What Is Customer Segmentation Analysis?
Customer segmentation analysis is about reviewing how each of your segments is performing. Each business initiative requires regular verification to check if it delivers anticipated results. Without regular checks, you cannot identify problems and suggest improvements, and therefore you put the effectiveness of the process at risk.
Delve into the subject more:
Why You Should Run a Customer Segmentation Analysis
Customer segmentation analysis has a huge potential to allow marketers to address each customer in the most effective way. It allows identifying discrete groups of customers with a high degree of accuracy based on different indicators.
#1. Identifying Your Best-performing Segments to Focus Most of Your Efforts on Them
Knowing which of your segments convert best and why is precious. Not only does it present you with a high upsell potential, as satisfied customers tend to buy more, but you can also spend more time targeting prospects from that segment. You can use this knowledge to better tailor your paid ads – it will save you cash and improve conversion.
#2. Improving Your Ideal Customer Profile Based on Your Highest Performing Segments
Customer segmentation never ends, just like building your ideal customer profile.
The good news is,
You can apply the criteria you used in your highest-performing segment to your ICP. Maybe it’s time to focus more on a location or target different job positions?
It might turn out that Brazilians are crazier about your product than Americans, and it’s worth translating your website and your product into Portuguese. Who knows?
#3. Getting Feedback on Future Product Improvements From Segments With the Highest NPS/CSAT
Customers are a great source of knowledge. Those who like you are especially willing to share it. Use your NPS or CSAT score to identify the most satisfied customers and ask them what they like about your product or service and how it can be improved.
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Talking to customers directly will save you a lot of guesswork. Plus, relying on the suggestions from your highest converting customers should eventually drive more sales.
#4. Getting Rid of Segments Which Have a High Churn Rate
Conducting a customer segmentation analysis is your moment for reflection and your chance to take a step back. If you created a segment that has a really high churn rate, it might be the right time to say farewell to it.
It’s for the better because some of your customers shouldn’t have become your customers in the first place.
Additionally, You’ll know which customers to avoid in the future!
#5. Identifying Segments Which are Underperforming and Finding Ways to Revive Them
The performance of your segments will vary – and that’s OK. It’s worth listing the ones which underperform and come up with tactics to improve them. You might realize that your messaging is poor, and requires changing.
For example, it could turn out that you’re focusing on the wrong pain points in your messaging. Talk to the promoters from this segment, and try to find out what the issue is.
#6. Dividing Larger Segments Into Sub-segments to Better Tailor Your Product/Service
If you have just started segmenting your customers, then you probably have two or three large segments that might be doing OK or not.
Have a closer look at them,
Maybe they’re too large and it’s worth splitting them into sub-segments so you can better tailor your marketing efforts to meet their needs.
Alternatively, it might turn out that you have too many segments, and you’re better off merging them into a bigger one. If you have a lot of small segments that don’t grow, then you’re just wasting your time and attention.
Your segments must be big enough to have a business impact but small enough to easily personalize your product and communication to appeal to them.
#7. Spotting and Filling any Information Gaps
You’ll always have information gaps, as the amount of customer data you can get is pretty much limitless. You have to be creative. If you’re wondering where you can get all this data from, then the answer is simple – through surveys.
The longer the customer is with you and the more personalized their experience is, the more data they’re willing to share – it’s a fact.
To create personalized experiences you need information, which you cannot get all at once. It’s a customer satisfaction process, for example, you could ask your customers every three months how they feel about you and what you could improve.
Getting additional data will help you divide your large segments into sub-segments and as a result, make your customer segmentation more effective.
Customer segmentation analysis requires preparation,
Here is what you need to do it effectively:
How To Do Customer Segmentation Analysis Effectively?
Initially, it might require a little work as you have to list all your segments, decide on the criteria for the analysis, and set your KPI’s. You also have to define what a well-performing segment is, and know your plan of action.
#1. List all Your Segments (and Sub-segments if You Have any)
This one might sound obvious, but if you have a lot of segments, it’s quite easy to forget about some. Especially if you don’t have them nicely organized in your CRM, or if you constantly keep adding new ones.
Actually, you can’t run a customer segmentation analysis without a CRM, it will get too time-consuming and too complex. Also, listing all your segments in a CRM will allow people from different departments to access them, and prevent any data loss.
Don’t worry if you get lost. These 12 Creative Customer Segmentation Examples help you to find inspiration.
#2. Identify Your Criteria for Analysis
Remember about defining your criteria for the analysis. Only then you’ll manage to maintain consistency, and be able to compare results over time. Here are a few criteria you can consider:
This is crucial – if your segments are not growing, it might indicate you got the segmentation wrong, or you’re not putting enough effort into reaching this segment. It might also mean that the segment is too broad, making the messaging too generic. In this case, you’re better off splitting your segment into a few sub-segments.
Customer Lifetime Value
Relates to the total amount of money your customer is going to spend on your products or services. If it’s lower than your Customer Acquisition Cost then you’ll need to figure out why.
How long do customers from each segment stay with you? A high churn rate means you’re not targeting the right customers, or that they’re simply unsatisfied with the product or service you provide.
Net Promoter Score
Use NPS surveys to measure how happy your customers are. Do any of the segments have a particularly high or low NPS? Segments with a high NPS might tell you that this is the group of customers you should focus on in the future, as their needs are met.
#3. Analyze Results
Know your KPI’s – how do you define a well-performing segment? What is a low or high segment growth? What churn rate are you willing to accept? You need to set KPI’s which will drive your analysis and in turn your decisions regarding each segment.
Know where all the data is – the backbone of an effective customer segmentation analysis is the right tools, this is where you get your data from. You can use Chartmogul to access your business data like churn rate, sales growth, etc. Mixpanel to verify how each feature is used, and Google Analytics to check demographics or traffic sources.
You also must have a CRM, to store all your customer-related information. It’s necessary to integrate your CRM with a survey platform like Survicate to ensure a continuous flow of new data.
#4. Take an Action
Agree on the analysis frequency – decide how often to run your analysis. Regularity is crucial, once every quarter should be sufficient.
Agree on the plan of action – each analysis will require action.
- Decide what to do with a low-performing segment – revive it or do you discard it?
- How long do you give yourself before you decide to get rid of a segment or to modify it?
Find answers, that is your mission.
Segmenting your customers without regularly conducting a customer segmentation analysis is wrong. It’s like running a marketing campaign without verifying the results and drawing any conclusions from it.
The more you do it, the easier it gets – if you use the right tools, and keep your CRM updated and chaos-free.
Customer segmentation analysis can bring a lot of benefits. Not only does it let you optimize your segments and focus on the best-performing ones but also get rid of segments with a high churn rate. Remember to continuously feed your CRM with fresh data through surveys.