Importance of Customer Segmentation

In order to scale effectively and efficiently, organizations should gain deeper understanding of their customers, their preferences and their needs. This enables organizations in having a focused approach towards defined sub-sets of customers. To understand the customer experience properly, organizations first need to understand and accept that each customer is different and their marketing efforts would materialize positively only when consumers perceive them right.

Segmentation is an age old strategy and as per traditional segmentation customers are often grouped under demographic but it has undergone a lot of change lately. Due to more singular and refined customer tastes, businesses now need to take into account that customers have different mindsets and buy for different reasons. Behavioral segmentation is catching trend with segregation based on usability, awareness, occasions, buying patterns, loyalty etc. It finally boils down to being able to tap and influence individualistic buying decisions.

SerenaWay’s research reveals that segmentation based on customer’s mindset and psychology is a powerful way for businesses to redesign functions like marketing and product development around customer needs and have a positive impact on customer satisfaction. This requires directly and in-directly capturing customer data and analytics to better gauge the customers.

This was implemented very well by a Lawn Care Company in the US. They realized their customers in a particular neighborhood were price-sensitive but still were not willing to cut their own lawns. So they segmented those zip codes and only ran a specific ad for them saying advertising cheapest lawn mowing service. This paid off well with 200 percent lift in click through rate and 30 percent lift in on-page conversion.

Another interesting way of segmentation – touch point segmentation which is based on where the customer is currently in the customer journey. Marketing to a customer who made a recent contact with brand is more likely to payoff. In order to achieve such segmentation brands have to have a strong data gathering strategy.

Having a well-defined customer segmentation strategy can provide an competitive edge as it helps businesses in multiple ways like;

Enables in sending out personalized communication and providing personalized experience. This boots customer loyalty.
When companies identify the profit potential of each segment, they can effectively allocate resources for marketing, customer
service and customer experience
Prioritize product / service features and created variants
Determine optimal pricing

To summarize, segmentation allows business to make better use of marketing budgets by effectively allocating resources and gain a competitive edge by displaying better knowledge of their customer base.

This can overall increase your customer base and reduce customer churn through retention providing more value. Hence, in order to avoid “A customer lost is the competitor’s gain”, it is crucial to contemplate on segmentation in- depth.