Customer Segmentation Primer for the Omni-channel Marketer
Today the marketplace has become so crowded that mass marketing alone doesn’t work in attracting and retaining customers. Also spoiled for choices, customers have become more demanding and expect more personalized marketing messages. This is where it becomes important to segment customers and provide relevant and individualized messaging to win and retain them.
To be honest, marketing is not the only reason that an enterprise needs to segment its customers other uses include:
- Creating a single shared growth platform across marketing, merchandising and stores verticals
- Building corporate insight
- Applying insights into all core merchandising decisions, and
- Delivering growth strategies that competitors cannot decipher (or copy)
And of course the segmentations once “activated (i.e., actions are taken to use the insights), the financial benefits are significant. The following table is an indication of measurable benefits arising from segmenting your customers and acting accordingly:
But it is important to keep in mind that customer segmentation only informs other segmentation and optimization strategies, it doesn’t replace them. Customer insights thus derived when applied, to decision making in the rest of the business areas like pricing & promotions or store space decisions or assortment optimization, ensure that decisions are taken keeping the end-customer in mind. Something that the decision makers forget when they are only looking at revenue & margin numbers or square footage.
So how many ways can one segment their customers? Primarily there are five kinds of segmentations that one can arrive at and find very relevant uses for, in day-to-day decision making:
- RFV — Who is most and least valuable to my business today?
- Potential — Who could be more valuable tomorrow? Where is the growth?
- Lifestage/ demographic — Where are my customers in their lives? What are my customers needs, transition points?
- Lifestyle — What purchase patterns do my customers have? What are my customers’ needs?
- Mission — What type of trips does my customer take?
Each of these segmentations find applications in various areas of an enterprise, both when used alone or along with another segmentation. For instance, RFV helps us identify ‘core’ customers whose business must be protected and potential allows us to develop customers with the greatest $ potential. Both are different but can also be used together like one lens on top of another. You may want give to different treatment to ‘core” customers with high potential vs. ‘core’ customers with low potential.
Similarly, you can layer Lifestyle with Lifestage and ensure that Mom & Baby (Lifestage segment) customers who are Brand Conscious (Lifestyle segment) has a choice of branded baby supplies when they visit your physical or online store.
For a retailer or a CPG company, all these segmentations find various uses in tailoring assortment and layout, promotions, and pricing strategies. For instance, companies can understand Priority segment performance by brand to understand brand listing/de-listing opportunities. One can also apply customer-centric receipt marketing based on potential segmentation: Spend stretch threshold based on customer’s $ potential or encourage low trend customers to make repeat purchase.
The segmentations once arrived and agreed at, underpin the overall customer journey from attracting ‘new’ customers to driving sales of existing customers to reactivating lapsed ‘in-actives’.
With exabytes of data being produced every day, there are probably infinite ways to segment your audience — but these five are a great place to start.
And, of course, it’s critical that segmentation efforts be fed with high-quality customer data that’s as near real-time as possible. To learn more, give DataXylo a call.
Originally published at zylotech.com on February 28, 2017.