The ability of an individual to divide a company’s clients or customer base into groups or sets of individuals with similar characteristics is known as his customer segmentation skills. The individuals in any particular customer segment, created in such a manner, must be similar to each other in certain ways that are relevant to company’s marketing efforts. For instance, customers segments can be formed on the basis of spending habits, usage frequency, gender, or interests etc.
Usually confused with market segmentation, the concept of customer or client segmentation is differentiated mainly through the usage of actual customer data to separate the sets of similar individuals, instead of intuition.
Why is customer segmentation important
All individuals are unique in terms of their needs, preferences, personal characteristics, and behaviors. So, no matter how highly-targeted customer demographic you may have, there is always a certain degree of differences amongst individuals that makes it difficult for the perceived value of a particular product offering to be the same for everyone.
Customer segmentation is the ultimate solution to this problem. It helps you recognize these differences and serve a wider range of people more effectively by enabling you to tailor your marketing approach according to the varying needs of all such segments. This way you can always stay one step ahead of your competition, offering new products with greater value if necessary.
One major benefit if customer segmentation is the effective allocation of the finite marketing resources because it is understood that costs vary significantly for each segment. As a result, the opportunities relevant to cross and up-selling are also maximized for the company.
How to improve customer segmentation skills
Here are a few tips to help you improve your customer segmentation skills:
- Define your goals clearly. You must always begin with the end in mind i.e. know what it really is that you are trying to achieve. This drives not only the segmentation but also your strategies to manage the built segments. Since there are infinite number of ways and characteristics based on which customers can be segmented, the best approach can only be chosen with clear business goals in mind.
- Avoid over-segmentation. The large amount of customer data can sometimes be overwhelming. Once you have discovered the segmentation potential, it tends to be a slippery slope leading to the formation of too many segments. Therefore, you should be careful in the process, ensuring that the segments are generic enough to help you target a greater number of users. One best way is to follow the three-adjective rule, suggested by frank luby of presenttense. According to this rule, any segment that cannot be described using three adjectives is too complex to use.
- Back the segmentation with research. Your segmentation efforts should never be based on guesswork. Instead, it should be all about grouping your database records such that it feels that the customer has placed himself in a particular group or segment through his own behavior. So, the segments should never reflect your intuition instead of customers’ behavior.