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Strategy

4 Benefits of Customer Segmentation for Higher Profitability

Rarely does one size fit all. And that is why we need customer segmentation as the base of any marketing strategy

Shane Barker
October 01 2018

Research conducted by Econsultancy in association with IBM Watson Marketing surveyed over 1,000 professionals in marketing, ecommerce, and digital. They found that customer segmentation was the topmost priority among these professionals. 72% of them said that they use customer data for segmentation. In fact, even the most laggard businesses consider segmentation as a standard strategy.

This really shouldn’t come as a surprise. Every buyer has individual preferences, needs, and behavioral patterns. And 59% of people who have had a personal experience with brands think that personalization has a significant influence on purchases. However, it’s impossible to cater to each and every person based on their individual traits. And that’s why you need customer segmentation. In this post, we will discuss four benefits of customer segmentation for higher profitability.

1. Personalization

HubSpot analyzed over 330,000 calls-to-action and their performance over a 12-month period. They found that personalized calls-to-action performed 202% better compared to generic calls-to-action. Providing a great customer experience is the need of the hour for every business today. In fact, 80% of people perceive customer experience to be as important as a brand’s services or products. And personalization can go a long way to ensure that you provide exceptional customer experience.

Rocksbox is a jewelry discovery and shopping service provider. Customers can rent unlimited fashion jewelry from top brands and designers by paying a monthly fee. As part of their growth strategy, they require each of their customers to participate in a survey. This survey helps Rocksbox get a better sense of the personal style preferences of their subscribers.

Image via Rocksbox

Using such data, they create various customer segments so that they can send their customers jewelry choices that are customized. Such segmentation helps to group your customers so that the communication with each group is suited to their taste.

Bottom line: Segmentation can help you provide your customers with more personalized communication and experiences, which can lead to higher profitability.

2. Effective Acquisition and Retention

Customer segmentation allows you to learn a great deal about your customers so you can cater to their needs more efficiently. You can also tailor your communication depending on the customer lifecycle. 44% of marketers in a CMO survey said that they use customer segmentation to decide their acquisition strategy. And 38% of them said that they use it to decide their retention strategy.

For example, when you’re trying to convert a prospect, your communication needs to be more informative. At this stage, they would prefer to learn about the solutions to their problems. In later stages, you may need to talk about other related products in your communication.

Denamico created hyper-personalized newsletters by using the Smart Content feature from HubSpot. They customized the opening and the CTA of their newsletter emails according to a customer’s life cycle stage. This increased their open rates by 43%, while their CTR increased by 89%.

Image via Denamico

Customer segmentation also helps to create an effective retention strategy. You may need to apply a recovery strategy for some of your older and more valuable customers who have not made any purchases recently. You may also need to terminate potentially less valuable customers so that you can focus more on valuable ones.

LiftPoint Consulting took the time to identify their top 5% of customers who drove the highest revenue for them. They also identified a segment of high potential customers and optimized their marketing strategy to focus on these two segments. In addition to better customer retention and revenue stability, they managed to increase their customer value by 28%. There was a 40% increase in revenue during their key selling period.

Image via LiftPoint Consulting

3. Better ROI from Marketing

Braze (previously Appboy) analyzed their marketing data from over 30,000 campaigns they ran over two years. They found that campaigns that had been sent to well-thought-out customer segments saw 200% greater conversions than those sent to broad audiences.

Better Targeting

Successful marketing not only requires knowledge about who your customers are, but also where exactly they are in the buying process. And customer segmentation based on such information can ensure that your marketing campaigns are truly effective. Zillow offers a comprehensive range of residential real estate services that includes renting, selling, buying, remodeling, and even financing. They have a database of over 110 million homes for rent and sale.

Zillow uses customer segmentation to ensure that the right marketing messages are sent to the right people based on their life cycle stage. For example, to consumers who are looking to buy a home, they send emails about homes in their preferred locations. They also send notifications about price changes to homes they’ve saved. Using this strategy, they were able to achieve a 161% lift in their open rate and an 18% lift in their click-to-open rate.

Effective Channels and Content Formats

Customer segmentation can help you decide on the right kind of promotional content to send to your customers. For example, not all of them may like to receive notifications about discounts or offers but some of them might. B2C buyers are 1.3X more likely to favor newsletters or emails while B2B buyers are 22.X more likely to find them important. When it comes to retargeting, B2C buyers are 1.1X more likely to favor them while B2B buyers are 1.8X more likely to do so.

If you are aware of the preferences of your customer segments, you can send them information that they’ll appreciate. In fact, 76% of consumers expect that businesses are aware of their needs and preferences.

Segmentation also helps you select the right marketing channels for the right audience set. For example, if you’re planning to start a retargeting campaign on Facebook, which customer segments should you target?

Image via Facebook

The bottom line is that customer segmentation can help you ensure that you send the right marketing messages to the right people. It can help you leverage the most effective channels and content formats so that your chances of conversions are greater.

4. Unearth New Opportunities

With customer segmentation, you will never miss out on what’s trending. And you can even come up with new products or variations according to the changing preferences of your customers. If you are vigilant enough, you may also have the first mover’s advantage in a product segment.

EMM Group helped a bank identify a new and profitable segment, known as the “confident entrepreneur” segment. They helped develop a card offering and a new service package. They considered the segment’s emotional and functional needs to craft a new value proposition to resonate with them. Six months after they launched the new card, their portfolio share in premium cards increased from 8% to 51%. Their actives rate also saw a 7% incremental increase.

Final Thoughts

The standards of good customer experience are ever increasing. In fact, 67% of customers don’t mind paying a premium if businesses can provide them with an amazing experience. Segmentation helps to grow your business by building long-term relationships with your customers and providing exceptional customer experiences. And above all, it helps you stay innovative, or at least helps you to stay at par with your customer needs.

Having discussed all of the benefits, it’s important to emphasize that good data and analytics are the basis of segmentation. Data should be clean, updated regularly, and error free. If the data is not correct or misinterpreted, then all segmentation efforts will be meaningless.

Have you experienced any other special benefits after exercising segmentation? Feel free to share them with us in the comment section below.

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Shane Barker

Shane Barker is a digital marketing consultant for 15 years with an emphasis on Influencer Marketing in the last 5 years. He is specialized in sales funnels, targeted traffic and website conversions. He has consulted with Fortune 500 companies, Influencers with digital products, and a number of A-List celebrities.

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