by Jeff Sauro, author of “Customer Analytics For Dummies“
You know not all of your customers have the same backgrounds, goals, or buying patterns. And beyond simple curiosity, there are many good reasons to drill into how and why they differ. By grouping your customers into segments that share certain characteristics, you’ll not only gain a better understanding of current customer demographics; you’ll also discover hitherto-untapped opportunities for better marketing and product development.
Here are seven things that thoughtful and thorough segmentation enables you to do:
1. Identify the most and least profitable customers.
The Pareto Principle really does hold true: A minority of customers create the majority of profits. Identifying more profitable segments allows you to focus your efforts on keeping these customers happy while increasing their purchases. What’s more, segmenting can reveal underserved customers for whom specially designed and marketed products or services can be created.
2. Improve marketing focus.
Segments often have different interests, values, tastes, and reasons to purchase what you offer. Vastly disparate segments may not respond to the same marketing messages or campaigns. Learning more about what makes each of your customer segments unique will help you to fine-tune your marketing to meet their needs and expectations.
3. Predict future purchase patterns.
Knowing that certain customers are more likely to purchase other products based on past purchases helps with planning and marketing. Think about what happens when you watch shows on Netflix or purchase books on Amazon. These companies tap into segmenting to predict and encourage future purchases with their “recommended for you” lists. This practice is called predictive analytics, and when done well, it can be quite accurate.
4. Price products differently.
Why lose money by reducing prices if some customers (especially your most profitable segments) aren’t motivated by price? By acquiring an in-depth knowledge of customer motivations and gauging how much they are willing to spend (price sensitivity), you can develop more effective pricing strategies.
5. Develop better products and customize products or service features.
Segmentation doesn’t just involve number-crunching — it’s also about interacting with and surveying your customers. Listening to each segment’s feedback can help you to answer questions like:
- Do you lose sales because your product lacks prestige for the target segment?
- Is the product’s large number of features making its price prohibitive?
- Are customers more interested in the competition’s product because it has better features?
- Do you need to develop a whole new line of products?
6. Build loyal relationships.
Fully meeting the customers’ expectations through customized service and uniquely designed products at a price they can afford helps build customer loyalty. In addition, segmentation may reveal what kinds of incentives cause each segment to choose your business over the competition over and over again. For instance, if you own a grocery store, you may find that some shoppers love your “local produce and products” section, while others appreciate the discount you offer when certain products are bought in bulk.
7. Create personas that help you with all of the above.
A persona is a fictional person who represents the characteristics, needs, and goals of a customer segment. They are used to improve product development and marketing decisions. For instance, a persona named Riley might represent a target segment you’d like to grow. Considering Riley as you develop products, pricing, and marketing strategies will help you focus your thinking. Many questions you run into can be answered by considering: Would Riley do this? Would Riley prefer something else? What is Riley going to use this product for? Personas are powerful when they are specific.
Jeff Sauro is a Six Sigma-trained statistical analyst and pioneer in quantifying the customer experience. He specializes in making statistical concepts understandable and actionable. He is the founding principal of MeasuringU, a customer experience and quantitative research firm based in Denver, Colorado, USA. He is an author of four books, including “Customer Analytics For Dummies“.
