The Art of Customer Data Segmentation

Not all customers are the same. So why take a one-size-fits-all approach to your marketing, and instead why not start segmenting your customers into smaller groups?

What is customer segmentation?

Customer segmentation is simply a way of arranging your customers into smaller groups according to type. These distinct sub-groups or segments should be characterised by particular attributes. Once you’ve done this, you can then target specific, relevant marketing messages at each group. Remember it’s not just about your content, it’s how you communicate that content and customer segmentation often requires a carefully structured marketing mix – some customers may prefer the direct approach, such as telephone marketing, while others respond better to a local advertising campaign or an email.

How to segment your customers

Customer segmentation doesn’t have to be a difficult, time-consuming task.  For a small company, it could be about recognising that you have two or three distinct customer types with different requirements.  Use the basic segmentation principles to add several layers of intelligence, based on key factors such as:

  • Gender
  • Age
  • Location
  • Interests
  • Socio-economic group
  • Spending patterns

Remember that what you need to focus on is not an obvious difference, but those differences that actually affect buying behaviour. For instance, if you run a hairdressing salon, the type of offers you might make to customer groups would certainly differ on gender and age lines. Alternatively, if you sell products online, you should analyse customer buying patterns and creating customer segments based on how much they spend or how often they buy.

How to target your sales messages

By increasing your understanding of what your customers are buying, you can also maximise opportunities for cross-selling or up-selling. A classic example is a tiling retailer who sells a huge amount of tiles but no grout or adhesive. So by grouping together all the customers who regularly buy certain products, you can target them with relevant offers encouraging them to increase their spend.

This is as much about customer service as it is about a marketing plan. An email that acknowledges what the customer bought and future products they may be interested in, is much more impactful than a one-size-fits-all message. And if you are a regular customer, a targeted message shows that you are appreciated and valued.

How to segment new prospects

This all works for existing customers, but how we identify new prospects and segment them? As marketers, we work hard to acquire and retain new customers, but not enough of us spend much time thinking about what type of new customers we want to acquire by looking at our existing customer base. The best customers are those that last a lifetime, and by segmenting your current customers and identifying which are the most profitable, stay the longest and refer a new customer to you, you can allocate more of your marketing budget to acquiring similar prospects. Segmentation also highlights which of your customers are leaving, helping you understand what causes them to leave.

The key is to draw a picture of an individual that represents the type of person you are aiming at with different needs, wants, values and opinions. If you’re a B2B organisation, your company likely markets to large enterprise customers with large budgets differently than more price-conscious small-to-medium businesses (SMBs) whose needs may be different. If you’re a consumer business, your marketing understands that marketing to pre-teens is different than marketing to a 35 year old male —your whole approach may be different, including your revenue goals. So try and go beyond just segmenting your customers into large buckets and distinguish sub-segments for each of your customer segments.

When you are identifying your best customer segment in order to look for similar new prospects, remember to take into account the value that each customer brings your business. Calculate their profit margin, customer lifetime value, and retention rate and consider added value such as client referrals, case studies, and reference.

Creating a campaign for your targeted segments

Once you have put together a profile of your best customers, you can use those same attributes to identify your top prospects. Since long-term, highly profitable customers who advocate are worth more than a standard customer, you should, in theory, spend more to acquire them.

Long-term revenue goes beyond just acquiring customers. If you have a good grasp on the correlation between your best customers and what you are willing to pay for those customers, you may end up paying a little more per customer in the short-term, but your long-term profitability will increase. Of course, the other side to this is that it is just as important to identify which customer segments are more likely to churn (when they cease a relationship with your company) and work hard to continuously provide value to them to retain them.