What Is Customer Segmentation?
Customer segmentation is a business process that involves the division – or segmentation – of customers based on shared features or interests. Businesses then use the characteristics of each segment to create effective, highly targeted marketing campaigns that help them stand out in competitive industries.
Segmentation enables companies to determine how each shopper relates to another – i.e., how similar the shoppers are – and use the similarity to maximize the value of each consumer. Further, the business strategy improves brands’ ability to organize, manage, and engage with their customers through efficient resource allocation.
Finally, segmentation streamlines the support process through tailored, personalized advertising, resulting in higher conversion and loyalty rates.
Why Is Customer Segmentation Important for Customer Service?
Customer segmentation is critical for customer service in countless ways. At its simplest, the method allows marketing, support, and sales departments to engage with each customer in the most effective, valuable way. However, market segmentation offers several other benefits for companies, including:
1. Enhanced Customer Care
When companies incorporate market segmentation into their business models, they use detailed analytical processes to identify the critical factors that divide their customer base. While subtle, these characteristics define customers based on factors like age, religion, family size, social class, personality, and more.
As a result, customer support departments can tailor their care to suit each customer. For example, some may prefer live instant messaging and early access to a sale or a free product as a way to resolve a complaint. Others may prefer a phone call, an apology, and a complimentary replacement product.
2. Improved Customer Relationships
As businesses learn more about their customers, they can apply that knowledge to customized communications, highly engaged advertising, and more. Customers then feel seen, understood, and included by the brand, resulting in heightened feelings of loyalty and trust.
3. Increased Sales and Profits
Ultimately, companies work to understand their customers, improve the customer experience, and enhance their products and services to increase their revenue. Leveraging market segmentation data can substantially increase sales, subscriptions, and registrations by aligning marketing efforts to solve specific problems or fulfill certain wants and needs.
How to Segment Customers
Before you begin segmenting your customers, you need to gather customer data and analyze the information for patterns. Additional data, such as marital status or occupation, may need to be acquired through interviews, surveys, or focus groups.
To segment your customers, consider the four following steps.
1. Creating Segmentation Objectives
Take time to consider what you hope to accomplish through segmentation before beginning the process. Some companies want to use the customer data to engage with their customers more effectively, while others want to learn more about their most valuable clients. Still others want to test new marketing channels, create targeted ads to convert, cross-sell, or upsell consumers, or target business-to-business segments to expand their market share.
Regardless of the reason, clarifying your goals will improve the effectiveness of the method and enhance the learning experience.
2. Determining Segmentation Groups
Determine your segmentation groups based on your goals. For example, if you want to increase the sale of hiking boots in New England, you can segment customers based on location. Other groupings include:
- Marital status
- Website activity
- Online engagement
- Customer lifecycle stage
- Customer satisfaction ratings
- Average purchase value
- Support needs
- Product features
3. Develop Targeted Outreach Plans
Finally, use your customer data to develop highly targeted messages across relevant communication channels.
For example, you may make personalized telephone calls to customers over 65 during the holiday season to inquire about their shopping experience. Alternatively, your customer support team may send out text messages to younger shoppers after their first purchase.
Lastly, companies may approach potential business-to-business clients at industry trade shows, conventions, or online professional platforms.
Customer Segmentation for Customer Service Departments
Many people think of marketing when discussing customer segmentation. Despite marketing departments’ regular use of the demographic groupings, customer segmentation can also support customer service departments. Thanks to the information gathered in the segmentation process, agents can provide personalized support that results in higher satisfaction ratings, improved conversion rates, and happier, loyal customers.