketing strategies on such to draw customer attention and interest.

In addition, you can spot one-time customers through segmentation. Once identified, it will be easier for you to design and employ marketing strategies that can bring them back. These may include providing personalized product recommendations, discount vouchers, complimentary items when they reach a certain purchase amount, and reminders about their wish lists.

3. Focus on the most profitable customers

Segmentation allows you to identify and focus on current customers who can bring high potential value to your business. This is mainly because you’re targeting customers who, more than billings, value what you do, willingly spend more, and come back to repurchase.

Delivering the right messages to your most profitable customers puts you in the right position to encourage them to repeat their purchases and maintain their brand loyalty. As a result, you will be able to meet their needs efficiently and drive bigger revenues.

4. Cross-sell other products or services effectively

If your business sells handbags, you can presume that your customers may also be interested to purchase your new purse and wallet products. With customer segmentation, you can directly target people who recently purchased handbags and cross-sell your purses and wallets. This then enables you to create a consistent sales pipeline.

To cross-sell other products, some e-commerce sites like Amazon add the ‘you may also like’  section post-purchase. Their product or service recommendations are usually based on customer engagement and history.

5. Achieve better ROI

Segmenting your customers enables you to tailor your message to target the right people, thereby boosting your business’ bottom line.

Per Adweek, personalization of messaging can trim down customer acquisition costs by up to 50 percent and increase marketing spend efficiency by up to 30 percent. These figures prove how segmenting your audience can help you increase your profit margins and enable your business to set the right growth trajectory.

Final thoughts on Customer Segmentation

At present, consumers seek highly personalized experiences and favour brands that can consistently deliver these. To meet this growing demand, it helps your business to consistently organize your projects and ultimately, leverage customer segmentation. With this, you get to tailor your messages to attract quality leads and ensure consumer retention. These all result in increased marketing ROI, enabling your business to thrive in the dynamic market.

About the Author

Bash Sarmiento is a lifelong learner, writer and an educator from Manila. His academic background and extensive experience in teaching, textbook evaluation, business management, and traveling are translated into his works.