Understanding Your Customers
A Primary Approach to Customer Segmentation
Businesses nowadays are becoming very customer-oriented. Companies want to serve a personalized experience to their customers by knowing their habits, spending traits, how they interact with the company, what are their demographics such as age, gender, religion, etc. This all information will, in turn, help the companies in improving customer experience, customer loyalty towards the company and hence the ROI of the company. One may want to know what a 20-year-old boy would want in an apparel store in comparison to a 40-year-old man. Knowing in advance what your customer would need or desire is often helpful in gaining your customers’ trust. This whole process of dividing the customer base into small segments is known as Customer Segmentation.
What is Customer Segmentation?
Customer Segmentation is a technique to divide customers into small groups based on their unique characteristics. Segmentation is used to narrow down the target customer base and allows businesses to use their resources for marketing campaigns effectively, hence achieving the business goals. The characteristics taken into consideration are majorly on the demographics(age, gender, etc), psychographics(lifestyle, social class, etc), geographics(where do they work or live) or behavior (spending habits, consumption, etc ) of the customers.
What are the different types of Customer Segmentation?
● Demographic Segmentation
Demographic Segmentation divides the customer base according to their age, gender, occupation, ethnicity, religion, nationality, etc. Knowing customers’ age, gender, religion, nationality, the company can divide its customers into small groups according to these attributes.
● Geographic Segmentation
Geographic Segmentation divides the customer base based on their geographic traits. Where does the customer live? Where do they work? What store do they prefer? Knowing the right geographics about the customer is very helpful for building a loyal relationship with the customers.
● Psychographic Segmentation
Psychographic Segmentation considers a customer’s traits, lifestyle, attitude, beliefs, social status, etc while segmenting the customer base. This segmentation is mainly used to know the product perspective in companies’ different groups of customers.
● Behavioral Segmentation
Behavioral Customer Segmentation divides the customer according to their behavior patterns as per their interaction with the company, purchasing behavior, occasion/frequency, visit habits, etc. This segmentation helps us to understand the customer needs and desires, thus enabling one to design a smart marketing strategy to improve their business.
Segmentation is done after collecting & cleaning all the customer-related data into a single data table. This data table is known as ‘Customer Single View’.
Understanding More about Behavioral Segmentation
Behavioral Segmentation Analysis of a Leading Movie Theatre Chain:
Let us now understand Behavioral Segmentation in detail with the help of an example of an analysis of a Movie Theatre Chain. The Customer Single View of this company has already been made. Customer Single View contains all the necessary attributes of a customer required for the segmentation.
Others capture visit habits such as experience, preferred group size, activity status, bills, sales, etc.
There were a total of 64 different characteristics captured for every customer. From the above representation, one way to segment the customer base is based on whether the customer has purchased F&B with a movie or not. Diving deep in this segment, we can also divide further the customers based on their spending on F&B (i.e different buckets can be created). Another dimension to segment the customers is whether the customer is a weekend person or a weekday person (Here, the buckets are based on the preference of a customer).
For example, a customer who has watched more than 75% of movies during weekends may prefer weekends over weekdays.
The final segments for this analysis are shown below:
After segmenting the customer base based on the above-mentioned parameter, more than 343K micro-segments were formed. These segments gave us a very detailed view of customers’ including but not limited to choice, interest, spending habits, and frequency of visits.
For example, the company will be able to run a marketing campaign for customers who prefers afternoon shows during a weekend, prefers to spend medium on F&B, visits every month and prefers a super premium class of seat while watching English language movies.
Conclusion:
Customer Segmentation is very helpful in the Retail Industry. The industry numbers suggest a prime benchmark of 3.5% to 4% of incremental sales. This can be achieved by appropriately segmenting the customers and giving them what they want.
Additionally, customer segmentation helps companies to strategize & build their marketing campaigns around an optimal audience and execute it effectively, hence increasing and improving their business goals and gaining more ROI. In a way, customer segmentation is the first step to customer satisfaction.
There are a few other different types of segmentation methods available for customer segmentation. One of the famous techniques using python is K-means Clustering.
