Customer Segmentation

 

What is Customer Segmentation?

Customer segmentation refers to the process of dividing the customers of a business into groups. The groups are built based on the similarity among customers, the products and services they avail, retention rates, etc. Customer segmentation mechanisms are concerned with understanding different types of customers, and catering to the different needs.

Customer segmentation is of growing importance due to the increase in alternatives for a single product. Customers have different needs, and unless businesses adapt to their needs, customers may find other options that serve them better. Customer segmentation tools can help increase customer loyalty, reduce marketing costs, increase conversion rates and sales. In addition, it helps in maximising the value of each customer to the business. It is used by various business sectors, like car companies, media, skincare and beauty, and retail, and can be based on demography, geography, behaviour and other factors. It is widely used for target marketing and can assess a customer’s value, lifecycle, and migration.

Segmenting customers [1]

Why is it used?

Data for customer segmentation can be from many sources. A customer’s purchase history is a common data source. Factors like the purchase date, frequency of purchases, and timespan are some of the data points considered. Due to the growing usage of social media, social media data is a data source of growing importance. Interactive mechanisms can be established by the business to obtain data. Customer segmentation can be channeled based on the availability of existing data and the scope for data collection frameworks. Accuracy in customer segmentation models involves dynamic tracking and frequent updating of data. 

The marketing team traditionally does customer segmentation. The marketing team may use models like cluster analysis and RFM segmentation to segment customers. Machine learning customer segmentation can provide advanced algorithms to gain insights that marketers may not. The process includes constant testing and optimising, and at times revising the segments to reach better performances. A business can use customer segmentation tools to manage existing customers and induce new customers. Certain customers may stay with a company more than others. It is crucial to identify and classify customers so that resources can be allocated. Engagement strategies can be made to new customers so that they can be monetised effectively. Businesses can build user habits so that there is long term engagement. It is a valuable tool to have repeated customers. Companies can detect and reduce customer churn and analyse the reason. This can support educated decision making. Marketing campaigns can be highly personalised, and engagement strategies can be built. Promotional offers and incentives can be targeted to certain groups. A powerful analytics platform is vital in obtaining and analysing customer data. 

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Comments

  1. Ping Pong13 June 2023 at 01:29

    Great article on customer segmentation! The insights provided shed light on the importance of customer segmentation and targeting in modern marketing strategies. It's fascinating how businesses can leverage these techniques to deliver personalized experiences and improve overall customer satisfaction. Thanks for sharing this valuable information!

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