Not all customers are equal — this is a phrase that as a business owner, you should always keep front of mind. It might feel easy to look at your customer base and see them as a single entity that loves your brand and products, but this couldn’t be further from the truth. It can feel daunting knowing how to start addressing your customers at a more personal level, but don’t despair! There are ways and means of grouping your target market and customers together so that you can communicate with them in a more meaningful, relevant way. This, in turn, will have fantastic knock-on benefits to your business! After all, 80% of consumers are more likely to make a purchase when a brand offers a more personalised experience. This post will introduce audience and customer segmentation, and the customer segmentation models you need to know about to help your business thrive.
What is customer segmentation?
Each of your customers is an individual, and that individual is likely to share some important traits or characteristics with some of the other customers in your books. Identifying these key traits, especially the ones that matter most to your business, can help you to group your audience and customers into groups, or ‘segments’. Before you start to create your customer and audience segments, follow these steps to prepare yourself:
- Decide what data you will use to define your segments, and where you will get it from
- Collect your data and integrate with other systems to do so, if required
- Collaborate with different business departments such as sales, marketing and customer service to get their input into segmentation
Segmentation is the best way to break down your target market and better understand who your audience are and what they expect of your business. Other marketers today create content for multiple audience segments; marketing to three audience segments is most common. It’s time to join them and transform your targeting strategy with segmentation.
What is a target market?
Your business’s target market is the group of people out there in the world to whom you want to market your products and services, with the intention of turning them into customers. Target markets can be very large or very niche, but they always represent a broad overview of who you want to target your business to.
Trying to market your brand and products or services to your entire target market is an inefficient and often ineffective way of working. Whilst your target market may all find value in your product, how you speak to the various groups of people within your target market can differ greatly. This is where audience and customer segmentation can really help your business to shine. Segmenting your audience and customers into groups by their shared characteristics means that you are able to deliver much more tailored and effective marketing messages.
If you’re unsure what data is the right data to use to define your segmentation groups, you can refer to the six most popular customer segmentation models for inspiration.
What are customer segmentation models?
Customer and audience segmentation models range from the very simple to very complex and can be used for a variety of business reasons. They are, in their simplest terms, just ways of splitting up your audience and customers to make segmentation much easier. A lot of the data you will already own yourself as a business, but you can also gather more in other ways. Talk to your audience and customers via surveys to find out more about their characteristics. Review your company feedback to better understand who is buying from you and what challenges they face. Mine your website and social media channels for as much data as you can fathom. Commission research into the attitudes and behaviours of the segments that are most attractive to your business, or see if research already exists.
Here are the six most popular segmentation models:
Demographic segmentation divides your target market into smaller categories based on demographic factors such as age, gender and income. Instead of trying to reach your entire target market, you can use this method to focus on a defined group. A married, middle-aged man will require a different set of messages to a young professional with disposable income — their needs, problems, expectations and motivations will be hugely different. Demographic segmentation means you can speak to your target market in a specific way that resonates with them, depending on their segmentation characteristics.
Look at your target audience and existing customers by where they live. You should be able to segment at a local, national and international level, depending on the size of your brand. If you know that your European customers or those in the north of England are your best in terms of revenue and low churn, you can segment your target audience into these areas and focus your efforts there. Geographic segmentation of your existing customers can also help you to better understand which countries or regions are underperforming against their targets.
Psychographic segmentation groups people together according to their psychological traits. It considers how people think, their subconscious and conscious beliefs, their social class, their lifestyle and their personality. Psychographic segmentation also looks at a person’s values, social status, religion, attitudes and motivations.
The purchasing habits of your audience, how they use your product or service in their everyday life, how they engage with your content and website, whether they are motivated by offers or sales — these are all examples of behavioural segmentation groups. Behavioural segmentation looks at what your audience does and the actions they take before, during and after they become a customer. As many as 79% of consumers are only likely to engage with a brand’s offer if it has been personalised to reflect previous interactions that the consumer has had with the brand.
Recency, frequency and monetary
The recency, frequency and monetary (RFM) model is perfect for companies that want to segment their customers by how likely they are to become repeat customers. RFM segmentation groups customers together based on their numerical rankings for each of the three categories, with an ‘ideal customer’ earning the highest score in each of the categories. Segmenting this way can help you to spot likenesses and differences between customers who repeat purchase and customers who don't, which can also highlight gaps in your experience.
Customer lifetime value
Customer lifetime value segmentation groups people together by their total financial value over the course of your mutual business relationship. You can find this figure by subtracting the total cost of retaining them as a customer from the total revenue they bring to your business. CLV works wonders when segmenting customers based on how valuable they are to your business. A 5% increase in the retention of valuable customers produces a 25% increase in profit.
Reasons to segment your audience and customers
So now you know how to segment your audience and customers, and the best models to use when doing so, the big question is ‘why?’. What value can segmentation bring to your business? The first answer to this question is for better use of your budgets. Whether you’re working to a tight budget or have lots of money to play with, you or your marketing team will always be faced with the question of ROI and results. Segmenting your audience and customers means you can deliver more meaningful and impactful campaigns, or target those who you know are more valuable to your business and will therefore deliver a better return.
Audience and customer segmentation is also a fantastic way of launching new products into the market. You can test your product proposition and positioning with key segments of your target market, which in turn will help you to gather important feedback and insights into the appetite for and interest in your new product. Start small and once you know which segments respond best, move to a full launch phase for great results.
There’s also the huge and very simple benefit of the fact that segmentation simply works. When done right, you should have enough data to tailor your marketing messages and target extremely specifically. This means that your positioning and messaging will be so spot on that your audience segments will barely be able to resist your brand, product or service. Figures show that 72% of consumers only engage with marketing messages that are customised to their specific interests and 90% of US consumers find marketing personalisation very or somewhat appealing. Think of your own interactions with businesses that you love — how tailored are their communications and messages to you? It’s most likely that they have you segmented and know more about you than you think.
How audience and customer segmentation can translate into better engagements
Audience and customer segmentation is also a natural segue into more customer engagements, and ones of a better quality. By doing the research, collecting the data and tailoring your campaigns to your segments, you should be able to initiate a conversation that your audience can’t help but interact with. These engagements might take the shape of social media interactions, newsletter sign-ups, positive testimonials and reviews, friend referrals and recommendations, or even loyal customers. Show your audience and customers that you understand them on a more personal level, and you will reap the rewards in terms of engagements.
How Feefo can help you to create segments utilising your customer reviews?
If you like the sound of segmentation but are still unsure about the data you have available to use when creating your segments, Feefo is here to help. We can kickstart your segmentation project in a number of ways. Feefo Surveys help you to compile a targeted list of questions, which you can curate to get rich segmentation data from your customers. There’s no need to just rely on the answers of your audience either. Create tags for key themes and topics that might appear in your customer review and feedback data, highlighting specific areas of concern or happiness from your key segments. Set up automated responses for particular tags and segments that might need a reply that is more tailored to their segment, which in turns creates a much more personalised experience.
Gone are the days of being able to send out blanket marketing messages, designed to reach everyone but only resonate with a few. These days the data we have to hand and the insight we can glean about our customers and audiences is so rich, it’s inexcusable to ignore it. Plus, the benefits to your business are undeniable: increased revenue, customers that are more willing to buy, better ROI on your marketing budgets, a great base for testing and learning about new products.
Start simply and plan which data you need and where you can find it. Review the customer segmentation models that we have reviewed above and decide which fit best with your customer base, your target market and the data you have available. Loop in other departments from across the business to create a cross-functional approach to segmentation, taking advantage of their areas of expertise to assist with your segment development.
Customer and audience segmentation can only serve to benefit your business, but it must be done well. Dedicate time and resources to mining the data your company holds, and commit to filling in any gaps you might have that are stopping you from feeling confident in your segments. Start small and test the water with your messaging, positioning and targeting. Once you know your segmentation is accurate and is resonating in the way you had hoped, get ready to scale up your campaigns and watch the sales and revenue stream in. Customer and audience segmentation is not a new concept and is already favoured by many brands around the world, some of which may well be your competitors. Embrace segmentation and use it to rise above your competitors and attract repeat, loyal business from your perfect customers.