What is Customer Segmentation?
Customer segmentation is the opposite of treating everyone the same—which is how most companies that do mass marketing work. When I was growing up, everyone saw the same commercial for the same product and we all wanted the same things. In those days, communicating was expensive, and only available to the big brands. Because of the expense, the big brands created one message and shared it far and wide.
Today, things are different. I can have things the way I want. And more importantly, the messages I get won't be the same messages my wife, or our friends, get. Everything is customized. But these custom marketing messages aren't 1-to-1. Instead, they pool people who are alike and use those groups (or segments) to communicate the same kind of message in the same way.
Ometria calls it, “the process of using customer data to enable a clustering of customers with shared attributes so that communication can be customised…”
The point of all this is that by grouping people by similar characteristics (behavior, demographic data, placement in the buying cycle, etc), you can shape when, when, and how you say things.
Kinds of Segments to Consider
When Amazon was just getting started, I got pretty angry because they were sending all my friends coupons to buy books online. I got nothing.
Turns out, they were a smart bunch who was paying attention to segments. I was in the “this guy is going to keep buying books every week without any help from us” segment. So there was no need to incentivize me with a coupon!
Here are some different segments to think about:
First time visitors: is this the first time someone has arrived on your site? How can you help turn them into a customer? The absence of a cookie could signal that they're new and you could then trigger the display of a coupon (either in a sliding pop-up, or in the cart itself) to incentivize them to close their first deal.
First time customers: is this their first purchase? If you can't find their email in your database, you might want to send them a thank you note to invite them back (or course I'd delay the thank you buy a day, just so you don't couple it with the receipt email going out).
Repeat purchasers: when a person lands on your thank you page after making a purchase, you can evaluate if this has been their first order or not. If they're already in your system, tag them as a repeat buyer, so that you can send them special promotions. Taking care of loyal customers is job number one!
High spending purchasers: it's pretty easy for you to regularly look over your entire database of orders and determine what value puts a person in the top 5% of purchasers. It could be $100 or $10,000. But whatever it is, that's the number you're looking for as you process an order in order to tag someone as a “high spender.” Those are the folks that might trigger free shipping, custom sales days, or other kinds of promotions.
People who haven't made a purchase in xx days: Every person who has already purchased in your system has left you a key piece of information—the date of their last purchase. When that date crosses a particular line (like 2 months), you might want to send those folks a custom promotion with a coupon to get them to come back. After all, they may have forgotten about your awesomeness and that just won't do.
You might even break this up like Ometria does—into three categories, Active, At Risk, Lapsed, based on how long it's been since they made a purchase.
Newsletter subscribers who purchase: One of the most important things to track in that list you've spent so much time building is whether you're converting them to buyers. So make the links on your emails carry enough information so that you can tag these buyers as “newsletter folks”. That lets you determine what kind of conversion you're getting from your newsletters.
What To Consider As You Pick Segments
- Don't offer discounts to people who don't need them.
I told you about my Amazon story, and it's silly. But it's true. And I can't tell you how many people create the wrong dynamic with customers who are just trained to wait for the coupon. I even heard one person tell another, “Go to their site, add it to your cart, and leave. Then just wait for the coupon.” This is why the next two tips are so critical.
- Help people with the “next step” in their buying journey.
As you think about your segmentation, you need to realize that not every customer is in the exact same part of their buying journey. Some people are just learning about your products. Others are comparing you to others. Others are looking and getting serious about a purchase. You may be able to determine this by what they've visited, how long they've stayed, what they've downloaded and forms they've filled in. Use that data to determine what makes the most sense for them in the next step. It won't always be a coupon. It could be a case study, or a checklist. But all of that means you have to have access to the right behavioral and demographic data, which takes us to my last tip.
- You need to make sure you can collect the right data.
Be practical and figure out what data you have or can easily get and go from there. I've spent time writing about behavioral segmentation for anonymous personalization with Bento, and using it for a first party data strategy with LogicHop. If you've not read those articles and aren't paying attention to behavioral segmentation, you're missing out.
Segment Hacks To Consider
Learn how to upsell and cross-sell using your segmentation data.
Instead of spending all your time on folks that only make a single purchase, focus on turning them into repeat customers by helping them know what other things they may want or need. If you don't know much about upsells and such, I wrote about it for you.
Beyond the simple cross-sell, consider a time-delayed upsell (or replacement).
If you connect your store (like WooCommerce) with your email system (like Convertkit), as I wrote about here, you can see what they purchased (like a pair of headphones) and then wait 9 months to offer them a replacement if they bought an inexpensive pair that you think may need the upgrade down the line. And the best thing is, you can use tags and auto-responders to make it all happen automatically.
Use demographic segmentation to sell different products.
An online golf store segmented their customers by left or right-handedness. Then they sent out targeted emails and saw a massive 284% increase in conversions because they were able to recommend the right products to left-handers.
Four Kinds of Segmentation to Consider
Sometimes as I talk about segmentation to people, they're stuck on one kind or another. And it doesn't feel like it applies to them. So before I wrap up, let's make sure we're clear on four different kinds of segmentation that you can use.
- Rural / Suburban / Urban
- Income Level
- Beliefs / Values
- Pain points
- Pages Visited
- Products Purchased
- Purchase Rates / Styles
- Social media use
- Mobile phone use
- Coupon consumption
Use Everything You Have
The point of those last lists is to remind you that there is a lot of different data you can collect and leverage to help you connect with your customers better. The bottom line? Use everything you have to help customize your offerings and offers.
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