A Step-by-Step Guide to Customer Segmentation
Most businesses create an ICP, or an ideal customer profile. This profile outlines where ideal customers live, how much they earn, their industry, beliefs, even what product or service they’re interested in.
But, not all customers are your perfect, ideal customer. Some may be in different industries, live in other areas, or even earn slightly less or slightly more than your ideal customer.
Those differences impact the way you communicate with them. For example, a business owner and an accountant care about different features and benefits. These groups may also prefer to talk on different platforms or focus on varying pain points.
Within your customer base, there are multiple, similar, groups with their own likes, dislikes, and expectations. Separating those groups is the key to building successful relationships that meet the needs of every customer.
The most effective method for separating these groups is customer segmentation.
What is customer segmentation and why is it important?
Customer segmentation is the practice of grouping customers based on shared characteristics, such as demographics or behaviors. Each segment is sent unique messages through channels such as email, social media, paid search ads, and even dynamic website content.
Why is customer segmentation so important?
Think about what would happen if you didn’t segment your customers—every customer would see the exact same email, paid ad, and landing page. Sales would send the exact same outreach message to every customer.
As a result, your audience would be inundated with irrelevant messages.
Segmenting your audience is crucial to delivering more relevant messages, but there are several other benefits—including maximizing your ad budget.
Top reasons why we segment customers
If you’ve ever run paid ads, you already know how important it is to get targeting right—target too large of an audience and you’ll waste ad spend on people unlikely to convert. Similarly, segmenting your audience improves ROI. However, there are a host of other benefits as well.
- Improve advertising ROI: Segmentation allows you to send more relevant messages, which increases advertising ROI. Email marketing segmentation, for example, improves email marketing metrics drastically.
- Better understand marketing impact: In addition to increasing ad ROI, segmenting improves overall ROI by providing deeper insights into conversion data. If you target everyone with an ebook, for example, you can’t easily see how that asset improves enterprise conversion rates.
- Deliver more personalized content and resources: While segmentation isn’t the same as personalization, creating segments does allow you to send personally relevant messages. This improves engagement and responses from your audience—and can prevent unsubscribes, unfollows, and getting marked as spam.
- Develop stronger relationships: When people feel understood, they feel like you care about them. This improves customer relationships, which reduces churn and can increase the number of return customers.
- Increase revenue: Segmentation directly improves sales, which increases revenue. Say you want to recommend products based on previous purchases. If you send the same message to everyone, customers might click away if the first items aren’t relevant.
What are the different types of customer segments?
Marketers generally recognize four main types of customer segments, but there is a multitude of strategies under each umbrella. First, let’s cover the four main ways to segment, then we’ll explore additional segmentation strategies.
The four main buckets for customer segmentation include:
- Behavioral: Segmenting customers based on specific actions, such as a click, download, or purchase.
- Demographic: Separating customers based on shared physical or social-economic characteristics, such as age, gender, or income level.
- Geographical: Grouping customers based on location, including where they live, attended school, or visit.
- Psychographic: Segmenting users based on shared psychological aspects, such as beliefs, likes, and priorities in life.
Within each of the four core segmentation types, there is a nearly infinite way to group users. For example, location segmentation includes targeting users who live within 25 miles of a specific store and by IP address. Other segmentation strategies include, but aren’t limited, to:
- Needs-based segmentation: Grouping customers based on specific needs, such as a marketing tool versus a sales tool.
- Post-conversion: Separating users who have completed a specific conversion from those who have not.
- Conversion progress segmentation: Grouping customers based on whether they are in the beginning, middle, or end of the conversion funnel.
- Current customer versus prospective customer: While we’ve mostly talked about segmenting customers, you can also separate prospects from customers.
- Engaged vs unengaged customer: Separating customers based on whether they’ve responded to emails, liked social media posts, etc.
When choosing the type of customer segmentation that is right for your business, consider your core business goals. What specific, measurable goal can you support with each segment?
7 steps to developing a customer segmentation strategy
Now that we’ve covered the different types of segments and how customer segmentation works as a whole, it’s time to develop a strong strategy. Segmentation can be used across your entire business, so consider how different departments might use segmentation while designing your strategy.
1. Establish your goal
There’s a reason why establishing a goal is the first step in most marketing how-to guides. Because without a target goal, you can’t build an effective strategy.
For example, if your goal is to increase repeat purchases for an ecommerce business, segmenting customers based on geographical location is unlikely to help. (Unless you’re suggesting summer clothing; then you might want to target customers located in warmer climates!)
Keep in mind you may not have one, single goal because different departments focus on different KPIs. For example, sales might want to increase qualified leads while marketing is looking to drive brand awareness. Having multiple goals is fine, just make sure they are all aligned.
2. Outline the scope of segmentation
It’s easy to get overwhelmed with the amount of segmentation you can do. Strike a balance between creating enough segments to maximize your ROI without creating such small segments that you spend the next six months writing ads or emails.
At this stage, outline:
- How many different segments will you have?
- What platforms will the segmentation be used for?
- Where will the data be stored?
- Who is responsible for which steps in the process?
Creating a scope of the entire project will help you stay on track as you work on the rest of the steps.
3. Define the segmentation variables
The next step in the customer segmentation process is deciding which segments are most valuable for the company—not just marketing. Start by creating a list of segments you think are useful, then bring in other stakeholders.
Depending on your business model, sales and customer service can be crucial to ensuring segments are effective. Refer to conversion data, average order value, and other metrics that matter to your business.
Starting small can make this more manageable. For example, you might create just two segments in the beginning—-for example, customers who have an average order value above $100 and those below $100 or those with a small business versus large enterprise organizations.
Starting with fewer segments makes it easier to see the impact and see ways to improve the process as you scale.
4. Create workflows for each segment
Essentially, how will these segments be used? If someone takes an action, what email is sent? Does the rest of the group get a different email or is it broken into multiple additional segments? If the segment will be used by sales, what messages will be sent to each segment?
At this point, you should also decide which platforms you’ll use segmentation on. Depending on your marketing strategy, this might include:
- Email marketing
- Paid search ads
- Social media ads
- Dynamic website content
This is the most customizable step, so it’s really up to you. Consider starting with just one or two platforms and a few campaigns. For example, an email segmentation workflow might look like this:
Segment 1: Customer completed ebook download form
- Email 1: Send ebook
- Email 2: Highlight important lessons in the ebook
- Email 3: Suggest demo
- Email 4: Promote the next webinar
Segment 2: Visited ebook landing page but didn’t convert
- Email 1: Suggest ebook download
- Email 2: Highlight benefits of reading the ebook
- Email 3: Promote a recorded webinar on a similar topic
5. Gather + clean data
Segmenting your audience requires data—which can come from many places, including Google Search Console, Google Analytics, email providers, website tracking tools, surveys, social media, and more.
Decide which platforms you’ll pull data from, then import and clean the data up. That includes removing duplicated or inaccurate listings, confirming data when possible, and organizing your data.
This can get complicated, so we recommend using a customer data platform. Zeta Global, for example, can gather data from multiple first-party data sources, organize and enrich it, and help you leverage that data across websites, email, video, and social media.
6. Launch your segmentation strategy
Once you’ve created a blueprint for your segmentation strategy, it’s time to send it live. As you start sending out messages to each segment, pay attention to the KPIs you outlined in the first step.
Additionally, ensure all departments understand how your customers are segmented and how to leverage those segments to reach their goals. For example, sales can use segmenting your email list to improve outreach while marketing can improve ad ROI and increase social media reach.
7. Analyze segmentation effectiveness
Once your segments have launched, give it a few weeks before checking in. Depending on your business and segment size, you may need to wait a few months. Then, check in with each department to see how segmentation has impacted their KPI and the goals you set in the first step.
For example, has sales increased their response rate? Is ad spend going down? If things are going well, consider niching down further by creating more segments. If you don’t see the results you expected (or hoped for!), reanalyze your source data to ensure it’s accurate. Then test different segment variables until you find what works.
FAQs About Customer Segmentation
What is customer segmentation in marketing?
Customer segmentation in marketing is the practice of breaking a large group of customers into groups based on shared traits such as location or previous action. Businesses use segmentation to deliver more relevant emails, ads, and content.
What are the benefits of customer segmentation?
Customer segmentation improves marketing ROI, builds a stronger relationship with customers, and drives sales.
What customer segmentation tools should I use?
The customer segmentation tools you need depend on where you plan to segment your audience. In general, you’ll need a tool to gather data, a tool to implement segmentation and send messages, and a way to analyze the impact of segmentation. Many marketing tools offer this functionality, including email marketing tools, paid ad platforms, and customer data platforms like Zeta Global.
How do I improve my customer segmentation strategy?
Several ways to improve your customer segmentation strategy include basing your segmentation on more accurate data, enriching segmentation data, and testing different segmentation strategies.
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