What Is Customer Segmentation and Here’s How to Get It Right

Angeline Rast
24 May 2019

What is customer segmentation and why bother about it at all? Too often, many marketing professionals do painstaking work developing sophisticated marketing programs only to have them pine away in the form of an old PowerPoint Presentation covered in dust.

The key to growing your business is in remaining profitable. The building blocks for profitability lie in both bringing in new business and retaining current customers. Doing both requires coming up with and implementing marketing programs that work.

Doing both is a headache many businesses and business owners grapple with on a daily basis. It can often be overwhelming for as many as 47% of marketers, according to data by Jupiter Research.

Fortunately, this post will cover a proven way to cut through the haziness and initiate the right call to action to acquire new and past customers as well as keep current customers.

What is Customer Segmentation?

Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests and spending habits.

You have made considerable initial efforts: sent promotion/viral email blasts, nailed considerable email addresses and had the contacts well-kept in your marketing database. What next?

How do you even know the names behind those email addresses, how similar and different these contacts are, and how to personalize your marketing approach? After all, Jupiter Research found that personalized, targeted content drives 18 times more revenue than broadcast, untargeted content. Are you running an e-commerce platform? We have a special blogpost for you on how to segment your customers in the right way here

Jeffrey Russo, the Product Marketing Manager at Inbound Marketing firm, HubSpot, recommends starting by grouping the contacts in your marketing database by similar characteristics. These characteristics are fundamental needs that a number of individuals in your CRM have in common.

According to the Marketing chief, this is the art of customer segmentation – and also that it can be quite daunting to start up and fire up especially if you don’t quite understand the intricacies involved.

In other words, you need to categorize those emails you have collected from your site. These could be from subscribers to a free package, online survey, membership option or periodical newsletter. Or other offerings and sources that can offer clues as to who your potential customer could be and what set of benefits they may be looking for and in what particular product. Needs can either be functional or emotional.

The best part about customer segmentation? It can pay back as much as 70% on investment, according to this DMA study on targeted, segmented and triggered campaigns.

Then Create Buying Personas/Marketing Personas

Now come up with a cast to represent the people in your CRM. For each group of individuals with similar needs, allocate a character.

For example, if you are a communications firm, you might want to use “IT Trevor” to represent IT professionals in your database. Or CEO Margie to characterize a group of firm heads in your CRM, or Social Marketer Aisha to embody social media marketers, and so on.

But how do you even know for sure who is a CEO and who’s an IT amongst the thousands of email addresses you may have already? How do you create a buyer persona and segment when you do not know who exactly you have in your email list?

Russo recommends linking related pieces of content at the end of each article. When a reader finishes one, they can get to view the next piece. And since the following content is related to what they just read, they might follow and click through to read and gain more insight on their area of interest.

In doing so, using your web analytics tool and team, you can learn what they do and what appeals more powerfully to them. You’ll notice that the Aisha type is more interested in content that deals with social media conversion techniques and trends, for example. Trevor’s group is more into content to do with IT infrastructure optimization, security and so on.

From the new information, you can then deploy resources to segment these sets of differing interests. Nurture your sales funnel. Graduate mere subscribers to leads. And then to marketing-qualified leads, sales-qualified leads, and finally convert them to buying customers.

The most effective way is to use the customer segmentation knowledge to create marketing content that is relevant to each buying persona at each stage of the sales funnel.        

Wrap Up

A customer segmentation model ensures that you effectively allocate your marketing resources and that your marketing campaign is personalized to fit each and every customer’s needs. This will improve customer service and therefore, result in increased customer loyalty and retention. Find out how to grow your conversion rate with customer segmentation here.

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