Customer segmentation is a crucial part of any business strategy, be it used in marketing, customer success, sales, or product teams.
It’s the difference between a customer staying put or leaving due to not experiencing product or brand value due to the “spray and pray” approach – unfocused communication or marketing that provides irrelevant information to many segments, or personas en masse.
No one ever wants to feel like they’re being sold to or marketed by a company at the best of times, especially when the company is pushing a product or service completely irrelevant to their own needs.
By dividing customers into distinct groups based on shared characteristics, customer success teams can further understand the unique needs and preferences of different customer segments, enabling them to create personalized experiences that drive customer satisfaction and retention, improve customer experiences, and ultimately drive growth.
According to a study undertaken by Zendesk, 90% of consumers will spend more with companies that personalize the service they offer them. The question remains: why aren’t you segmenting your customers?
In this article, we'll explore the basics of customer segmentation, specifically:
- The different types of customer segmentation
- How to create a customer segmentation framework
- 10 practical examples of how customer success can use segmentation
The different types of customer segmentation
The first step in creating a customer segmentation strategy is to segment your customers based on different criteria. There are several different types of customer segments that businesses can use to develop more targeted CS campaigns. Here are some examples:
Demographic customer segmentation
Demographic segmentation is one of the most basic and commonly-used types of segmentation. But how does it work? Well, it involves dividing customers into groups based on demographic factors such as age, gender, income level, education, occupation, industry, and ARR.
This type of segmentation can help businesses tailor their products or services to meet the unique needs and preferences of different demographic groups.
An example would be if you wanted to implement a high-touch engagement model for all your customers with an ARR of over $100M. You would want to make sure they all had a human-first approach to onboarding and communication to feel special and attended. Whereas a lower value account with an ARR of less than $2M might not need as much attention and could safely have a higher tech approach, AKA low-touch.
In another example, a company offering L&D courses may want to send out an email about the marketing function to those who have a marketing job title. Rather than waste that insightful, targeted and relevant email on a barista or a scientist, it’d be less of a wasted effort if the CSM targeted all customers in marketing roles.
You can use the customer data stored within your CRM and select the customers in a particular industry, and send the same email to them.
Behavioral customer segmentation
Behavioral segmentation involves dividing customers into groups based on their behavior, such as purchase history and engagement with your brand. This type of segmentation is particularly useful in identifying the most valuable customers, understanding their preferences, and predicting their future behavior.
Behavioral segmentation can also be used in churn mitigation by helping businesses identify which customers are most likely to churn, allowing them time to develop targeted retention strategies to retain them. For example, if a customer hasn't purchased something in a while, a business can offer them a discount or other incentive to encourage them to make a purchase.
A common type of behavioral segmentation is based on customers' engagement levels. This involves grouping customers based on their level of interaction with a brand, such as the frequency of website visits, social media engagement, or email open rates.
You can also segment based on product usage, which involves grouping customers based on how they use a brand's products or services. This can include the features they use most frequently, the times of day they use them, or other usage patterns that can inform how customer success teams provide support.
Psychographic customer segmentation
Psychographic segmentation involves dividing customers into groups based on their likes, dislikes, beliefs, attitudes and values. This type of segmentation is particularly useful in understanding customers' motivations and preferences, which can be used to help the customer realize product value.
Segmenting customers psychographically can help businesses create personalized experiences that resonate with their customers' values and interests. For example, a subscription-based travel company like Jack’s Flight Club might segment its customers based on their preferred travel styles and destinations, and provide personalized recommendations based on their interests.
Geographic customer segmentation
Geographic segmentation involves dividing customers into groups based on their geographic location. This type of segmentation is particularly useful in targeting customers who live in specific regions and tailoring marketing campaigns to meet their unique needs and preferences.
Geographic segmentation can help businesses identify the most profitable regions and tailor their products or services to meet the unique needs of customers in those regions.
For instance, customers who live or do business in multiple countries may have unique needs and challenges that require specialized support. If you were sending out an email wishing your customers a happy new year, you’d want to make sure it landed in their inbox at the right time for different customers in different time zones.
How to create a customer segmentation framework
Developing a customer segmentation framework is a vital part of any effective marketing strategy. Here are five steps to follow when creating a customer segmentation framework:
- Define your business objectives: Before you begin the process of developing a customer segmentation framework, it's important to define your business objectives. This will ensure that your segmentation strategy is aligned with your overall business goals.
- Identify segmentation criteria: The next step is to identify the requirements that you will use to segment your customers. These criteria can include demographic factors like industry, location, and, if an enterprise account, total company revenue, as well as behavioral factors like purchase history and engagement with your brand.
- Collect data: Once you have identified your segmentation criteria, you will need to collect data from a variety of sources. This can include surveys, customer feedback, and website analytics.
- Analyze your data: Use analytics tools to analyze your customer data and identify meaningful customer segments. This can include data visualization, clustering algorithms, and regression analysis.
- Refine and test your segmentation framework: Once you have identified your customer segments, refine your framework based on feedback from customers and other stakeholders. Test your segmentation strategy to ensure that it delivers the desired results.
10 practical examples of customer segmentation used by customer success teams
Now that you have a better understanding of customer segmentation and some customer segmentation examples, it’s time to create your own customer segmentation strategy. Here are some steps to follow:
Implementing a customer segmentation strategy can help a customer success team provide better support and service to their customers. Here are the steps a customer success team can take to implement a successful customer segmentation strategy:
1. Personalized email campaigns
By using customer behavioral and demographic segmentation, companies can create personalized email campaigns that target specific groups of customers with relevant content.
For example, a skincare subscription company like Skin and Me can segment its customers with acne based on their past purchase history and send its current customers targeted emails with informational blogs on their site that match their skincare preferences. This way the company is producing continual brand value without appearing "sales-y."
2. Customized product offerings
Using psychographic segmentation, companies can develop product offerings that appeal to specific customer segments. For example, a cosmetics company could create a line of vegan and cruelty-free products that target customers who’ve previously purchased other environmentally conscious products.
3. Location-based promotions
By using geographic segmentation, companies can offer location-specific promotions and incentives to customers. For example, a restaurant can send push notifications to customers in the surrounding area with discounts and promotions to drive foot traffic during slower periods.
4. Tailored customer service
Using behavioral segmentation, companies can provide tailored customer service to different groups of customers. For example, a telecommunications company can offer technical support through different channels based on the customer's preferred method of communication.
5. Loyalty programs
Using demographic segmentation, companies can create loyalty programs that cater to specific groups of customers. For example, a pet store could create a loyalty program that offers discounts and special promotions to customers who have pets of a certain breed or age.
6. Create personalized onboarding experiences
Once you have identified the different customer segments, you can create personalized onboarding experiences for each segment. This can include customized training materials, targeted messaging, and a tailored approach to problem-solving.
7. Provide proactive support
By understanding the needs and behavior of different customer segments, customer success teams can provide proactive support. For example, if a customer segment tends to encounter similar issues, the team can proactively address those issues before they arise.
8. Offer relevant resources and content
Based on customer segment data, customer success teams can offer resources and content that are relevant to the particular segment. This can include blog posts, white papers, case studies, and how-to guides.
9. Create targeted upsell and cross-sell campaigns
Customer segmentation data can also be used to create targeted upsell and cross-sell campaigns. For example, if a customer segment tends to purchase a particular type of product, the team can create campaigns that promote complementary products or services.
10. Gather feedback and conduct surveys
Customer segmentation data can be used to gather feedback and conduct surveys to better understand the needs and preferences of each customer segment. This information can then be used to refine the customer success strategy and improve the overall customer experience.
Let’s wrap up
With the right communication plan, training, and metrics in place, customer success teams can deliver personalized support that drives customer loyalty and business growth. While there are many types of segmentation to choose from, businesses should choose the types of segmentation that are most relevant to their customer base and business goals.
By using this framework, businesses can provide more personalized experiences, enhance customer satisfaction, and ultimately improve customer retention and loyalty.
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