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How to Use Customer Segmentation to Grow Your Business


Businesses looking to expand will have little to no luck focusing their efforts on the broad universe of potential customers.

Instead, the key to growth comes from unlocking the characteristics that make up a specific subset of customers and prospects that are most likely to make purchases and remain loyal. And this is where customer segmentation comes into play.

In this article, we’ll outline how to key factors to customer segmentation you can use to grow your business. But first, what is customer segmentation, and why does it matter?

Customer Segmentation: What and Why?

Customer segmentation – also known as market segmentation – is the division or categorization of prospects and customers into distinct groups. The division can be based on a whole variety of features and variables, most commonly:

Customer needs. What does the customer want? Which whole product can satisfy them?Buying characteristics. What are their habits? How do they respond to messaging? Which marketing channels are most engaging to them?How old are they? What stage of life are they in? How do their experiences impact their purchasing decisions?

There are three main types of segmentation:

Classifying customers based on publicly available characteristics, such as demographics, industry, and so onNeeds-based segmentation that is based on findings from market researchValue-based segmentation that can be used by expansion-stage businesses to define and focus on prospects

At the growth stage, a business should focus on value-based segmentation. Why? Because executing a marketing strategy aimed at expansion without an understanding of your best-value customer is like firing an arrow at a target 150 feet away – blindfolded. Chances are, you’re not going to hit a bullseye. You’ll likely end up missing the target altogether.

A thorough understanding of how your best customers are segmented gives you the razor focus you need to allocate human and capital resources in a way that yields the highest marketing ROI.

How to Use Customer Segmentation

Step 1: Foundations

Preparation is critical to your customer segmentation undertaking. Without it, your project will lack direction. Here are some things to consider as you set up your customer segmentation project:

What business goals will the project meet or contribute to? How do they align with your overall strategy?Scope can be defined by either inputs or outputs. Inputs include things like the number of customer accounts to be analyzed. Outputs include things like the maximum number of segments to be created.Key players. Who will be working on this project? Who, specifically, has a vested interest in the project’s success?Does your team have the marketing software it needs to carry out a successful, sophisticated segmentation project?

Once you have defined the above, you can create a work plan. This should be a shared, detailed document that breaks down the project into specific tasks. Each task includes who will be responsible for its completion and a deadline.

Step 2: Analysis

This step is all about developing effective research criteria to successfully undertake the data collection process – criteria that stem from the big question: What makes a customer attractive to your business?

Typically, customer value is defined by cold, hard economic benefit or net profits (or losses) over the customer’s lifetime. But it could be something else. Ask company staff, experts, and stakeholders, and perform a bit of competitor research, if applicable.

Depending on the nature of your business and product or service, you’ll determine a set criteria list or formula for calculating customer value across your market segment.

Step 3: Collection

Now, it’s time to put your formula into practice. Create a comprehensive list of ways you can use the criteria you defined in step two to distinctly categorize your existing and potential customer base. Be as thorough as possible, thinking beyond standard factors.

Then, to collect the data, develop a detailed research plan that outlines where each criterion or variable can be found and the resource and method that will be used to collect it. Once you’ve nailed down the details, you can take action.

“Data has officially become the most important marketing tool… Just by knowing who your customers are on a personal level, you will gain insight into their activities, find out more about your product from the people using it, and learn more about how they’re browsing online.” – Forbes

Just a quick note on data collection – be aware of data without integrity. Look out for the following:

Incomplete dataOutdated dataData that isn’t always standardized, (e.g., profits might be listed as gross profits or operating profits)Data that necessitates qualitative judgment

Step 4: Synthesis

Let’s quickly recap. You’ve set your objective. You’ve determined a criterion that defines attractive customers. And you’ve collected data about potential customers. Now it’s time to synthesize all the information you have – to marry what you already knew with what you’ve discovered through research.

Here’s an example to illustrate. Let’s say you’re looking to increase the number of subscribers to your music streaming platform. Your most attractive existing customers are defined by how long they’ve been subscribed – i.e., you want more customers that will subscribe for two or more years. These are your target customers.

You’ve analyzed your existing target customers and found that the vast majority are 25-35 years old and live in metropolitan areas. You dig a little deeper and uncover than many share an interest in other streaming apps – such as a podcast streaming app.

You use this information to define a look-alike audience, uncovering what your target customers like, what their habits are, which platforms they prefer, and so on. You use all of this data to create a market segment, which then informs your growth marketing campaigns.

Customer segmentation is a key component of the modern marketing process. It helps you to deliver on your demand generation goals by allowing you to focus your resources on those customer pain points that matter most.

The post How to Use Customer Segmentation to Grow Your Business appeared first on Marketing Insider Group.

By: Michael Brenner
Title: How to Use Customer Segmentation to Grow Your Business
Sourced From: marketinginsidergroup.com/marketing-strategy/how-to-use-customer-segmentation-to-grow-your-business/
Published Date: Wed, 09 Sep 2020 08:05:20 +0000

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Written by Michael Paul

Michael is the Founder of the Fuseology Creative Brand and Socialtap. Michael's passion is in seeing and helping small business succeed. Some call him a "local genius" with a knack for uncover and connecting all the dots in chaotic digital world helping it make sense. Whether it is Website development, mobile websites or social media Michael and his team at Fuseology Creative & Socialtap are a great choice.

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