Successful business owners often advice to start out small, in an unexplored niche. It’s not only smart because of the smaller competition but also because dealing with a small audience is easier. When talking to a small amount of customers, you don’t have to use methods like customer segmentation to get the message through.
However, your business will grow over time and the marketing message that used to work like a charm will be less and less effective. Or rather it won’t be as effective for all the new customers who got interested in your product or service after the initial period of growth.
At this point, you need to understand that you no longer deal with one small group of customers who helped you get your business started but rather a number of groups. You will get some results using the same pitch over and over but, more often than not, you would do better by adjusting the message through customer segmentation.
This post is a part of a series of articles on selling online we co-prepared with The Chat Shop. Check out previous articles from this series on multi-channel marketing and using targeted live chat to drive more sales.
What is customer segmentation
Customer segmentation is a strategy of dividing a consumer or business market, normally comprising existing and potential customers, into smaller groups of consumers based on some shared characteristics. Basically, instead of going for the same approach no matter who you’re dealing with, you change your activity based on the customer ‘type’ you are engaging.
For example, a chatting app like WhatsApp that initially appeals to the younger generation might want to first find out if any other demographics are using their services and then come up with new ways to market their app if it turns out that it is being used by a wider cross-section of users.
Types of customer segmentation
Depending on your needs, there’s a couple of characteristics and traits you can segment your customers by:
- By location: Checking where someone lives using monitoring tools like Google Analytics allows you to see where your potential customers are coming from. Once you know that, you can offer tailored, location-based deals.
- By demographic: The age, sex or occupation of a potential customer can have a significant impact on the type of marketing they will respond to. Changing your message appropriately will help you to increase the success of your campaigns.
- By benefits: More savvy customers will look for specific perks your product can offer to them. Different groups will see different benefits more desirable. It pays off to know which benefit should be marketed to which group.
- By channel preferences: You not only have to know what kind of message you want to present to potential customers but also where to present it. Different groups will look to different channels. For example, a printed ad in a newspaper won’t probably be as effective as a social media campaign if you want to reach the younger crowd.
- By behavior: Knowing what someone knows or how they act is as important for customer segmentation as knowing who they are. You can approach your customers differently based on the level of familiarity with your product, they rate at which they are using it and the response they gave when first presented with it. For example, more knowledgeable customers won’t need as much hand-holding as new customers.
You can use tools like Google Analytics or Amplitude to gather the data for your customer segmentation automatically. They will help you find out both the who (location, demographics) and the how (knowledge about your product, familiarity, rate of use) of the equation. You can couple that with a robust CRM solution like Salesforce, Highrise or SugarCRM to manually keep track of information you learn during interactions with customers and get the full picture.
Why is customer segmentation important for your business
Doesn’t customer segmentation require a lot more work from a company’s side? You bet it does. But considering that the payout is much higher and the company probably has enough resources already, I’d say it’s more than worth it.
You could go for the same shtick no matter who you engage but it will lead to worse results and wasted opportunities.
Customer segmentation allows you to make a more convincing case for your product or service. It will help you accelerate your growth and reach new markets more effectively.
With customer segmentation, you can still advertise the same product but to different potential customers in a different way. As a result, your conversion rates and revenue go up.
Using customer segmentation to increase sales
Getting to know what different types of customers use your products can serve as a good foundation to improve your sales results.
Here’s a couple of ways you can use customer segmentation in for your marketing and sales.
Deals for specific types of customers
When the reach of your company grows, you can find yourself working with customers from a lot of different places and backgrounds. Let’s take a look at how you can use the information about your customer’s location to your advantage.
Depending on the type of the products or services you’re selling, it may be a good idea to offer special deals based on location.
This can be either the case for international companies or domestic businesses working in a larger country (like the United States).
For example, a travel agency has a deal for trips to the sunny beaches of Spain. Since there’s not much point in marketing those trips to people who already live in the area, they can exclude this segment from their marketing. As a result, they need to spend less and will get better return on their investment.
Nurturing high-value customers
Making your marketing more effective is one thing, but you also can use customer segmentation to make sure customers reach checkout. To do that, you need to segment your customers by the potential order value they can reach.
One way to do this would be to monitor the order value in real time. For example, if you’re running an online store, you can monitor the cart values of your customers. Whenever someone exceeds a certain value, you can step in with VIP service to make sure the big potential order is completed. You can advise the customer and help them resolve any doubts to smooth out the route to checkout.
This is also one of the ways you can tackle cart abandonment. Losing any cart definitely hurts, but losing a cart that’s exceeds the average value by a big margin hurts extra.
To use this method in your business, you need to find out which of your orders are worth the hassle. You can do that by calculating your average contact cost.
Let’s say that you have a representative who nurtures the carts full time using phone. To simplify things, let’s say that the agent will earn $30/hour and is able to handle 3 calls/hour. This means that your cost of contact is $10. If the cart value is $10 or below that, it doesn’t make sense to involve the agent. It should be considerably higher, maybe 2-3 times higher than the cost of contact.
This way, you’re not only breaking even but also make a hefty profit. You earn a bit less but, you also lose less as well.
|Contact Cost||Order Value||Return|
|$10||$7||Negative (you’re losing money)|
|$10||$13||Poor (you’re making a marginal profit)|
|$10||$56||Good (the contact pays for itself and there’s a big profit)|
Depending on the channel you’re using (email, phone or chat) you can expect different costs of contact and success rates. For example, using email will probably allow you to handle more cases per hour but you can probably get worse success rates as the real-time element of phone is not present. You can get best of both worlds by using live chat. It allows you to make a lot more contacts than phone and it can also be triggered automatically whenever a specified cart value is reached. You can get a chat with a help offer started whenever a customer puts enough goods in their cart.
Upselling and cross-selling opportunities
You can use all the new information about your customers not only to get them interested in one of your products but also to get them thinking about other, complementing items. In other words, you can use the extra data to stimulate upselling and cross-selling in your business.
By finding out what are the most common purchases in a specific group of customers, you can suggest certain products to customers who fall into this group and are yet to make a purchase. So instead of selling just a fishing rod to an aspiring fisherman, you can also suggest that they should get a net, rubber boots and bait since other fishermen got those items with their purchases in the past.
Other ways to use customer segmentation
Sales and marketing are not the only two areas of your business that can benefit from customer segmentation. It can also give you an advantage in customer service and, as a result, in better customer retention.
By knowing the needs of specific groups of customers, you can start to expect the problems they may face and reach out with a help offer even before the problem occurs.
For example, if you notice that your international customers are always double-checking your shipping costs, you might make this piece of information more prominent on your website or create a pre-made response for your agents to use. This way, your customers can reach this information a lot faster.
Another great example of how you can use customer segmentation is approaching returning customers differently. A simple division on new and returning customers can save you a lot of hassle and allow ‘veteran’ customers to move straight down to business. They already know what they want and when they want it. If you offered them the same pitch you give to new customers, you would only end up annoying them.
Customer segmentation is about experience
Without customer segmentation, you’re forced to go by your gut. You make one pitch that is supposed to woo all your customers. Sometimes it works and sometimes it doesn’t. At first, this is fine and completely normal.
However, you gain experience over time. You see thousands of sales situations and how they unfold. You start noticing patterns in those situations. By researching those patterns and assigning them to potential customers, you can start using that hard-earned experience to improve your marketing, sales and customer service.
What is your experience with customer segmentation?
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