Customer segmentation: understanding, type, function, and example
Ever wondered why many websites offer special time bounds for customers for the first time or specifically for the long term? Why does the company choose to have a loyalty program? Why did students get different offers on Windows users and offices to get different offers? The answer lies in the technique – “customer segmentation”
Unless the company has a very low number of customers, it is not possible or feasible to serve every customer individually.
And even if you want to remain a small business with a focused customer base, making each customer feel connected and personal with the brand is a difficult goal to be achieved.
Customer segmentation is a marketing strategy that helps in this regard, and to find out more about understanding, type and segmentation of customers you can read this article to finish.
What is customer segmentation?
Customer segmentation refers to the distribution of market targets into groups that can be managed and feasible in accordance with shared characteristics to develop effective and appropriate business strategies.
Simply put, the division of segmentation is the process of dividing the existing customer base into a group that can be managed and feasible based on general characteristics such as age, gender, loyalty, frequency of purchases, etc. To target and develop marketing strategies for each group according to it. Characteristics.
The purpose of customer segmentation includes dividing target customers into smaller groups that reflect similarities among customers in each group for –
- Develop a better relationship by understanding the needs of each customer segment
- Identify valuable customers
- Identify cross-selling opportunities and up-selling
- Increase profitability by developing a more effective marketing strategy for each segment
Customer segment type
Developing the appropriate customer segment based on consumer preferences can help adjust marketing communication effectively. There are three main approaches to customer segmentation. This is –
- Priori segmentation: This type of segmentation uses characteristic information available to the public such as industry and size companies to make a different segment of the customer base. Usually, demographic segmentation is done by this customer segmentation approach.
- Segmentation-based requirements: This type of customer segmentation depends on the distinguished and validated drive (needs) expressed by customers for offers. Lifestyle segmentation and value segmentation / benefits are under the approach of this customer segmentation.
- Value-based segmentation: This segmentation approach segments customers based on their economic value for the company. New customers and existing customer segments are included in this type of customer segmentation.
Under demographic segmentation, customers are divided into certain categories of age, gender, income, location, ethnicity, education, work, etc.
This type of customer segmentation works based on the idea that what is interesting for a 18-year-old single student will be different from what is considered interesting by a 50-year-old lawyer, married to two children.
Segmentation of Values / Benefits
Segmentation of Values or Benefits refers to the manufacture of customer segments based on their values perceptions of products / services sold by a company.
Simply put, in this strategy, the company divides segments based on values, benefits, or profits believed by consumers when consuming the offer.
Some important things that need to be considered here:
- This kind of segment only applies to old customers / new customers, but not for new customers.
- Segmentation of values requires substantial analytical insights about consumer behavior from contact points with brands to consumers make purchases / out.
Examples of value segmentation / benefits can include customers who:
- Try to maximize value
- Try to make a profit
New customer segment
The company / brand can also choose to segment its consumers on the basis of ‘new versus existing’. In such cases, the new customer segment will include:
- New customers who have not made a purchase
- New customers who do some purchases (1-2) recently
In the ‘new customer segment’, often the focus is on what tools use customers to find products in the first place.
Furthermore, this will include sub-segments of the ‘involvement level’ owned by users with websites, sales staff, applications, etc.
New customers, if maintained properly, usually turn into a fixed customer. Old customer loyal to your brand. Later, they are divided into sub-segments of frequency visits or purchases, and the reason for buying.
Customer segmentation function
Good segmentation has a significant influence on consumer management. Divide customers into different groups based on characteristics and general needs help market to each segment differently and effectively.
It also helps to focus on the needs of each customer type at certain times. Good or small, special customer segments can be targeted based on company resources or needs.
The following section details the benefits of customer segmentation, and in turn, how any company can grow using customer segmentation:
The correct segmentation strategy allows companies to emerge as an active, firm and even aggressive business. It’s very opposite to the “Spray and Pray” method where brands make advertisements and marketing campaigns but just sit and “hope” so that customers are interested.
The idea here is that after the company understands its customer profile well, chances are that the company will ensure what they need appropriately.
The increase in the amount of sales and income produced, in turn will change the company to have most of the market share. Thus, the company will naturally become more popular and therefore causes an increase in its brand equity.
The ability to develop
Furthermore, directed segmentation allows growth not only in spatial sense but also strategically. Spatial / physical feeling because someone will be able to serve the right customers and turn to areas inhabited by those who are in accordance with the current customer base.
Think of Apple – the first $ trillion company in the world. Initially, this began as a California business partnership. When the company becomes financially prepared to develop, it starts as its service in other metropolitan areas throughout the country.
How did this happen?
Well, Apple segmented and targets certain markets, gaining trust and loyalty. Trust and loyalty are converted to income and allows Apple to expand its customer base.
Increase customer retention
With customer trust, loyalty appears.
The clearest reason for this link is a brand experience – because each brand has helped in the past by serving exactly what customers need and also expected to do it in the future.
Successful segmentation will enable a good connection with post-sales customers.
Through customer grouping into the right subset, what formulation about what else can be offered (in addition) to show the enthusiasm of the company in serving their desires and needs, it becomes easier.
By doing that, there is an increase in the possibility of them back when they need something in the future.
Through customer segmentation based on financial and social status, it will become easier for a brand to offer products or services at prices that are considered reasonable.
Therefore, optimizing product prices will help ensure that customers get the biggest value for their money, and ensure that the company generates the most as much as possible.
Example of customer segmentation
Customer segmentation has been used by many industries. The company divides their customers to sell better, better serve, and maintain a better relationship. Here are some examples of customer segmentation experienced in known industries:
The bank segments its customers based on economic status and its relationship with the bank. Segmentation helps banks to send personalized communication to upsell and cross-sell.
This segmentation also helps him develop a more effective marketing strategy that focuses on the needs of each segment appropriately.
The e-commerce website segments their customers according to the sales channel stage where they are. This helps this website send more effective communication messages (SMS, email, push notifications, etc.) to make it move forward in the funnel.
Online games, often freemium, group their customers according to their activities in games. It helps them find customers who are more likely to convert and make micro transactions.
Segmentation and customer grouping is basically an important thing you must do to increase profits through bidding in the right customer group.
By knowing who customers relate to business, you can better plan promotions and brand introduction and will save your ad costs.
In order for your business to grow and increase the number of customers you don’t forget to advertise through the Froggy Ads service, you can start by advertising your product, so that later you can improve visitors in your online business portal. FROGGY ADS is an online advertising service that can help you control all your product campaigns. Helps you target the targeting target you want and give you many choices to market your product.