Everything you need to know about customer segmentation

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You might have a lot of questions about customer segmentation. Good news: we have written extensively about it. As a business grow, it becomes impossible for staff members to know all their customers, especially if the business grows online. 

Before reading further, you might want to discover how datainsightout can help you build a customer segmentation.

Why customer segmentation is important?

Serve better your customers

The ultimate goal of a customer segmentation is to meet the customers' needs and serve them better, based on what you know about them.

By segmenting your customer database, you keep relevance in adressing your customers. These clusters have the same profile, present the same characteristics. You will get their attention and get increased response rates and conversion. Your customers won't be bothered by untargeted emails or phone calls. 

On top of this, you show them you care and know them. You understood their needs, who they are, what they want. Imagine a DIY retailer chain. Offline, a top customer comes to the shop every week to buy things to fix his houses and flats. They will want the seller to recognize them and address them as semi-professional. You should acknowledge their experise. This deep customer knowledge is key to success, whether your operate online only or not. 

You can also align the right amount of customer support. It you know well your customers, you might want to put just the right customer service for each of them: top profitable customers get the premium customer service support, when occasional customers might get redirected to online marketing support. 

Keep costs low

By adressing a targeted group of customers, segmentation helps reducing the marketing cannibalization. Maybe you don't want to send vouchers to customers who would have anyway purchased at your shop. 

Segmenting your database also helps you scaling your marketing and sales actions by targeting a group of customers have the same needs. One targeted marketing campaign addressed thousands of customers. 

Approaches to segment your customer database

Segmenting by identifying similar behaviors

Behavioral segmentation assumes... nothing. It's based on hard facts and data. This is based on the attitude of customers and prospects, hence gives a pretty neutral and insightful perspective on them.

When it comes to segmenting, there are plenty of techniques out there. Let's take for instance the RFM segmentation. Recency, frequency and monetary clusters your customers based on their past purchasing behaviors to your shop. This is independant of who they are, where they live or their income.

Extended behavioral segmentation

You can also enrich RFM and decide to add other behavioral metrics. Recency, Frequency, Monetary are just the 'basics'. Here is a how to build technically step by step a customer segmentation.

Add a consistency metrics which would show how regularly a customer did purchase: E.g. a frequency of 10 over 12 months would mean 10 transactions in 12 months. But did he do these 10 transactions, once per month over a period of 10 months or were they cumulated over 3 months only?

Engagement could be measured: Adding the information, per customer, of the number of pages viewed per visit, their bounce rate, time duration or others. You can be creative and add behavioral metrics. It all comes down to the nature of your business and the actions you want to drive.

Segmenting with demographics

If you sell special kits to make marmelades, you might want to know who lives in a house with a garden and trees - as they cook much more marmelades pots a year than those who live in town and might just prepare 1 or 2 batches a year. 

Is your customer a man or a woman? Can you capture at sign-up of checkout its date of birth? Where do they live? Some of this information is relatively easy to collect via online forms. Enriching a customer database by purchasing data might be more expensive.

All segmentation types

Behavioral and demographics are just two types of segmentation. However, it exists many types of customer segmentation.

Customer segmentation per domain of activity and channel

Multi-channel users

You might wonder what would mean customer segmentation for an eCommerce website. In the case of multi-channels, online and offline, retailers, you might want to understand who are the customers buying only online, those buying both online and in your shops, those who purchase online and pick-up in store and those who only buy offline. For each group of customer, you might pursue different goals and want to drive different actions. 

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I want to segment my customers

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