Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests and spending habits.
Why is it important?
Companies will not survive if the marketing strategy is dependent upon targeting an entire mass market. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. In the long run, this benefits the company because they are able to use their corporate resources more effectively and make better strategic marketing decisions.
- Marketing efficiency — Breaking down a large customer base into more manageable pieces, making it easier to identify your target audience and launch campaigns to the most relevant people, using the most relevant channel.
- Determine new market opportunities — During the process of grouping your customers into clusters, you may find that you have identified a new market segment, which could, in turn, alter your marketing focus and strategy to fit.
- Better brand strategy — Once you have identified the key motivators for your customer, such as design or price or practical needs, you can brand your products appropriately.
- Improve distribution strategies — Identifying where customers shop and when can informatively shape product distributions strategies, such as what type of products are sold at particular outlets.
- Customer retention — Using segmentation, marketers can identify groups that require extra attention and those that churn quick, along with customers with the highest potential value. It can also help with creating targeted strategies that capture your customers’ attention and create positive, high-value experiences with your brands.
Customer Segmentation Models:
- Classification on the basis of the targeted geographical location.Sub-classifications are self-explanatory. For eg: A company can target customers in a particular state of a particular country.
- Classification on the basis of the client’s demographics.
Note: The client may be a consumer or a business. The same classifiers don’t work for B2C & B2B
B2C (Business to Consumer):
- Age: Divide the customers into different age brackets
- Sex: Target a particular gender
- Income: On the basis of income levels.
- Occupation: Target customers on the basis of their occupation
- Education: On the basis of the highest academic qualification
- Relationship Status: On the basis of the current relationship status and/or relationship history
- Language: On the basis of the language (not) spoken/written.
- Race: On the basis of the racial diversity.
- Ethnicity: On the basis of the ethnicity of the customers. Eg: Hispanics, Indians, Native in the US
B2B (Business to Business):
- Business Lifecycle: On the basis of the age/founding era of the targeted businesses. Possible classifications may be a start-up, established or mature.
- Industry: On the basis of the industry ( and subsequently sub-industry) the business works in.
- Financial: On the basis of the financials of the business. Some classification parameters may be Revenue, Profits, Debt, Turnover, Cash Flows, Financial Ratios etc.
- Ownership/Shareholding: On the basis of the shareholding pattern/ ownership of the business. Parameters may be:
- Publicly Traded or Privately Owned
- Government/Private/Joint Venture
- Market Capital/Valuation: On the basis of the Market Cap ( for a public company) or the valuation( in case of a private corporation)
- Business Model: On the basis of the business model of the companies. Some further classifiers may be :
- Delivery Model: The medium(s) the company follows to delivers the products to its customers.
- Marketing Strategies: The strategy the company practices to increase market presence and market its products.
- Value Chain: The company’s position in the value chain.
Partners: Who are the partners and suppliers of the company?
- Target Customer Segment: On the basis of the targeted/potential customer segments of the companies.
Technology: On the basis of the technologies used or desired.
- Social Media Presence: On the basis of the social media presence of the customers. Some parameters may be:
- Platforms: The different platforms where the customer is present.
Friends & Followers: The number and type of friends and followers.
- Engagement: The social media outreach and engagements. These may include page likes, post likes, comments, and shares, no. of retweets, etc.
- Activity: This may include how active is the customer on the social media.
- Mobile/Desktop: Whether they use mobile or desktop for social media access.
- Social Class: On the basis of the social class of the customers. Social classification may include lower, middle and upper classes
- Personality: Personality is the combination of characteristics or qualities that form an individual’s distinctive character. One may classify on the above basis. Or, Celebrity status
- Lifestyle: On the basis of the lifestyle of the customers. Some may try to target to only those with lavish lifestyles.
- Values: On the basis of the values followed by the customers.
- Intellect: On the basis of the intellectual level of the customers
- Usage: On the basis of the usage pattern of the customers. Parameters may include volume, time distribution, etc.
- Likes: On the basis of the likes and dislikes of the customers based on their past behavior
- Interests: On the basis of the interests of the customers based on their purchases, downloads, browsing history and the topics they follow on the various information channels.
- Spending Pattern: On the basis of the spending pattern of the customers. For eg: Employees tend to be conservative during the month closings and rural sector consumption is seasonal in coherence with cropping seasons.
- Loyalty: On the basis of the loyalty of the customers.Whether the customers tends to stick to a brand or keep on switching.
- Mode of Payments: On the basis of the mode of payments the customer prefers. Some options may be Cash payments, Credit/Debit cards, E-Wallets, EMI, etc.
- Nature & Demand: The customer may belong to one(or more) of the following classes depending on his nature and demands.
- Quality Fanatics
- Price Sensitive
- Brand Sensitive
- Indifferent (Just-get-the-job-done)
Customer Segmentation can be done using any of these different attributes, and thus will never match. This list is no way an exhaustive list of Customer Segmentation either and techniques may vary across verticals and businesses.
If you have an existing dataset of customers, the best approach is to use Supervised Learning to generate probable customer list based on the dataset.
Else, Hit and Trial is the most reliable way to test the waters. Run Cohorts against segments and track these segments over time.
One size does not fit all, so you might also consider different offerings for different customer segments.”