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Quick Guide to Customer Segmentation: Definition, Types, Methods, Pros, Cons and Solution

Table of Contents hide 1. What is Customer Segmentation? 2. What are the methods for carrying out Customer Segmentation? 2.1.…

Last updated on March 26, 2021

Imagine pitching premium products to customers, who hardly visit your store, will that help? Of course, this won’t. Or say, there is a female customer X whose past purchase history reflects the inclination towards cosmetics and you are notifying her about men’s accessories, again does this generate leads?

It doesn’t. In fact, you will only shoot up the marketing expenses with minimal or no returns. This is where the idea of customer segmentation analysis peeps in. This guide is specifically designed to educate you on customer segmentation and how does it help optimize your marketing efforts.

What is Customer Segmentation?

In simple terms, customer segmentation is the process of dividing customers into groups based on certain factors

The sole purpose behind such segmentation or customer division is to improve the norms of marketing, in a way personalizing the entire process.

– Meaning that customers having similar characteristics or exhibiting similar purchasing behavior are grouped together.

Customer Segmentation can be done in a number of ways and adopting multiple approaches.

What are the methods for carrying out Customer Segmentation?

a) Segmenting by value

As specified by the term, value-based segmentation is differentiating customers with respect to their economic value. Users possessing similar economic standings would be clubbed into a single group and marketing initiatives would be then targeted as per the norms.

b) Segmenting by needs

This demarcation is based on specific needs as expressed by the customers for a particular product. For instance, customers that show interest in buying a particular product during a specific time are segmented in a particular group.

c) Priori Segmentation

If you are looking for something more generic and on a broader basis, priori segmentation is one of the simplest forms of customer segmentation analysis and is based on the size of the industry/organization.

Following a similar analogy, the customer segmentation process could include the following base factors:

What are the Common Types of Customer Segments?

1. Demography

Segmentation of customers based on their age, occupation, gender, income, etc is demographic demarcation. Imagine having a separate group of customers that have females of age 18-28. Separate marketing strategies are used to target each of the groups.

2. Geography

This is the line drawn between people belonging to the state/city/region/country.

3. Behavioral Data

Such kind of differentiation is basically driven by the purchase pattern and spending behavior of customers. There will be few who are more inclined towards premium products whereas some would always look for the cheapest products.

4. Psychographics

Psychographical segmentation is described based on the lifestyle and personality of people. Imagine a few ordering organic products frequently. So, your store can then have a well-personalized marketing strategy to target customers belonging to a particular segment.

How segmentation saves marketing efforts/costs and generates high RoI

With that being said, one question that arises here is why is it important to have customer segmentation analysis? How does the method affect marketing efforts?

Experts from HubSpot reveal that customer segmentation analysis has allowed them to personalize their content and target newsletters based on customer interest. This accounted for a major drift in click open rates with a 43% increase.

It is pretty clear by now that customer segmentation is all about grouping your customers in a way that ones with similar characteristics lie under the same segment. Once done, the marketing team can then draft plans and marketing strategies specific to a particular group.

Another survey shows the organizations that employ customer segmentation in their marketing funnel witness a 200% greater conversion rate.

Benefits of Customer Segmentation

  • Improving your whole product: Customer segmentation helps you better understand your customers and their needs. You can use this learning in improving your product and increase the satisfaction level of your existing and new customers.
  • Improving marketing message: Similar to improving the product, customer segmentation also helps you laser target your marketing messages and in the bargain increases conversions.
  • Allowing your sales teams to perform better: By understanding your customer segments, your marketing team easily create strategizes for them. Customer segmentation provides marketers all the information they need to pitch products, create sales pages, write emails etc and they no longer need to resort to trial and error. This not only saves time, energy, and money but also leads to an increase in profits and revenue.

Summarizing the above, consumer-based marketing helps personalize the offerings, etching higher sales and boosting results.

Why RFM is the preferred customer segmentation method?

Irrespective of the type of business you are in and the marketing plan adopted, a single factor for segmenting customer isn’t right. It could so happen that you have a customer that made a high-value purchase. If you segment customers based on the monetary pricing, he/she might rank first.

What if the purchase was made long ago and is the only purchase made, will targeting the customer help you? Odds are you won’t even get a click open rate. Hence, the RFM method.

RFM stands for

● Recency: When was the last purchase made?
● Frequency: how often does the customer initiates a purchase?
● Monetary: the value of the goods purchased?

Read more about RFM segmentation

This is the best way to segment customers as it considers all the important parameters like recency, frequency and monetary before categorizing customers into various groups.

Now that we know the best segmentation strategy let’s look at how to do it practically.

Difficulties in doing Segmentation manually


As easy as all of this seems to be, they are packed with challenges and bottlenecks.

  • No matter how efficient you are in your calculations, there might arise technical errors or irrelevancy of data.
  • It might so happen that the data you have is months old and valueless today.

NOTE: It is important to take all of this into consideration while working on customer segmentation analysis.


One Click Way to Customer Segmentation Putler

Putler Reporting Overview

When you are a business owner and have thousands of customers, segmenting them manually would do no good.

Here comes the role of Putler in the picture.

A dedicated RFM analysis and segmentation tool, it helps you set up different rules and charts to find your best value customers. It has an intuitive dashboard that helps you select the period for which you wish to have the chart displayed.

Free RFM analysis for your business

Putler offers a free 14 days trial. You can connect different data sources to Putler and get complete RFM segmentation done for free!

Take free trial and get RFM analysis for your business

But is it just the RFM factors that can be used? How about segmentation based on geography, product, or price?

How does Putler help Segment Customers? (With examples)

Segment based on Shopping Behavior

Putler's RFM Chart
Putler’s RFM Chart

Ever felt the need to export the list of customers segmented based on their shopping behavior and send them marketing campaigns? Then Putler’s RFM segmentation is the best for you.

Imagine the loads of work you need to do when pitching email marketing campaigns. Don’t worry. Putler cuts the whole process and comes up with an optimized approach. For instance if you have come up with some exciting holiday season sale and offers, Putler allows you to have a high end view of the figures and the conversion rates so that you would know which segment to target and how.

Cool right? Let’s go to the next form of segmentation that Putler provides…

Product based segmentation

Nothing to worry here, because Putler has an easy to use dashboard that gives you the option to locate for customers that have purchased similar products!

Geography Based Segmentation

Pitch products based on the location of the customers.

Price Based Segmentation

Another fine example of using Putler would be to pitch products based on the price.

6 Practical Ways to Use Customer Segmentation

Now that you know how Putler helps you segment customers based on different parameters (easily), here are some ways you can actually use the customer segments.

Send out targeted emails based on Customer’s shopping behavior

For this, we will use Putler’s RFM segmentation. The reason being, RFM segments customers based on their buying behavior.

You could send out multiple targeted emails like:

  • Send out time-limited discount coupons for people who are in the hibernating segment and tempt them to make a purchase
  • Send out store credits to segments who are lost, about to go to sleep.
  • Build better customer relationship with your loyal, champion segment.
  • Collect feedback

    Feedback is always a great way to get some valuable insights from your customers. You can collect feedback from two segments namely New Customers and the ‘Customers that asked for a refund’.

    • New customers – You can easily find out your new customers by going to Putler’s Customer Dashboard and selecting the Customer Type Filter as New. Remember to keep the date period as 90 days. And send out a feedback email for everybody who has been your customer for at least 30 days.
    • Refunded customers – For this, go to Putler’s Sales dashboard and select the Status filter as Refund. Send them an email asking them about the reason for the refund. Hear out their concerns and find a way to address them.

    Convert lost leads

    By lost leads, I mean customers whose subscription has gone in the Failed state. You can find this segment within the Transactions Dashboard and select the Status filter to Failed. You can send them the steps to reinitiate their subscription and in the bargain close some more sales.

    Run festive discounts

    For this you can use the location based segmentation within Putler. You can go to the Sales Dashboard, select the Location filter to whichever country that has a festival coming up. Say select Ireland and send out festive discount to all your customers from Ireland during St. Patricks Day.

    Upsell relevant products

    Suppose you have a new improved variant of a product A or you have a complementary product to product A, go to the Customers Dashboard, select the Product filter as A and send out an upsell email to everybody who has purchased product A. Since it a relevant upsell, there are chances there your segment will purchase the new offering. Thus increasing sales.

    Welcome new customers

    Similar to feedback emails, you can send out Welcome emails to new customers who have just joined your business. Again go to the Customer’s dashboard, select type a New and keep the period as a week/month and send out welcome emails to the new customers.

    Conclusion

    Customer Segmentation is not a one-time process but a long journey and a repetitive one.

    Customers’ buying behavior keeps changing and in order to unleash the true potential of the process, it is best to keep refining your segmentation list and modulating customers based on different factors.

    Ready to track and grow your business using Putler?

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