Customer Segmentation: Why Every Business needs This Tool

In today’s market, competition is growing with an unprecedented force. More and more new companies are coming to the market and, of course, trying to reach as many potential buyers as possible. In such conditions, in order for the business to work successfully and develop, it became necessary to introduce new marketing strategies that could win over customers to their side. When mass marketing was no longer effective, customer segmentation marketing strategy has done a great job with this.

What is Customer Segmentation

Over the past few years, marketing has undergone significant changes. To interest a potential buyer, it’s not enough to just make a good product and tell everyone about it. We need an individual approach to each client, to meet the needs of each individual. Undoubtedly, this requires a clear understanding of what a particular client – or at least a particular group needs. This is where segmentation comes to the rescue.

For a small or medium-sized company, it can be difficult to satisfy each client individually. There is no need to talk about big companies – it is simply impossible to meet the needs of each individual client when there are so many customers. But by segmenting customers, you can get closer to your goal.

What is a segment? In marketing, this term refers to a certain group of potential or actual customers with the same type of requests and reactions to the product.

Customer segmentation is the process of dividing the entire target audience into separate subgroups based on certain criteria in order to improve the effectiveness of the selected promotion strategy.

This method allows you to find an individual approach to the target subgroup, so that each buyer has confidence that the company is making them a unique offer.

Customer segmentation involves dividing the customer base into groups that contain similar customers. Identity criteria are determined in accordance with the marketing strategy and market specifics. The main task of a marketer is to identify criteria that are strategically important for business.

The main objectives of segmentation:

meeting the needs of the audience;
improving the competitiveness of goods and services;
optimization of enterprise resources;
focus on growing and profitable segments;
effective communication with clients.

The main goal of segmentation is long-term growth of sales and profit of the enterprise.

Customer Segmentation: How It Works

We are going to give you an example.

Let’s say you sell toothpaste. Everyone uses toothpaste, which means everyone needs it. It would seem that there is no problem – advertise and sell to everyone.

But wait a minute. All people have different needs. Someone needs a whitening toothpaste, someone is more interested in a toothpaste that reduces bleeding gums, and someone just wants a dragon drawn on the package.

Thus, it is not enough to satisfy the basic need. It is necessary to offer each client a product that meets their own needs.

Segmentation is a process that allows you to turn mass mailings into a full-fledged marketing communication.

Even if you just split the contact base into women and men to offer each more relevant products for them, you have already personalized the message, even if only minimally. This significantly increases the chances of conversion.

Grouping can be very diverse and depends on the segmentation criteria. You can divide the users of your product into large parts or, conversely, find small, promising niches for subsequent market coverage. However, this process is dynamic in nature. This means that you need to regularly make changes to your existing segmentation and add new customers to certain groups in a timely manner.

Customer segmentation is the most important stage in developing a marketing strategy and advertising campaign to promote a product on the market. Without segmentation, it is impossible to determine which direction to develop it and which customers to target. The consumer market is an audience whose needs, demands, inclinations, and even incomes differ greatly from each other. Therefore, if you try to reach the entire audience together, you can end up alienating everyone.

Customer Segmentation Types

In the segmentation process, the selection of the correct characteristic plays an important role. In marketing, there are the following types of segmentation:

Geographical. It assumes that people living in different countries, regions, cities, and districts have different requests and reactions to the product due to their distinctive climate, lifestyle, and cultural characteristics.
Demographic. This method divides people by such indicators as gender, age, marital status, education, income level, occupation, etc., which have a direct impact on the formation of consumer requests. This method is the most common and is used most often.
Psychographic groups are groups of clients based on their interests, values, and lifestyle.
Behavioral. It is based on the definition of segments based on the purchase motivation, brand loyalty, and readiness to order a product. This segmentation method is considered the most effective because it can be measured.

Depending on the last type of segmentation, the following indicators are distinguished:

The reason that influenced the purchase decision.
The benefit of receiving a product is a necessity or just a desire.
Degree of use – people who are unfamiliar with the product, and those who have made or can make a purchase. In the latter case, consumers are divided into such categories as former, potential, newcomers, and regular customers.
Frequency of use (the product can be used rarely, moderately and often).
Users’ loyalty to a particular brand (committed, casual, non-predisposed (can go to competitors), and those who are not buyers (with a positive or negative attitude)).
Degree of awareness (familiar or not familiar with the product, interested in purchasing or not willing to buy).

Of course, each of these criteria gives certain results. But they will work best in combination with each other. There is no single correct combination of these criteria. Each company must determine which criteria will attract more customers and make sales more successful.

The following principles will help you find the best segmentation option:

The selected criteria must be related to the company’s sales and revenue. For example, if your product is exclusively aimed at women, then the division by gender is important, since women will bring you more income.
Segment identification should be based on different consumer behavior when choosing a product. For example, low- or middle-income consumers are unlikely to buy premium products.
Segmentation should involve different criteria that can and should be combined.
When segmenting by several criteria, each group must be described by all criteria. This way, you can avoid duplication.

Why You Need It

Given the current market situation, customer segmentation has become more than just one of the possible marketing strategies for market promotion. It has become a necessity if the company wants to remain in demand among customers and develop.

Here are some arguments in favor of this strategy.

The better you know your customers, the better you will cope with the task of meeting their needs.

This tool helps companies better understand what customers expect from a product or service. In addition, the product itself can be adapted to the needs of customers, so that they will feel as if it was created specifically for them.

One of the main ways to use segmentation is to create targeted campaigns for subgroups of clients. By creating personalized content, you increase the likelihood that it will attract the attention of specific people.

This strategy increases the company’s competitiveness.

If you know exactly how your product can meet the most important needs of the customer, and develop an advertising campaign in this direction, very soon you will receive significant increases in sales and, consequently, revenue. In turn, this will increase the company’s market share and increase its popularity. Which means that you can become more popular than your competitors.

Customer segmentation allows you to make an offer to a particular segment at the time when it will be most likely to purchase your product.

Different segments may need the company’s services at different times. And it is very important to make an offer to the customer at the moment when they are most inclined to buy a certain product.

Customer segmentation allows you to improve the product so that it better meets the needs of customers, in turn, increasing their confidence in the brand.

When a company builds a trusting relationship with customers, they will use the services of this company more often. This is due to the fact that the buyer already knows that they have had a positive purchase experience, which means that it will continue to be so.

These buyers are also more likely to be influenced by advertising.

Segmentation by revenue allows to build a point pricing policy.

When a company knows exactly the financial and social status of its potential customers, it can more accurately build its pricing policy.

By optimizing the product price, companies guarantee not only the maximum return and benefit for customers, but also the maximum possible revenue for the company.

Using segments, it is convenient to monitor the growth dynamics of the contact base.

However, it is not the number of contacts in the group at the moment that matters, but how many have been added to it and how many have left it — this is evidence of whether your marketing is developing in the right direction. You can track which channel is most often used by customers in General and V. I. P. customers in particular to pay even more attention to it.

The Stages of Customer Segmentation

First of all, you should start by defining segmentation criteria.

Which of them will be most effective? How many segments can you divide potential customers into? As soon as you decide on the criteria, go to the second step.

The second step is to analyze the clients of key competitors in the market, identify differences and similarities. At this stage, you need to understand what niche in the market you can occupy and how many customers you can reach.

Next, you need to describe each segment in as much detail as possible. The more detailed you describe it, the easier it will be to understand what a particular segment needs and how the company can meet its needs.

After that, you need to evaluate each segment – by size, potential, and prospects.

The next step is to determine which segment of customers can bring you the greatest benefit. This will help you understand which segment you need to focus on more than others.

Now that you know exactly what your potential customers are, you can move on to developing a product positioning and advertising strategy for each individual segment, depending on the needs and requirements of the segment’s customers.

Conclusions

Well, we think there has been said enough arguments in favor of customer segmentation, so it’s time to take stock.

In a highly competitive environment, it is necessary to constantly develop and improve marketing strategies in order to remain in demand on the market.

Today, customer segmentation is one of the most powerful and irreplaceable tools for attracting customers, due to the fact that advertising is not aimed at the entire audience together, but at those parts of it that are different from each other. This approach allows you to identify the most important needs of each segment and effectively influence them, creating a sense of individual approach to each individual client. It also builds a trusting relationship with potential buyers, and they begin to make purchases from certain companies more often.

In order for segmentation to be effective, you must select the correct criteria for each segment. By studying your customer base and directing your advertising campaign to your target audience, you will increase the efficiency of your investments, earn profits, and establish mutually beneficial relationships with consumers of your product.

If user activity in mailing lists increases in proportion to sales, it means that you are on the right way.