What is cosumer segmentation?
Understanding that each consumer is unique necessitates the development of a loyalty marketing plan. Each individual has unique needs, preferences, communication routes, behavior, and emotions. When trying to scale your business, approaching all of these distinct people as one via mass communication is a massive mistake. Customer segmentation is important to your success. But what exactly is consumer segmentation, why is it necessary, and which models should be considered?
1. What is the definition of consumer segmentation?
Client segmentation is the practice of dividing a company's customer base into particular categories in order to provide more effective communication and a more personalized experience. These segments can be based on one or more common factors shared by clients, such as demographics, psychographics, preferences, or even behavior.
Customers, for example, can be segmented based on demographics such as age, gender, or location, and then these characteristics can be combined with preferences such as how they want to be contacted, in addition to account history such as the number of transactions made in the last few months or their lifetime value. You can make your segments as simple or as comprehensive and granular as you want.
To define a customer segmentation plan, your company must first determine who your target audience is, as well as their demands and behavioral trends. This will enable the proper allocation of budget and resources to give more targeted communication and accelerate the growth of your organization.
2. What is the significance of client segmentation?
Creating a client segmentation plan will provide numerous benefits to any firm. Here are some reasons why client segmentation should be prioritized:
Increased communication effectiveness
Brands that understand the value of consumer segmentation have the best chance of succeeding. The messaging should not be the same for a 20-year-old female and a 60-year-old male. A thorough research of your clients will result in a more tailored experience that takes into account the segment group and the channel through which they are being communicated. This, in turn, will result in better response rates and engagement.
It is also necessary to determine how many times per day and how many days per week a consumer should be contacted. Optimizing communication time will prevent overcommunication and the subsequent loss of customer confidence.
Increase marketing ROI
Customer segmentation also aids in the allocation of internal people and capital resources. Companies can decide which groups will be more and less profitable, as well as which require more or less attention. As a result, your revenue will increase but your customer base will remain stable.
Increase the lifetime value of your customers.
Improving the customer experience leads to higher levels of engagement. The objective is then to sustain this involvement over time. Custom offers customized to the tastes of specific groups are one method for accomplishing this. This, along with rewarding their devotion to your brand with incentives (coupons, rewards, or promotions), all contribute to gaining a larger percentage of your members' wallets and spending.
While most organizations focus on rewarding and retaining their top-spending customers, it is critical not to overlook your failing members. Those who have previously given the company a high benefit and whose purchasing habits have declined over time can be given extra attention in order to entice them back to their old spending patterns.
Personalizing these communications based on loyalty groups and/or trends improves customer service and the way the organization supports client loyalty and retention.
Product enhancements
Understanding what motivates people to purchase your brand's items allows you to better adapt offers to client demands. This will increase consumer happiness and, as a result, develop brand evangelists. What could be better than a satisfied consumer referring your company to their friends?
Distinguish your brand from the competition.
All of the consumer segmentation benefits discussed above help your company stand out from the crowd and prepare it to respond to any and all market developments. Clients can be impulsive, with erratic opinions, conduct, and wants. Implementing consumer segmentation entails anticipating future trends, recognizing the clients' new objectives, and responding to them.
3. Implementable strategies for consumer segmentation
Before you begin your client segmentation journey, ask yourself, "What is the goal?" What are your brand's distinguishing features? How many marketing team members will be involved? Once this is established, your attention will be drawn to your customer base. Some duties could include assessing the size of the audience, the number of potential segments required, determining which customers would spend more and which will spend less, and so on.
Then, decide what data must be gathered and how it will be gathered. Remember that this information is critical for segmentation and will serve as the foundation for marketing campaigns and activities. To carry out any of these segmentation tasks, you must have access to the most critical component of all... the data!
Data can be collected at many stages of the loyalty lifecycle, whether necessary at the time of enrolment or optional after the fact, in the form of a survey. Clients will now provide all information directly and voluntarily. This is referred to as zero-party data.
Furthermore, these data points can be aggregated into segments. It is best to begin with a broad emphasis and gradually narrow it down over time. AI and ML can do wonders for uncovering and analyzing behavior and patterns, as well as freeing up time and resources for your employees. Set up the core plan to keep and gain client loyalty while developing these consumer segmentation models, and then focus on gaining new ones.
4. Modeling customer segmentation
Customer segmentation models are the various methods in which a corporation divides its customers. There is a vast range of consumer data points to examine in loyalty, but the most relevant throughout the industry are:
Demographic
Demographic segmentation is the division of clients based on their social traits as members of the population. Age, region, gender, and birthday are a few examples.
Psychographic
Psychographic segmentation takes into account a person's personality, attitudes, goals, interests, and values. For example, in fashion client segmentation, the audience might be split based on their size, favorite store, product, and even concern for recycled clothing. It will be more fascinating for a Veterinary clinic to know what kind of animals their clients have at home. Each industry will have data points that are more essential to its specific firm.
Customer conduct
Client behavior is one of the most significant factors to consider when creating customer segments. This division will provide a more in-depth understanding of client patterns, habits, and product usage. The overall amount spent on transactions, the total number of transactions, the date of the most recent purchase, the number of points spent in the previous month, the number of redemptions completed, and so on are some examples. Customer engagement with the loyalty program can be measured here.
Member activity can now be tracked and patterns discovered automatically. Segments based on customer lifetime value (CLV) trends can be built using artificial intelligence and machine learning. In practice, retail customer segmentation models should focus on targeting their best performers in stores with the highest lifetime value, but they should also send communications and promotions to members who have previously spent a lot but are currently spending less.
Reactions to campaigns
Campaign response segmentation can be configured based on your members' preferences for communication (email, SMS, push notifications, etc.), the channel used to enroll in the loyalty program (mobile app or web portal), or the number of recommendations given to a friend. Another thing to examine for segmentation is the response to the program that awards consumers with different recognition tiers.
Several conditions
Customer segmentation can be applied to numerous criteria at the same time. Companies, for example, can target members based on a basic criterion such as membership type or membership combined with geography and purchase of a specific product. To customize the campaign at its most basic level, the most effective segments are as narrow and particular as feasible to small groups.
Understanding your members' needs, tastes, and behavior is the first step in the customer segmentation process. Defining goals, resources, unique selling points, and critical data points will help your company prepare for all segmentation options. Customer segmentation enables you to target the right customers, who present more profitable opportunities at the right time and in the most effective manner. It will assure their retention and pleasure, as well as the maximizing of sales and revenue.
