Customer Segmentation: The Key to Retaining Loyal Customers

Customers are individuals, each with individual needs and interests. Approaching them as individuals will vastly aid your marketing efforts and increase loyalty to your business. Of course, outside of specific customer service situations, it’s not always practical to address customers purely one-on-one, but through segmentation you can create groups of customers with similar qualities and tailor your communications to appeal to each group.

Segmentation is an absolute must for any business that wants to improve its marketing and develop closer relationships with customers. This article will explain customer segmentation and its many benefits to your business.

What is Customer Segmentation?

Customer segmentation involves the grouping of customers according to certain similarities they share that differentiate them from other groups of customers. Segments can be based on all types of data, including purchase history and spending habits, typical spending amounts, length of time as a customer, and more. You can also segment customers based on demographics, which include age, gender, religion, ethnicity, household size, and other factors. Geographical location can also be an important customer segment.

The purpose of customer segmentation is to enable you to interact with, and understand, your customers in greater detail. This means you can target your marketing with more precision and handle customer service in a more informed manner.

How Does Customer Segmentation Improve Marketing?

Most people today feel that they receive too much email, and most of them aren’t interested in the majority of what arrives in their inboxes. Email newsletters are still the most effective marketing channel for eCommerce, so it’s vital that you create emails that can be heard above the crowd. If customers receive emails they’re not interested in, at best they’ll start ignoring you — and at worst, they’ll report you as a spammer, which can hurt your ability to send out communications at all.

If you only send out a single version of your email newsletter, you’re using a one-size-fits-all approach to your marketing, and your materials are much less likely to resonate with your customers on the same level as they would if they were better targeted. By contrast, an intelligently-segmented customer base opens up new opportunities for you to create different marketing materials to target each segment. This way, you can provide relevant content to every subscriber.

Competent use of customer segmentation will also help you target your paid advertising more efficiently, especially when used together with the large amounts of data you can access through platforms like Facebook. Facebook displays ads dynamically based on several factors from the customer’s age, gender, and location all the way down to their browsing history. If you have a great understanding of your customer segments, you can create the perfect ads to use with Facebook’s high-level targeting capabilities — ads guaranteed to speak to the customer on a personal level.

Understanding and Creating Your Customer Segments

Creating well-thought-out customer segments requires a business to analyze a lot of information and identify what variables could mark important segments for their industry. The data you collect on your customers can be almost any possible variable, but you need to prioritize which variables would make the best segments for your business’s needs.

For example, an apparel store could benefit from geographical segmentation because this would enable them to target customers living in different climates with marketing focused on different types of clothing. The business could send different email promotions on winter clothing to customers in Florida versus customers in Alaska. Floridian customers could receive discounts on light sweaters and cardigans, while at the same time, Alaskan customers would be offered discounts on snow jackets.

Our hypothetical apparel retailer could also use geographical segmentation to offer different products to customers based on regional styles, or use age demographics to target younger customers with different styles than customers over 65. In both these cases, the customer segments represent different types of customers likely to have differing interests in clothing.

Customer segmentation can involve as many data points as necessary. Segments should always be arrived at through researching and analyzing your market and the behavior of your customers. The more information you have at your fingertips, the better, so make use of every reporting and analytic tool available in your online store’s Shopping Cart Software.

The Relationship between Customer Segmentation and Loyalty

The last thing a customer wants is to feel like they’re “just a number” to your business. Segmentation helps you create a personalized approach that makes customers feel like you understand them. This in turn makes them feel valued, in part because you “know” them well enough to send relevant promotions that don’t waste their time.

The ability to approach customers at a more personal level, is an enormous help when providing customer service. Instead of perceiving you as trying to sell to them, they start to see you as trying to help them — and this is very powerful for turning a potentially-negative interaction into a positive one. Customers don’t tend to forget how you handle their past issues, so outstanding customer service can often gain you a customer for life, even if it started off on a bad note.

Segmentation also helps your business identify which customers are going to need additional nurturing; for example, new customers versus established customers, or happy customers versus customers with a history of opening angry tickets. With this information, you’ll be more prepared to handle customer service and quickly identify which customer issues may need to be escalated immediately. To refine these segments even further, compare the customer’s purchase habits, including their order frequency, average order value, and the number of discounts and reward points they use. This way, you can instantly identify the cost of maintaining relationships with these customers, so you can better allocate resources and time.

Another benefit of customer segmentation is a bit of a crossover between marketing and retention: by understanding your customers and their interests, you can introduce services and perks better-suited to your customers than any similar services offered by your competitors. These can include everything from shipping options to loyalty programs and more. If you can meet a customer segment’s needs exactly, the decision to shop from you instead of your competition will feel like a no-brainer.

Good use of customer segmentation will also give you useful data that can help you structure your loyalty program. Segments can inform your decisions as to where to place loyalty tiers, e.g. how much a customer needs to spend to become a VIP. This way, you can ensure customers are moving up through the tiers at the pace you prefer.

You can also use segmentation to find weaknesses in your loyalty program. For example, you want your customers to feel as if they’re actually earning rewards at a good pace to prevent them from losing interest. If you have a number of customers that make a few early purchases and then seem to disappear, this could be a sign that they’re getting discouraged. To help draw them back, you could offer bonus reward points to this segment — or if it’s happening very often, rework your whole loyalty program to feel more rewarding.

Main Takeaways

Customer segmentation is a crucial part of your marketing and customer service, as well as your whole business strategy. Discover your customer segments by analyzing all the information you can, including demographics, geography, psychographic and behavioral tendencies of each customer, and group them accordingly. Then, learn which segments to prioritize by comparing each segment’s sales with the market. This will tell you, who your most valuable customers are so you can better use your resources — and can also help you identify customers who may be too expensive to maintain.

Use customer segments to enrich your marketing practices, your customer service policies, and your loyalty program to ensure you’re offering value to every customer, no matter how different they may be from one another. Always continue developing your segmentation, in case you can further refine your groups, too. By viewing new information with an analytical eye, you’ll be able to seize new opportunities before your competition beats you to it– and in the process, gain customers for life.

More About The Author: Jimmy Rodriguez

jimmy-rodriguez-3dcart_finalJimmy Rodriguez is the COO and co-founder of 3dcart, an ecommerce software to build SEO-friendly online stores. He’s dedicated to helping internet retailers succeed online by developing digital marketing strategies and optimized shopping experiences that drive conversions and improve business performance.

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