If you have just started your business this question may be not so actual for you, as the main task at this point is not segmenting the customers, but their acquisition. The moment you get to know that you have thousands of clients, you realize that satisfying the needs of everyone becomes harder day after day. This issue can be easily illustrated: you came across an interesting ebook store and subscribed. Since then, you regularly receive their newsletters with the last arrivals, top-rated literature and books with discount. Certainly, you have your own preferences, if you like ancient literature, you may not be interested in modern bestsellers. Hence, you unsubscribe from the website. It's great when you are allowed to manage the preferences regarding the content, this way, you will receive only relevant content and offers. But, what if not? The store will lose a client because it has not segmented its customers.
So, customer segmentation is grouping of the customers into segments by carrying out personal data analysis according to different criteria. The information for analysis is chosen depending on the type of business you are in.
Benefits of customer segmentation:
Customers engagement and satisfaction
By segmenting your clients, you will tailor the interaction with them. It provides individual and personalised marketing approach to every customer. Thus, their needs will be met and they will constantly interact with your brand as you know what they want.
To carry out segmentation, one needs to do clients' analysis. It will not only help to find out customers' interests, preferences and needs but to identify their solvency. You will be able to group the clients into the most and the least profitable for you and plan your actions accordingly — either concentrate on customers who are more likely to buy from you or to deal with those who have doubts.
If your customers are satisfied with your goods and service, they will regularly use it and recommend to their friends. Thus, they turn into loyal clients — who are extremely valuable for every business.
Better service and goods quality
To get the data for segmentation, you should maintain the permanent communication with your customers. If they realise that their opinion plays a role in your business they will be more open with their ideas and wishes. Engaged clients encourage increasing the quality of the work. They can give you ideas on what can be improved in your service or what it still lacks.
Superiority over competitors
If your competitors have more clients than you do, they surely work harder and take much efforts to improve the interaction. The more precise your segmentation is — the more chances you have to be a tough competitor.
High email deliverability
Segmentation is a must for email marketing. If you send the same email to the entire mailing list, your email deliverability will suffer. If subscribers do not open your emails or mark them as spam, it will significantly influence your reputation. Your newsletters risk to get into the nasty spam folder. So to maintain high email deliverability and good sender's reputation, carry out mailing list segmentation.
To carry out segmentation you should know the main customer segmentation strategies and their characteristics.
Customer Segmentation Strategies:
Applying this strategy you will divide your customers according to their location as it plays an important role. For example, if you sell surfboards, you will have more buyers from the USA than from Canada. This strategy includes the following information:
- rural or urban area
- cultural pecularities
This strategy creates the segments according to:
- marital status
- income level
This strategy unites customers according to:
- personal traits
This strategy is based on dividing customers into segments according to their need of your product or service.
It can be determined by the following:
- buying motivation
- loyalty to the brand
- readiness to order a product
- repeated purchases
- frequency of using a product or a service
This is one of the most effective strategies as it is easy to measure.
For your segmentation to be useful and effective it should meet the following requirements:
- the identified segments should be measurable. Besides, you should be able to define the segment's share in the total potential volume of the market and estimate the effectual demand;
- the segments should be significant, introducing a large part of the market (volume of every segment is to be enough for the production and realization of the goods to be commercially viable);
- the segments should be relevant for your company to do sales successfully (inform the customers about your product's benefits and take care of its delivery);
- the segments should allow your company to develop, i.e. have a chance to influence the consumer demand the way that you can be able to increase the market volume in every segment, attracting new customers.
Except the requirements to be met, you should know the criteria according to which you will define segments for your business. Criteria are the method to estimate your choice relevance regarding the segments.
The most important segmentation criteria are:
1. The size (volume) of the segment
The volume of the segment can be identified basing on different data: the total number of goods sold during a concrete time period (month, year), total sales volume expressed in terms of costs during a concrete time period, the segment's share in the total volume of the market expressed in terms of interest, the total number of potential consumers.
2. Segment's potential for the company
The degree of segment's potential for the company is characterized by the company's possibility to get the necessary channels to promote and sell goods on favourable terms for the goods delivery.
3. Segment's perspectivity
It's important for the chosen segment to introduce a significant part of the market for a long time. Management of the company should get to know: whether a particular segment develops, is sustainable or decreases in volume, whether it is relevant or not to spend money on it. Target segment can be only a prosperous one that is constantly increasing.
4. Profitability and efficiency of the segment
This criterion is determinative as it gives an idea if the work on a chosen segment will be profitable for the company. The following metrics are taken into account: net income, return on investment, an increment in profit. Everything depends on company's specificities.
5. Protectability of the segment from competitiveness
If main competitors are concerned with your goods promotion within a chosen segment and make efforts to protect it, you should be ready to bear extra charges while working with the same segment or find another one, less interesting and attractive for your competitors, where their press will be weaker.
Answer the following questions:
- Who can become your competitor within a chosen segment in future?
- What are strengths and weaknesses of your competitors?
- In case the competitiveness is not high, will the segment be preferred as a target one?
- Which areas of activities should you work harder in to develop your strengths and eliminate weaknesses?
6. Working efficiency within a chosen segment
You should make sure that your company has the necessary experience for working in the chosen segment, whether the staff can update and improve the goods according to the needs and preferences of the consumers; and if the product is ready for competition.
Besides, one should decide if the company has enough resources for working in the segment.
Now, when you are acquainted with the customer segmentation strategies, requirements and criteria, it's high time to learn how to perform it step-by-step.
8 steps to perform segmentation
Step 1. Choose the segmentation strategy
We have introduced 4 most popular strategies. Do not try to combine them all at once. It's better to concentrate on one particular strategy, depending on your type of business.
Step 2. Look for market niches
Identify your target customers, analyse the key competitors, your strengths and weaknesses in comparison with them.
Step 3. Describe all the segments
Characterise your audience according to every criterion, specify the number of competitors in the niche, describe the behaviour model of a customer when choosing, buying, using a product, define price sensitivity.
Step 4. Estimate every segment's size
Define the potential, available and the actual volume of every segment.
Step 5. Estimate segments' perspectivity
Analyse potential demand in the niche, the number of sales, income, competitive conditions.
Step 6. Identify the target segments
Choose the groups with the highest priority that are likely to bring the maximum profits to the company.
Step 7. Develop the positioning strategy of the product
Positioning is the marketing process which allows to define competitively profitable position of the company in the market. It helps to discover direct and indirect competitors. Positioning is essential for markets where the product's characteristics are a reason while making a choice.
It helps to explain a consumer the following:
- Who is this product oriented toward?
- Which client's needs can the product satisfy?
- How does your company's product differ from the competitors' one?
- Why is it profitable for a consumer to buy your product?
- When should a customer use your product?
You have a distinct positioning strategy in case a customer can answer all these questions while examining your product or its advertisement.
Step 8. Create a marketing plan for every target segment
Create a step-by-step plan for every segment that will realise your business tasks. Your plan is to be real to achieve and predict possible difficulties.
You can easily segment your mailing lists in SendPulse. Segmentation is available for free. Create and save as many segments as you wish.
Do not miss a chance to send highly personalized emails! Read this step-by-step guide on how to segment customers in our service.
Published: 05 Mar 2018 Last Updated: 25 Sep 2018
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