Customer Segmentation 101
The rise of big data and machine learning has enabled companies to understand more about their customers than anyone dreamed possible just a decade or so ago. Rather than being something that only the largest companies can make use of, customer segmentation is now a requirement for businesses of any size to remain competitive. Still, many businesses don't quite understand what customer segmentation is, or why it is important. In this post, we'll break down the benefits of customer segmentation so you can begin using it to grow your company.
What is Customer Segmentation?
Customer segmentation, also known as market segmentation, is the process of looking at all the demographic data you have about your customers and splitting them into unique categories with similar personality traits. You'll often see the result of the segmentation referred to as 'buyer personas'. When a company creates buyer personas, they are creating fictionalized characters that represent one or more of their core market segments.
The Benefits of Customer Segmentation
So, what is the purpose of creating buyer personas? Let's take a look at some of the major benefits that these fictional people bring to your real life customers and the health of your business.
Helps Company Focus
Every company needs to have focus. Which market segments do you go after most heavily? Knowing what is important to your customers means knowing what areas are the best focus for your business. This information can guide important decisions such as which product lines to focus on the most, which features to bring to existing products or services, or which areas of your website should be updated to reflect the functionality that your target audiences prefer. Being able to put a definitive target in sight that you know leads to more sales and better customer relationships will fast track your arrival at those goals.
Improves Marketing ROI
In addition to knowing what your customers want and being able to tailor your products and services to them in a way that will make it easier for your sales team to make sales, customer segmentation allows you to better market your existing product line. Once you understand who your customers are and where they are coming from, you can more proactively reach out to them in those places using language that they will respond to. Customers often have very different motivations when making a purchase decision, so knowing what drives your customers will help you convert more leads from your marketing campaign into sales.
Allows for Better Communication
Your existing contacts need nurturing as well. One of the most vital aspects of nurturing existing customers or leads into repeat customers is communication. There's often a fine line between emails that come across as spammy and annoy customers, and those that customers welcome and respond well to. Customer segmentation, like that employed by brands like Busted Tees, allows you to know when the best time to email customers is. It also allows you to better understand the tone that your customers are more likely to respond to. If your buyer personas turn out to be very casual people, speaking in an overly professional manner will seem impersonal to them, and they are more likely to ignore your message.
Aids in Customer Acquisition & Retention
Speaking the language of your target customer must go beyond just the emails that you use to communicate with them. By structuring your product offerings and the copy used to sell them to would-be buyers, you'll be able to convert more leads from organic site visits as well. This means that not only will your marketing be more cost effective, but you'll be relying on it less. Further, as you continually adapt your products and services to the desires of your target audiences, you'll be able to keep them coming back in ways that marketing and well-formed emails alone couldn't do. MetLife successfully used this strategy to tailor products around buyer personas to increase their own acquisition and retention rates.
Makes You More Competitive
The previous benefits combine to form an additional benefit. Once you have learned which market segments that you need to place your primary focus on, you will naturally become more competitive in that market space. With the more cost-effective marketing and increases in acquisitions that customer segmentation brings, you'll be well positioned to remain competitive in that space. The type of brand loyalty that comes from the personalized communication allowed for by market segmentation will also help to make you a leader in your chosen market segments.
Enables Market Expansion
We've talked about customer segmentation telling which markets you should focus your efforts, but it's also important to mention that the same data can give you insights into potentially unexplored markets. You may, for example, find that a lot of your customers are coming from a country that you haven't spent much effort marketing to. This could indicate that it would be beneficial to localize your website or product into the language of the country and would certainly be a clue that increasing your marketing efforts in the country would be worth it. This same logic applies to market segments beyond geographical location as well. You never know what insights customer segmentation will provide, which is part of what makes it such a powerful tool.
This is the final benefit because it's also the most obvious. Every other benefit on this list, while being a worthy and distinct goal on its own, serves the purpose of bringing your most customers, converting them better, and raising your bottom line. Customer segmentation will not only increase your profits, but is quickly becoming a necessity to remain competitive in the marketplace.
Customer Segmentation Takeaways
Regardless of the business you are in, better understanding your customers will lead to better business outcomes. This is accomplished not only through market segmentation, but through a thorough analysis of the feedback your customers provide in all of the places that they provide it. At Yogi, we've made it our mission to create the best tools for understanding your customers and what their needs and desires are.