What is Customer Segmentation?

Like so lots of excitement terms in business enterprise & advertising and marketing, “purchaser segmentation” is a single of those terms that is interpreted by people to indicate several different kinds of items. If the word “segmentation” ended up blurted out in a place of 20 business enterprise people today, prospects are it would conger up 20 distinct images.

So what is client segmentation, and how can it be utilised to propel one’s business?

Segmentation outlined

Buyer segmentation is a strategy for grouping consumers centered upon similarities they share with respect to any proportions you deem related to your enterprise – no matter if it be shopper wants, channel tastes, fascination in sure product or service characteristics, client profitability, etc.

The critical is for you, the marketer, to to start with make your mind up on what basis you want to phase your customers (or potential clients for that issue). And, the only way to response this question is to to start with ascertain what your aim is for the segmentation, and as a result what you want the segmentation to “do for you”.

Typical segmentation aims

Frequent goals for segmentation consist of but are not confined to: the advancement of new solutions, the generation of differentiated marketing communications, the development of differential shopper servicing & retention efforts, channel approach, and the maximization of revenue/ROI for existing goods.

When you have made a decision what your aim is for the segmentation, you can response the query, “what do I want the segmentation to do for me?”

A brief example: segmenting for buyer winbacks

Let us say you worked for a subscription-centered journal these as Time Out New York (TONY). Your boss has questioned you to enhance TONY’s retention approach making use of the recent help you save tactic of sending men and women who have not long ago canceled their subscriptions (aka “attritors”) 1 of 3 “gain-again” mailers. This current help you save tactic has been employed by TONY for the previous 2 years, and the process for figuring out which attritor receives which mailer has been based mostly mostly on “intuition” (aka random choice).

Your very first phase in undertaking this venture would be to obviously state your aim. Your goal, as for every your boss, is to optimize TONY’s retention strategy for modern attritors. This is shorthand for stating, “I want you to maximize your return on your retention-bucks invested”.

Devoid of getting into the nitty gritty of the method, what you essentially want to do is establish the relative ROIs for every single of the 3 mailers at the particular person attritor level. For every single mailer, you then want to recognize those attritors with high ROIs (i.e., all those attritors who re-instated their TONY subscriptions following acquiring the mailer and provided you with potential earnings that well-exceeded the price of the mailer).

Upcoming, for each get-back again mailer you want to establish people characteristics which the substantial-ROI attritors have in frequent, primarily generating a profile for “substantial-ROI attritors” for each and every mailer.

The ultimate stage is to operationalize the 3 profiles you have created so you can use them to ascertain which of the 3 mailers, if any, to mail to long run attritors. This primarily involves utilizing a approach in which new attritors are matched up against the 3 profiles to determine which, if any, best explain them.

A extra complex approach would be to construct predictive designs that would estimate the expected ROI for just about every mailer for every single attritor, and then ship out the mailer with the maximum predicted ROI to the attritor. And, for these attritors in which all 3 mailers have detrimental expected ROIs you could possibly opt for not to mail any acquire-back mailers.

Closing feelings

In closing, segmentation can be challenging and advanced, and no question involves a terrific offer of know-how & experience. Placing in area flawed segmentation techniques can be far a lot more harmful to a enterprise than not getting them at all. Having said that, when intended the ideal way, segmentation tactics can provide incredible returns relative to one-sizing-fits-all approaches.