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CPR Level Up: Customer Segmentation Part 6-Best Practices

As we continue to explore strategies to leveling up, today's blog introduces part six of customer segmentation series. As a refresher, we know customer segmentation is achieved by dividing an entire market demographic into different subgroups to optimize revenue performances. What we know now is that each subgroup offers different priorities, needs, and levels. Customer segmentation helps you discover the problems that each customer has and the opportunity to establish value for your goods and services. Understanding how customer segmentation works, is the key to unlock your business profitability.

Customer Segmentation is the process of grouping existing and potential customers based on shared characteristics. By doing this, businesses gain insights into their needs, preferences, and buying patterns. Two main benefits of customer segmentation exist:

  1. Enhanced Customer Relationship and Brand Loyalty: When you tailor marketing messages to individual customer needs, they feel cared for, leading to more purchases and loyalty.

  2. Improved Customer Experience and Sales: Fine-tuning your approach based on changing seasons and specific needs allows better service delivery, resulting in increased sales demand

Let's examine 10 best practices of customer segmentation courtesy of (Gaille, 2015) article of Entrepreneurship Guide.

1. Keep the goals of your business as the top priority.

Focus on the ROI you are seeing and work to enhance your profitability. Every action that you take should help to improve the visitor counts you’re seeing, conversion rates, and ultimately your profits.

2. The positioning of your product matters more than you think.

You can bring your goods and services to segmented customer groups, but that won’t matter any if your prospect groups can’t interpret the product as something that is valuable. Your key terms and descriptors are an important part of this process.

3. Always take an analytic approach to your customer segmentation.

There are two basic approaches to customer segmentation that businesses may take: analytic or non-analytic.

  • Non-analytic segmentation is more about personal convenience more than anything else.

  • The analytic approach, on the other hand, will give you a more complete look at each market segment and allow you to tailor your approach to every sub-demographic.

4. Don’t dictate your market parameters.

Your products and the market itself can dictate the market parameters for you as you’re looking at each segment. You’ve got to basic options:

  • to take a tactics approach because you have a dependence within your market for what your goods or services can provide.

  • or to take a strategic approach because your market segments are independent, and your offerings are of a want than an actual need.

5. You need to have more than a basic sampling of your customer segments.

If you only have data on a couple dozen prospects from each subgroup that you’ve identified, then you don’t really have any data that can be used. You’ll need to have a large and random sampling from each customer segment that’s been identified so that you can get the marketing information that you’re going to need.

6. Don’t disregard the power of the questionnaire.

Nothing beats a good quality questionnaire when it comes to identifying customer segmentation needs.

7. You need to make sure you avoid segmentation bias.

The biggest problem that every business entity faces in the segmentation process is a bias. Bias happens when questions are asked in a specific way so that they can solicit a specific answer. This alters the data that is received and may even make it incomplete. Be careful.

8. The overall goal is to find the unique values that are attractive.

You can get a lot of original answers to help you segment customers, but it is up to you to analyze the originality so that you can fit them into the unique subcategories you’re identifying.

9. It’s fine to include the human judgment element.

There are two options:

  • use your judgment to fit them into identified segments or

  • create a new segment for outliers.

The first options is better than the second because there can be substantial differences in the targeted subgroup that could make marketing to it virtually impossible.

10. Your job is never done.

Once you identify subgroups, you can keep identifying subgroups that are further down your chain. Every new sub-level offers specific marketing opportunities that can help bring in more profitability.

Customer segmentation is a powerful strategy that helps businesses tailor their marketing efforts to specific groups of customers. By grouping customers based on shared characteristics, you can enhance customer relationships, boost loyalty, and increase sales.

Cheers to profitability!

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