To create a loyalty marketing strategy, it is critical to understand that every customer is unique. Every member has different needs, preferences, communication channels, behavior, and emotions. Approaching all these unique members as one via mass communication is a big mistake when trying to scale your business. Segmenting your customers is absolutely critical to your success. But what is customer segmentation, why is important, and which segmentation models should be considered?
Customer segmentation is the practice in which marketers divide their customer base into specific groups in order to deliver more effective communication and a personalised experience. These segments can be based on one or several characteristics that clients have in common, such as demographics, psychographics, preferences, or even behavior.
Benefits of customer segmentation
Defining a customer segmentation strategy will bring a variety of valuable benefits to any business. Here are some examples of why customer segmentation should be a top priority:
- More effective communication
Brands who understand the importance of customer segmentation have the greatest chance of hitting their target. The messaging used for a 20-year-old female shouldn’t be the same as the messaging for a 60-year-old male. A deep analysis of your customers will lead to a more personalised experience considering the segment group and the channel they are being communicated through. Ultimately, this will translate to higher response rates and engagement.
It is also important to consider the number of times per day and days per week a customer should be contacted. Optimising the communication time will prevent overcommunication and its potential consequence of losing the customers’ trust.
- Improve marketing ROI
Effective customer segmentation also helps in allocating internal human and capital resources. Companies can determine which groups will be more and less profitable, and decide which ones deserve more or less attention. The final result – your revenue will grow while simultaneously stabilising your customer base.
- Increase customer lifetime value
Improving the customer experience naturally leads to increased engagement. The key is to then maintain this engagement over extended periods of time. Some techniques to achieve this include custom offers tailored to the preferences of specific groups. This, together with recognising their loyalty to your brand with incentives (coupons, rewards or promotions), all lead to gaining a larger share of your members’ wallets and spend.
While most brands tend to target their top spending customers to reward them and maintain their engagement, it is imperative not to forget about your underperforming members. Those who gave the company a high benefit in the past and whose purchasing trend has dwindled over time can receive special attention in order to bring them back to their old spending habits
- Product improvements
By understanding what motivates customers to buy your brand’s products, you can then tailor offers to better suit client needs. This will maximise customer satisfaction, and in turn, create brand ambassadors. What is better than a happy customer recommending your brand to their friends?
- Separate your brand from the competition
All the customer segmentation benefits detailed above not only enhance clear distinctions from your competitors, but also prepare your brand to adapt to any and all market changes. Clients can be impulsive, and their opinions, behavior and needs can vary often. Executing customer segmentation means being ahead of the curve in terms of upcoming trends, understanding the clients’ new priorities and adapting to them.
When embarking on your customer segmentation journey you must first ask yourself the following questions:
- What is the goal?
- What are your brand’s unique selling points?
- How many members of the marketing team will be involved?
Once this is established, the focus shifts to your customer base. Some tasks could include determining the size of the audience, the number of potential segments needed, identifying which customer will spend more and which will spend less, etc.
Then, decide what data needs to be collected and how it will be collected. Remember that this information is crucial when creating your segments, and will be the foundation of the marketing campaigns and initiatives. In order to execute any of these segmentation exercises you must ensure you have access to the most important piece of it all… the data!
To learn more about customer segmentation and how to build an effective loyalty marketing strategy, request a demo with Loyalty Experts!
