Customer segmentation is a process of dividing your clients (or potential customers) into groups with similar characteristics. For example, you have a shoe store. You can divide your clients into such groups as: male and female, those who like sneakers or who prefer classic shoes, etc.
How does customer segmentation help?
Segmentation is a tool for behavioral analysis. It can be useful in the customer insight (understanding of the customers' behavior) or in development of the strategy of interaction with customers. It is usually combined with other tools and strategies, as data analysis, ABC, etc.
If you divide your customers into groups by their behavior.
First, you can get a better idea of what your customers want in general; second – find the right approach to the customer groups.
This looks really good in theory, let's proceed to practice – I’d like to tell you about some tips in the process of customer segmentation.
5 rules of customer segmentation:
Rule 1. Customer segmentation must have a goal
Segmentation should be applied and have a specific goal, for which customers should be divided into groups. So, the first step in segmentation is preparation: you should understand what for are you doing customer segmentation.
To set up a goal for customer segmentation you should answer on several questions:
What? Analyze your customers’ needs. Will you be able to fulfill their requirements?
Who? Define your target and find your audience.
Why? What is your purpose? Do you want to change your management strategy? Attract new customers?
Where? What hosting do you use or going to use? Where will you put your commercial?
How? Can you get the statistics? Into what groups will you break your customers?
Rule 2. Customers should be divided into “correct” segments.
The "correct" customer segment is a group of customers with similar characteristics, which differ from those of other customers segments.
According to statistics, the segment data must be:
- Representative. Segment should be big enough, so the company has benefits from interaction with it.
- Measurable. Customers segment should be measurable in its behavior. Choose those segments that you can exactly define. For example, gender of a buyer, his shoes and clothes size, preferred brand of clothing, income.
- Available. You should have an opportunity to get the data you need. There supposed to be a way to collect data about your customers. For example, a site survey to monitor the statistics of purchases or check the customers' wishlists.
Rule 3. Choose the right method of segmentation
Here are several methods of customer segmentation:
This type of segmentation is the most common in the Internet-marketing. For example, you have a restaurant business, and you can choose to focus on local geographic area to achieve the main audience.
Gender, age, income, housing type, and education level are the most common demographic criteria for customer segmentation. Some brands sell only for man or for woman, for kids or for grown ups, for students, for housekeepers, etc.
Time segmentation is highly effective for seasonal products like skis or flippers. Or you can use this kind of segmentation like that: your customer support works an hour longer than competitors or you are running a service on weekends.
This kind of customer segmentation is based upon multivariate analysis of consumer attitudes, behavior, emotions and interests. Behavioral segmentation includes visits, shopping, calls from customers. With the help of special software you can analyze on which pages your customers stay longer.
Analytical methods includes ABC analysis, cluster analysis, discrete choice are meant for advanced users. This group of methods requires special skills but they are exact and reliable.
There are various options in customer segmentation. As a result of the application of each method, we obtain different results. For the better results you can combine several methods.
Previously very popular segmentation was by socio-demographic characteristics. But the client segmentation by behavioral is becoming more and more popular nowadays.By using this method you are able to improve your sales funnel and optimize your store navigation.
Rule 4. Garbage in – garbage out
As simple as it gets, if you have no representative data, no deep knowledge in marketing - your targeting strategy won’t be as good as you want.
Sit down. Take a pan and piece of paper. Describe your goal (of course, it should be achievable). It’s the most important part of planning, if you understand the purpose of segmentation, you are halfway through.
Another issue is to collect the right data. Data is the basis of customer segmentation, it should be relevant, consistent, complete, sufficient and properly selected. To obtain applied and "correct" segments, input data should conform to the rules described above.
There is one more tip: do not be afraid of changing your strategy by digging deeper in understanding of your customers’ behaviour. If you need to change something, that doesn’t mean that you have a mistake. Give your issue some time and then give it a fresh look.
Rule 5. Don't wait too long
Several years ago I bought my very first laptop. On the lid of the laptop there was a sticker - “Windows” logo. Soon it began to come off when I put my laptop in a bag - it was annoying - and I stuck it on the phone. My colleagues paid attention to it and laughed at me. "Hey! It’s “Windows” in your phone!". Back then it was really funny.
Even if you not technomaniak, you won’t be surprised if you see smartphone with “Windows Mobile”.
Why did I tell you this story?
My point is - you should understand that our world is developing really fast and you can miss the goal if you will not use your data soon.
So, this is my vision of the customer segmentation. What other methods do you use? Feel free to comment!