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Strategy

The Price of Customer Diversity: Segment Or Wither

As your customer base grows, it becomes harder to know every one of your patrons. At that stage, you will no longer be able to implement a one-size-fits-all approach to marketing and engagement. Segmentation is your only hope, but it must be done wisely. Here's how you can excel at it

Matt Duczeminski
June 08 2017

A few weeks ago, we discussed the notion that your customers are individual people who want to – and deserve to – be treated as such.

For smaller, localized businesses, this might not be much of a problem (the reason “everybody knows your name” at Cheers is because the pub only has a dozen or so returning customers).

But, as your customer base grows larger, it becomes harder to truly get to know each and every one of your patrons. Not only that, but as your company expands its reach, your customer base will become more and more diverse, as well.

When this begins to happen, you’ll no longer be able to implement a one-size-fits-all approach to marketing to and engaging with your customers.

While you may have only targeted a single persona when your customer base was relatively small and homogeneous, you’ll now need to figure out the most effective ways of reaching people from many different walks of life who may get a variety of uses from your products or services.

But, again, it’s nearly impossible to cater to the needs of each of your individual customers once your company grows to a certain size. The next best thing you can do is group your customers into segments based on a number of their overarching characteristics.

In this article, we’ll describe the four most common ways to segment your customer base, and explain why each method of segmentation is important. We’ll also mention some of the pitfalls to avoid when segmenting your customers and using the personas you define through this segmentation in future marketing initiatives.

The four most common types of customer segmentation are:

● Demographic Segmentation
● Geographic Segmentation
● Behavioral Segmentation
● Psychographic Segmentation

Let’s take a closer look at each.

Demographic Segmentation

Segmenting your customers based on demographics is a rather simple process that takes into consideration the factual, “on-paper” characteristics of your consumers.

These characteristics include a customer’s gender, race, age, family status, income, education, and occupation.

By analyzing these characteristics as they relate to one another, you can begin to form an idea of who your customers are. For example, you might determine that many of your customers are 28-32 year-old single male schoolteachers making $40-60,000 a year.

This information will give you a general idea of how your product or service might fit into a specific customer’s life – allowing you to tweak your marketing initiatives accordingly. In doing so, you’ll be able to create targeted messages that resonate with a specific persona, increasing the chances that they’ll engage with your brand.

However, as alluded to earlier, demographic information is merely the “on-paper” data regarding your customer base. Relying too heavily on demographics can lead to stereotyping your customers, in turn leading you to create marketing and advertising messages that either don’t resonate with your target prospects or completely turns them off.

Furthermore, it’s essential that you revisit your demographic data every so often – especially as you learn more about your customers and as your customer base continues to grow. While you won’t be able to learn everything about your customers from the get-go, this doesn’t mean you shouldn’t take advantage of moments in which you can learn more about them.

Along with the last point, your goal isn’t to pigeonhole yourself into finding the demographic segment that provides the most business to your company. Your goal, as mentioned before, is to determine how you can cater to multiple demographics in different ways. In other words, if you notice a certain demographic is showing interest in your brand, don’t ignore it. Instead, dive deeper into what these people find valuable about your service – and figure out how you can better provide for their needs.

Geographic Segmentation

Geographic data is, in its simplest form, data relating to where your customers live in the world.

Geographic data can refer to specifics, such as the country, state, and city a person lives in. It also can refer to the type of area a person lives in, such as rural, urban, or suburban. Or, it could refer to other factors of the area in which a person lives, such as climate.

Geographic segmentation comes in handy when determining whether or not a certain group of people will actually be in need of your products or services in the first place. For a rather simple example, picture a company that specializes in creating all types of “extreme” vehicles. It wouldn’t make much sense for the company to market snowmobiles in southern California, or jet skis in Minnesota, would it?

Geographic data can also be used to go a bit deeper, though, and pinpoint how a certain product might be used in a given area. Using the examples from above, while both jet skis and snowmobiles may be used in their respective areas for fun and recreation, they also might be used by law enforcement or safety personnel as a legitimate mode of transportation, as well. (We’ll get a bit more into this when we talk about psychographics later on.)

Again, though, there are a few pitfalls you’ll need to avoid when collecting and analyzing the geographic data of your customer base.

As with demographics, geographic info simply provides a general overview of a certain section of your customer base. And, like with demographics, taking this information at face value can lead you to create campaigns that unintentionally stereotype – and alienate – your customers.

Similarly, looking at geographic data in a vacuum can lead you to make assumptions about the needs of a certain group of people.

On the one hand, you might assume that your product would sell like hotcakes in a specific area due to a perceived need (such as snow jackets in North Dakota). On the other hand, you might assume your product would never sell in a certain area (such as snow jackets in Florida).

Yes, geographic data can help you “play the averages” and decide where you should focus your attention. But this doesn’t mean you should completely turn a blind eye toward other possibilities just because it doesn’t seem like there’d be a need for your services in a certain area.

To find out for sure, you’ll need to dig deeper. Which brings us to…

Behavioral Segmentation

So far, we’ve discussed ways of segmenting your customers based on rather superficial factors.

Behavioral segmentation dives much deeper, allowing you to understand how your customers operate as consumers.

Behavioral data is mainly concerned with the following aspects of your customers:

● RFM – How recently a customer has made a purchase, how frequently they make purchases, and how much they tend to spend in a given shopping session
● Rate of Usage – How often they use your product or service
● Benefits Sought – What they hope to gain by using your product or service
● Possible Loyalty – Their propensity to become loyal (or remain one-off customers)
● Customer Status – Where they are in the buyer’s journey and customer lifecycle

The main purpose of analyzing your customers’ behavioral data are to understand what causes them to make purchases, to become loyal, and/or to churn or defect to a competing company.

This data, in turn, will help you create targeted ads and marketing campaigns that reach your customers where they currently “stand,” at the exact moment in which they’re most likely to purchase. It will also help you fine-tune your services and your offers in order to make conversion a no-brainer on the part of your customer.

While behavioral segmentation might seem like the be-all-end-all in terms of understanding your customers, there’s certainly the possibility that it can be misused.

For one thing, it wouldn’t benefit you to consider only one or two of the factors listed above – as doing so would only give you a fragmented picture of your customer in terms of consumer behavior. In turn, this could lead you to assume that providing a certain offer or sending a certain message would absolutely result in a conversion; but if the factors you’ve ignored clash with the ones you’ve attended to, your efforts will be for nought.

On the other end of the spectrum, taking too many of these factors into consideration can lead to analysis paralysis. In other words, you might pinpoint what you believe to be exactly the right moment to reach out to a given persona…without realizing that such a moment is too perfect, and may never actually occur in reality.

The trick, then, is to determine not the perfect moment, but the optimal moment in which to reach out to your customers. By assessing your behavioral data and looking at it through a real-world lens, you’ll be able to make the most out of every campaign you create.
Psychographic Segmentation
Like behavioral data, psychographic data analyzes your customers based on how they live and exist in the real world.

In contrast with behavioral data, which assesses customers based on who they are as consumers, psychographic data looks at the whole person behind the customer.

Psychographic Segmentation

Psychographic segmentation categorizes customers based on their personality, their lifestyle, and their social class.

To fully explain these factors would be to create an entirely new article. For now, we’ll provide a general explanation of each, along with some examples when necessary:

● Personality refers to the rather intangible characteristics of a person that govern the way in which they operate in the world. Are they leaders or followers? Thinkers or doers? Fun-loving or serious? Understanding a customer’s personality type will help you create campaigns that resonate completely within them.
● Lifestyle refers to the culmination of a person’s opinions, interests, and actions. For a person to take a certain favorable action (e.g., purchasing your product), they first need to have a favorable opinion toward your industry as a whole. They then would have to become genuinely interested in reaching a goal that your product or service would help them reach. Then, they would have to actually engage with your brand.
● Social class is a little more straightforward. This deals not only with a specific customer’s level of income and wealth, but also what they do with the money they earn. Consider the differences between the way in which a vastly wealthy person would make purchases and the way in which a lower-middle class family would do so. Now think about how these differences would affect the way in which you market your services to either.

The best way to differentiate between behavioral and psychographic data is: behavioral data helps determine the conditions under which a customer will make a purchase, while psychographic data explains why such conditions are optimal for that given individual.

While the pitfalls of demographic, geographic, and behavioral segmentation are based on the way in which the data is implemented, the major drawbacks of psychographic data are that collecting the info is time- and resource-consuming, as is analyzing and making sense of the collected data.

Personalities and lifestyles are especially hard to “pin down,” as every individual person in the world is a unique being. To be able to classify your customers based on these factors, you might need to create your own labels and definitions for overarching personality and lifestyle “types.”

Overall, though, psychographic data will give you the most complete picture of who your customers really are, what makes them tick, and how you can add value to their lives.

Conclusion

So, what does all of this have to do with customer retention?

Well, the more you know about your customers, the better you’ll understand their pain points, wants, and needs. By learning about their most dire needs, you’ll be able to tweak your offerings to provide them with the most value possible.

Since you’ll know exactly what your customers need – and you’ll know exactly how to provide it to them – they literally will have no reason to even think about engaging with your competition.

To reiterate a major point of this article:

Demographic, geographic, behavioral, and psychographic data should never be analyzed in a vacuum. Each of these factors is only a fragment of the actual people that make up your customer base. Only by looking at how each of these factors complement and contribute to one another will you be able to truly understand your customers, and continue to provide for their needs as time goes on.

One last thing: it should be clear by now that customer segmentation is a rather massive undertaking. It simply cannot be done manually – especially as your customer base continues to grow. Luckily, there are a number of tools available to help make this segmentation relatively easy. Make sure that when using these tools, you remember to look deeper into the data than simply what’s projected on the screen.

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Matt Duczeminski

Matt is a professional writer specializing in helping entrepreneurs improve relationships with their customers. He lives in Philadelphia with his wife, Sarah, and he'd probably get a lot more work done if his cat would stop bothering him.

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