Customer segmentation is the process of dividing customers into different groups based on common characteristics, such as demographics, behaviors, and affinity.
This practice is particularly vital for businesses that rely on customer loyalty or repeat purchases, such as SaaS companies and eCommerce businesses.
Intelligent customer segmentation tools let you develop clear audience groups among your current customer base, letting you enhance your future marketing efforts and sales practices.
Using an automated customer segmentation tool allows you to visualize data from multiple sources without having to manually arrange contacts in your CRM. Like Health Stages.
Different Types of Customer Segmentation
- A Priori Segmentation
Customers are grouped based on pre-determined, conventional assumptions rather than empirical market research.
- Needs-based Segmentation
Customers are grouped based on shared product and service needs.
- Value-based Segmentation
Customers are grouped based on shared economic value.
- Demographic Segmentation
Customers are grouped based on shared characteristics, such as age, gender identity, and income.
- Geographic Segmentation
Customers are grouped based on what region they live in; this can range anywhere from what town they live in to what country
- Technographic Segmentation
Customers are grouped based on their relationship with and attitude towards technology — for example, whether they prefer mobile or desktop, which apps they use, and so on.
- Behavioral Segmentation
Customers are grouped based on behavioral patterns, such as how they interact with your brand, how they tend to use products or features, and other frequent actions.
- Psychographic Segmentation
Customers are grouped based on shared psychological attributes, such as personality, attitude, beliefs, value, priorities, and motivation.
- Customer Journey Segmentation
Customers are grouped based on what stage they are at in the customer journey, such as awareness stage, consideration stage, or decision stage.
Explore customer segmentation schemes
As with most business initiatives, the goals and outputs of customer segmentation research will likely depend on your company’s stage, market conditions, and a lot of other variables. However, there are some relatively standard schemes that coincide—or at the very least overlap—with most needs-based or value-based segmentation initiatives.
For example, here are six standard segmentation schemes that could be applied to your customer segmentation research:
- Geographic base / reach
- Industry / sub-industry / industry served / customer served
- Product class / product usage
- Organization size (measured by revenue, number of employees, etc.)
- Product delivery model / product or packaging format / special technology / process methodology
- Special use / needs
It is important to note that even if a market is divided into one of the schemes above, it is still not a valid segmentation of the market unless it results in meaningful differences in customers’ values and needs, the company’s value proposition, or the go-to-market strategy associated with each scheme. In such cases, it is merely a convenient organization of the market that has no strategic or operational value.
Why Should You Segment Customers?
- Improving your whole product: Having a clear idea of who wants to buy your product and what they need it for will help you differentiate your company as the best solution for their individual needs. The result will be increased satisfaction and better performance against competitors. The benefits also extend beyond your core product offering, since any insights into your best customers will allow your organization to offer better customer support, professional services, and any other offerings that make up their whole product experience.
- Focusing your marketing message: In parallel with improvements to the product, conducting a customer segmentation project can help you develop more focused marketing messages that are customized to each of your best segments, resulting in higher quality inbound interest in your product.
- Allowing your sales organization to pursue higher percentage opportunities: By spending less time on less lucrative opportunities and more on your most successful segments, your sales team will be able to increase its win rate, cover more ground, and ultimately increase revenues.
Create a more personalized Experience for your customers
By segmenting your customers, you identify trends with each group and this allows you to deliver a more personalized message to its members. For example, if you identify one segment as most likely to churn, you may want to send them an activation email around your product and their usage or give them a call to see what they struggle with. The point is that you’re connecting with them on a personal level.
Beat The Competition
Understanding your customers allows you to provide a better customer experience which will keep consumers coming back to you. Companies who don’t segment their customers will find themselves falling behind as you race ahead. One study found that 63%-78% of new products fail to meet their revenue targets. A key reason that this happens is that the business has failed to understand what their customers really want and have gone for a one-size-fits-all approach.
Using an automated customer segmentation tool allows you to visualize data from multiple sources without having to manually arrange contacts in your CRM.
If you’re wondering which customer segmentation tool is best, you’ve probably come across a few names.
Why is Customer Segmentation so important for SaaS?
There are multiple ways to look at the benefits of customer segmentation.
We could look at a chart or a cohort between two different customer segments in their contributions to ARR and MRR. We could talk about understanding buyer personas to the granular level and creating an experience that builds trust – thus making it incapable of leaving your product.
Incorporating Product Analytics into Your Customer Segmentation
Segmenting customers by their product usage helps reveal the correlation between their behavior (login frequency, actions taken, feature usage, etc.) and your subscription metrics (ARR, MRR).
Behavior is such a critical element to effective customer segmentation because it lets you know how certain features or actions impact your conversion and retention rates.
Let’s say there is a mid-sized company that makes marketing automation software. The product managers are tempted to continue to add features but accept they have to double down on their newsletter creation experience. They are ignoring the requests of over half the new users they acquire.
The newsletter feature is one of the most used feature by their most valuable customer segment.
By optimizing their experience, they improve their retention rates, create upsell opportunities, and acquire similar customers who have the same needs.
Deciding on which customers to focus on is painful but worth it.
Now that we have covered how influential customer segmentation is in determining growth and product strategy, we can explore a powerful platform like this in a tailored product tour. Request your tour right now.