What is Customer Segmentation:

  • In General, it is simply dividing broad consumer or business market into discrete groups/buckets, each bucket having similar characteristics
  • Grouping customers based on shared traits/common characteristics to market to each group effectively
  • Large homogeneous markets can be divided based on similar needs, wants, or demands
  • The division could be based on similar needs or similar customer characteristics or behavior
  • Customer is a holistic term, segmentation is also performed on the prospects, target clients, visitors on the platform
  • Example: An E-commerce store would want to have separate marketing strategies for a customer who buys frequently from the store then someone who buys maybe once every year
  • B2C: Separate products for different segments of customers
  • B2B: SAAS – plans for segments of users

Growth:

  • Moving up from the startup phase (care about onboarding more customers) to expansion stage(limited budgets and mkt. spends)
  • Blanket marketing may not work well with heterogeneous crowd (also expensive)
  • Maximizing profitability by understanding customers is highly important
  • Spending precious human and capital resources efficiently without knowledge of current customer segment not feasible
  • Different value propositions for every group
  • Spend less (on marketing), earn more – optimized marketing strategies per segment

83% of companies use at least basic segmentation for their emails (Source: https://www.hubspot.com/marketing-statistics)

Retention:

  • Knowing your high value customers
  • Analyze Risk of customer cancellation or switching to competitor

Parameters for segmentation:
To determine the appropriate bases for segmenting the market, the very first task is to find the variables that divide the heterogeneous market into some homogeneous segments of similar needs and wants

  • Been around for long (from Fragmentation → segmentation → hypersegmentation)
  • Demographics (b2c) / firmographics (b2b)
  • Geography
  • Industry type/size (Tiers) (b2b)
  • Behavioral Segmentation
  • Cultural Segmentation

Traditional ways:

  • Surveys (sample size)
  • Demographics (age/gender..)
  • Geographical (not hyperlocal)

Current Scenario using traditional methods:
Limitations:

  • Limited contextual understanding – No answer to why a particular segment behaves in a way it does. (The “Why” remains unanswered)
  • Tying multiple params
  • Small sample size – Limited people fill out the surveys. Generalized template, so nuances are not captured
  • Important info cannot be captured and/or remains obscure owing to pre-defined survey format
  • Siloed data – Data not collected from multiple sources. Behavior analytics tools, emails, CRMs et. al.
  • Considering multiple variables/parameters for segmentation
  • Not Hyperlocal

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