A fundamental guide to customer segmentation

Lytics Customer Segmentation

All too often, people believe that grouping others into highly subjective segments is done without honest thought and creates too many errors.

But what if grouping could be more accurate? These previous reservations would certainly diminish. Fortunately, this (accuracy) is a reality for marketers. Customer segmentation is, in modern times, a much more precise process when done right.

This article will make sure you understand what customer segmentation is, why it’s important and how to perfect it. Let’s get started.

What is customer segmentation?

Customer segmentation involves grouping customers according to different traits, industries and other factors. This allows marketing teams to better reach each target market and increase potential value across the company. Though each case is specific to a company and its customer, there are consistent steps to follow.

A web of connected individuals.

Why is customer segmentation important?

In the simplest sense, customer segmentation is important because it breaks customers into more personalized groups, which allows marketers to create more effective campaigns. When we think of real time personalization, we see the impact it has and assume this impact could be available for segmentation as well.

For most businesses, customer segmentation has gone far and beyond a basic grouping. It’s now used to actualize and overdrive customer value. Customer segmentation also gives a better understanding into how a project, campaign or decision will affect particular customers.

In terms of making connections, it’s clear that customer segmentation gives marketers the best chance to build personalized interactions. Depending on the type of grouping (age, location, spend habits, etc.), a project has a high chance of reaching the right people.

Now that we’ve covered why customer segmentation is important, let’s consider the different types of segmentation approaches.

Different types and models to consider

The following are some unique ways to go about your customer segmentation. Decide which one best suits your specific needs. Keep in mind that you’ll want to take a dynamic approach to selecting these methods. Don’t settle on one forever unless you evaluate it periodically.

Meta-grouping

This type of customer segmentation involves using available information about customers that have already been grouped at a basic level and discovering new traits about them.

Meta-grouping is often done in a math-based approach, using data and machine learning to further divide a group into more accurate segments for superior value and marketing in all future interactions with these groups.

Needs-based

Needs-based models aim to divide customers based upon the types of needs each customer has. This is often then related to which type of service the company can offer to fill those various needs.

A needs-based model is typically best for marketing teams that are selling numerous products or services.

Recency models

The recency model is a customer segmentation approach that considers the customer’s previous activity – specifically how long ago was it.

This can be quite complex when different factors are filtered, such as whether we’re looking at the customer’s last made sale, last visit to a specific page on the domain, etc.

Value-based

A value-based model groups customers according to their value or potential value level. This considers factors specific to both the customer individually as well as the products or services a company is preparing to sell to them.

Frequency models

Similar to the Recency-based customer segmentation models, Frequency models base their groupings according to how often a customer makes a sale or visits a specific page on the domain.

Lastly, remember that marketers often combine the above models in an attempt to create the most effective segments. With these methods in mind, let’s dive into the different ways we can make our customer segmentation efforts most effective.

Dominoes falling over.

Key tips to boost customer segmentation efforts

We know how important customer segmentation is, so how do we go about doing it as best as we possibly can? Here are some important strategies to consider.

Create a customer segmentation blueprint

Before picking a model or making your first groupings, it’s best to create some type of layout or blueprint that sets the tone for all future processes. This maximizes the chances of segmentation being successful and all projects and campaigns afterward benefit as well.

One of the tasks the blueprint should include is dedicating members of the marketing team to focus on segmentation exclusively. This ensures everyone understands their role and can focus on specific parts of the process.

Allow yourself some wiggle room

One thing to remember in your customer segmentation process is that it’s a process, one that requires trial and error. If you expect that everything will always go smoothly, it might get in the way of your potential successes.

Be prepared to evaluate your processes in the future to ensure that any errors you make are corrected.

Sync segmentation with marketing ideals

Using marketing ideals as a standard when dividing customers into groups allows the grouping to be more precise.

A laptop with a magnifying glass over it.

When marketing projects and campaigns are considered, the segmentation of customers will always end up being more helpful to the longterm health of the marketing team’s plans.

Take chances

Taking chances doesn’t necessarily involve being risky. However, if your customer segmentation efforts seem bland, look for ways to change it up and create a more dynamic process. The chances of success will be much higher this way.

Closing thoughts

Chances are you’re already segmenting customers and seeing some good results because of it. However, you likely suspect there’s more that could be done. Consider optimizing these processes to see the success you are aiming for.