Segmentation – What is it? Do I need it?

Let’s start with a definition. In the ‘Why does my small business need CRM?’ article, we

began to explore the idea that different groups of customers will be motivated by different elements of your business or by different product or service offerings. In the article about the customer journey (Why looking at the customer journey is essential), we started to

understand how these different groups of customers will interact with your business in different ways. In this article, we will explore these concepts in more detail.

One of the biggest mistakes businesses of all sizes make is that they treat all of their customers as one big group; I’ve heard people in big companies say things like ‘our customers do ‘x’ as if they all do the same thing. One of my clients when discussing the creative for a direct mailing with me, suggested an image that they thought would appeal to ‘the customer base’. I explained to them that as a member of their customer base, that particular image didn’t appeal to me; it wouldn’t capture my interest and I would probably have thrown it away before trying to understand what they were trying to tell me. Instantly, the 60p spent on that piece of direct mail would have been wasted!

Whilst some large businesses are at the stage where they’re communicating with their customers on a one-to-one basis, which works extremely well, it requires the skills of an analyst to create algorithms to identify the best message, product or service for each customer. Small businesses can still use segmentation to make their marketing campaigns more successful simply by identifying ‘clusters’ of customers who share the same traits or behaviour patterns. Segmentation is even more important when it comes to email communications; with our inboxes becoming more and more crowded, it’s easy for customers to hit the delete button or worse, unsubscribe.

Now of course, it can (but not always) take more effort (and budget) to segment your communications but often the cost of NOT doing this is greater. i.e. that glossy mailing that goes straight into the bin or the lost opportunity to communicate in the future because they’ve opted out of communications altogether, even more important in light of the new GDPR regulations which came into force in May 2018 which make it extremely difficult to reconnect with those customers in the future.

Let’s look at what segmentation looks like in practice…

The same principle should be applied to e-mail even though it is a much cheaper channel. In some ways it is even more important to make sure your e-mails are effective because it’s easy for customers to delete them or even worse, opt out of them all together which means you’ll never be able to contact them again, so you’ve lost not only this sale but all future sales as well!

Where do I start?

So now we understand the principle of segmentation, let’s discuss how you could start creating more targeted communications for your business. There are a number of different ways to approach segmentation. You could start as simple as creating two groups; new and existing customers and considering the different ways that you will need to speak to these groups of customers:

• New customers – may not have used your company before, so you will need to make sure that this initial contact is very positive to either convince them to use your company over one of your competitors, you’ll need to explain your product/service in detail so that they have all of the information they need in order to make a decision about whether they want to do business with you.

• Existing customers – assuming that the previous contacts have been positive, you’ll need to make sure that the contact is consistent with previous contacts but they will need less convincing to buy your products or services; they already have an understanding of your offering.

Once you start to learn more about how your customers behave, you can start to refine your segmentation. Big companies will ‘mine’ their data to look for patterns in the ways customers behave. E.g. Do customers of a similar age spend/behave in a similar way e.g. are younger customers more likely to interact online or through your social channels whilst older customers prefer telephone or face to face contact?

Grouping customers according to their value…

Another simple way to begin for all companies is to consider splitting customers based on how they shop using the RFV method:

Other ways to group customers

Demographics - This is one of the most basic forms of segmentation, but depending on your business, can be one of the most insightful. Understanding how different age groups respond to your business or how they like to be spoken to is very powerful

“Personas” or “Psychographic” Segmentation – This is where pen portraits are really useful. Imagine having a detailed profile of each of your customer groups, so you can not only understand how they interact with your brand and which products or services they're interested in, but also what their interests are outside of your business.

Let’s explore pen portraits in a bit more detail. They can either be used to describe your ideal customer or a typical customer in each of your segments, so you can tailor your efforts in attracting them or can be used to identify the different types of customers you currently serve and get a better understanding of their different needs. Use stock images to bring these customers to life. Meet Kelly…

So, what would you do with this information…..?

o Kelly is a regular customer, she’s visited 3 times, so you can assume that the interaction with your business has been positive.

o Not only do you need to keep Kelly happy but you need more customers like Kelly!

o Why not get her to share her experience at your salon with her friends (there could be a reward for her if she brings a friend in with her on her next visit)

o Why not ask her to share her finished hairstyle on Pinterest (making sure of course to give your salon a mention!

Make sure you send Kelly a card on her birthday (you know when this is because you asked her when she first visited)

This picture will help you to understand your customers and what problem your business’ product/service solve for them or how they make their life easier.

In summary, segmentation is simply about grouping customers together based on specific criteria and help you improve the performance of your e-mail campaigns, identify your high value customers who can become great ambassadors for your business and help you to gain a detailed insight into the behaviour, and needs of your customers, making your communications more personal and engaging

Each style of customer segmentation carries has its own benefits, the best insight will be gained from a combination of these and not just for larger businesses. Customer segmentation can benefit marketers in both small business start-ups and small businesses too.

Get in touch for help understanding your customers and their behaviour and help with grouping them together to maximise your marketing efforts.