We recently posted a primer on customer segmentation, detailing the four most common segmentation categories and the best practices for doing so. Today, we’re going to dive into exactly how and why each type of segmentation can increase your chances of retaining your current clients.
The overall purpose of customer segmentation is to learn as much as you can about your ideal consumer(s), in turn allowing you to develop and provide targeted content and offers that are relevant and timely, and that fall into a price range that’s affordable for your customers.
But your goal isn’t to attract one-off customers and just move on after they’ve made an initial purchase, right? Considering the amount of time, money, and effort it costs to gain a new customer in the first place, you should always be thinking ahead to your next engagement with a first-time buyer.
Here’s the thing:
While first-time customers probably aren’t exactly sure of what to expect when interacting with your company, if you’ve provided a good amount of value through your first interaction with them, they’ll certainly expect even more through subsequent engagements.
This means you need to continue learning about your current customers throughout the entirety of your relationship. By doing so, you’ll stay in the know regarding their wants and needs, and be able to provide value for them for a long time to come.
It’s In The Numbers
Before we get into exactly how customer segmentation can help you increase your customer retention rates, let’s take a look at some of the overall statistics surrounding this concept.
According to data collected by Hubspot, implementing an advanced lead generation and management strategy can improve sales quota achievement rates by 9.3%. In other words, it’s not enough to simply attract customers – you need to continue to manage them correctly throughout the entire customer lifecycle if you want them to stay on board.
The best way to do this is to treat your customers as individuals. Customer-centric companies report 60% more profitability than companies that don’t focus on individual customers or customer personas.
Speaking of making more money, according to data collected by Client Heartbeat, 80% of consumers in the US would pay more for a product or service in exchange for a superior, individualized overall experience.
Naturally, the first step toward providing such an individualized experience is to gain a true understanding of who your customers actually are.
While gaining such an understanding of each individual within your vast customer base may seem like a monumental undertaking, the process of segmenting them into different personas or “types” makes doing so much, much easier – and will certainly be worth the effort you put into it.
3 Reasons Customer Segmentation is Beneficial to Retention Rates
As alluded to earlier, one of the most prevalent needs of the modern consumer is to be treated as an individual.
This means customers want to receive products, services, and other offerings that are relevant to their needs, at the exact moment they need them, at a price they can afford.
The following section will detail how using the four major types of customer segmentation can make it relatively easy for your company to provide such value to each of your individual customers at all times.
Above all else, the main point of segmenting your customers is to determine what they want from your company, and how you can best provide it to them.
We can think of relevancy in two ways:
● An offer that is of interest to an overall persona or segment
● A specific offer that will compel a customer to re-engage with your brand or make a new purchase
Whether creating new content or reaching out with a new offer, you’ll first want to be sure the material is relevant to the audience it’s intended to reach. The Hubspot article we referred to above also reports that relevant, laser-focused email content drives 18 times more revenue than do generic broadcast emails.
To know for sure whether or not an offering will resonate with your customers, you need to analyze their demographic, geographic, psychographic, and behavioral data all at once, and work to understand how each relates to one another.
(To review from our previous article, a customer’s demographic profile tells you about their age, gender, education level, occupation, and family structure. Their geographic information tells you where they live, and provides details regarding the area. Psychographic data refers to a customer’s personality, interests and opinions, and social class. Lastly, behavioral data focuses on how they act as a consumer.)
The reason you need to take each segment into consideration is because, quite frankly, it’s impossible to create relevant content offers otherwise. On the other hand, 95% of consumers report choosing to do business with companies that offer content relevant to their needs.
For example, let’s say you run a sporting goods company. You know that many of your customers are male, age 25-30, and hold a college degree. But if you don’t take the time to learn that a large percentage of this specific segment lives in the southeastern US, you wouldn’t realize that sending out an email blast touting a sale on snowboards would likely be met with, at best, a general indifference from your customers. At worst, you run the risk of having a noticeable chunk of your customer base hit the dreaded “unsubscribe” button.
Understanding the behavioral aspects of a customer can also help you provide relevant content and offers, in a much more personable and individual way. Perhaps most pertinent to this discussion is segmenting customers based on the benefits they seek from your company. For example, if you own a restaurant, you might choose to make your 21-30 year old segment aware of your upcoming singles night, while you would send your 30-45 year old segment a coupon for your weekly “kids eat free” night. Again, if you were to simply send out the “kids eat free” coupon to everyone in your customer database, the customers within your “childless” segment might end up relegating your future emails to their spam folder.
By segmenting your customers based on a variety of factors and characteristics, you not only ensure the content and offers you provide each segment are relevant and actionable – but you also decrease the chances of turning your otherwise satisfied customers off to your brand completely.
Anyone who sells a product or service knows there are certain times of the year in which an individual – or even an entire customer base – is more likely to make a purchase.
Customer segmentation allows you to determine exactly when these moments are, allowing you to take advantage of valuable windows of opportunity that won’t open again until the following year – if they open again at all.
Understanding your customer base’s demographic data is essential in order to create such timely offers. For example, as most Americans celebrate Christmas, you’d be hardpressed to find a retail company in the US that doesn’t provide holiday-related deals and offers throughout November and December.
Similarly, geographic data can be used to determine the needs of a certain customer segment during a specific time of year. For example, an email blast sent in October from a clothing company including offers on swimsuits probably wouldn’t fare too well if sent to New Yorkers – but it might still be rather effective in Florida.
Segmentation can also be used to pinpoint individual occasions or milestones, too.
Imagine you run a greeting card company, and your data shows an individual customer made a single purchase in August: a personalized greeting card, flowers, and a stuffed animal for his wife on their anniversary. You also notice he didn’t make any other purchases throughout the rest of the year.
While there’s a chance that you’d be able to sell him on other offers close to holidays such as Valentine’s Day, you’d know he is most likely to make another similar purchase the following August. Knowing this, you’d do well to send him a reminder of his previous purchase the following July, as he may have forgotten all about your company over the course of the year – but would probably do business with you again if you jog his memory.
In sales and marketing, timing is everything. If you know when a certain individual or customer segment is most likely to be in need of your services, you can reach out to them at that exact moment – making their return almost a sure thing.
No matter how relevant or timely your offers are to your customers, you won’t make too many sales if the price isn’t right.
Of course, you also can’t just give your products or services away, either.
So you need to determine the exact amount your customers are willing to pay for your offerings that is still profitable to your company.
The problem, here, is that some of your customers are able – and willing – to pay more than others. But it’s not like you can offer your services at one price to one customer and a different price to the next one…
Or can you?
Okay. You absolutely can do that. And it happens pretty much all the time:
- Movie theaters offer discounts to the notoriously-broke college student demographic, and retired elderly individuals who generally live on a fixed income
- Warehouse supermarkets sell more product for less price-per-unit than regular grocery stores – and make more in the process
- Chain restaurants sell a plate of fries for $15 in New York City and for $8 in lower-income, less densely-populated areas
Alternatively, you might choose to alter the features you offer to a given consumer (and alter the price, as well).
Think about your last trip to a car dealership: there might have been four or five different versions of the same model of the vehicle you were interested in, each with their own set of features – and their own price.
While the optimal outcome in the salesman’s eyes would be to sell the highest-priced model, they’re generally happy with selling the right car to the right person. (And they know there’s no sense in wasting time offering someone a car that’s out of their price range, too.)
In all of these examples, the companies have worked to determine exactly what a specific customer segment can afford to (and is willing to) spend. They then created tailored deals and offers to each of these segments in a way that doesn’t seem unfair to others who don’t get the same deal.
One last thing to note regarding pricing:
Studies have shown that customers tend to develop long-lasting, loyal relationships with companies that offer their products or services at a reasonable price.
Think of some of the examples above: the college kid with $100 in his bank account probably wouldn’t spend $15 on a movie ticket – but would probably spend $5. On the other hand, the investment banker grabbing a drink after work wouldn’t bat an eye at paying $15 for a plate of hot French fries.
Simply put: no matter what it is you’re selling, know who you’re selling it to – and what they’re willing to pay for it.
When forming an initial customer base, segmentation can be used to develop target personas and figure out the exact type of consumer you want to reach with your product or service.
Once your customer base begins to grow, you’ll actually have real data from real customers to add to your segmentation data – making it much easier to meet their needs, and keep them engaged with your brand.
We’ll dive more into the different forms of segmentation in the future, so be sure to check back in the next few weeks for more.