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Why Customer Segmentation is Important

Do you know how to group your customers and target them with the right message? Here's why customer segmentation is so important, and how to get started.

Alison Sperling

Alison Sperling

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Successful marketing campaigns deliver a timely message that resonates with each customer. 

As you already know, sending only one message about your products and services to a huge group of people won’t accomplish this. In the dynamic modern digital space, mass marketing efforts won’t yield the results your business seeks. 

Instead of a one-size-fits-all approach, focus on marketing strategies based on segmentation. 

Here we dive more into why and how you must segment customers for marketing communications. 

What is Customer Segmentation?

Grouping customers into targeted groups, or segments, is customer segmentation. You can segment based on any data you have, but the goal is to create segments that share similar needs and communication channels. 

Some customer segments only utilize one data point. One example for a sports franchise is a binary segmentation of fans who have purchased season ticket packages in the past and those who have not. Other customer segments are very focused and utilize a variety of customer data. An example would be targeting fans who bought 5 tickets to at least one family fun themed game last season.

 The basic steps to creating customer segments include:

  • Customer data collection
  • Analyzing customer data
  • Determining the customer segmentation criteria 
  • Choosing the most relevant segments
  • Developing and implementing the best unique marketing strategies for each segment 

Common Segmentation Descriptors

Leveraging your data, you can perform advanced analysis to implement a sophisticated segmentation. 

At some point during your marketing strategies, you may use each one of these group categories:

  • Geographic: Location-based segmentation that groups customers based on their location. It can be broken down by national vs international, certain regions, states, cities, neighborhoods, etc. depending on your goals. Sports teams may focus on marketing home games to local fans, and away games to fans who live near the away team stadium. 
  • Demographic: Personal information about the customer like their gender, age, income, or education. This is basic information about who the customer is. In general, a women’s fashion brand may aim to target customers who identify as women and fit within a certain age range. 
  • Psychographic segmentation: Psychographic data includes the customer’s lifestyle, social status, and worldview. It’s a general description of the personality of the customer. 
  • Lifestyle: The habits and hobbies of customers (holiday preferences, sports, fashion). 
  • Preference: This may include communication opt-ins/ preferences as well as the preferred channel and time for communication. 
  • Behavioral Segmentation: What are the customer’s buying habits? The type of user a customer is may include transactional behavior, category spending, price points, and more. 
  • Loyalty: Relevant to businesses with loyalty programs, loyalty segmentation may include points earned and redeemed or recency, frequency, and monetary score. 
  • Value: The lifetime value in revenue that a particular customer offers. For certain offers, you may want to target the most valuable customers. 

Benefits of Customer Segmentation

Successfully using customer segmentation will drive higher response rates to your marketing campaigns thus driving more revenue and at a lower cost of acquisition. According to the Harvard Business Review, companies that tailor their offers to segments experience 10% higher growth rates than those who do not personalize their messaging. 

Here’s a closer breakdown of the reasons to segment your customers:

Personalized Messaging

Regardless of if you are using social media, emails, SMS, or another contact method, personalized messages resonate better. Segmentation helps you craft messaging that adheres to your brand voice but is tailored to the different customer segments. You’ll deliver the correct message to each customer, increasing the impact of the message. 

Upselling and Cross-Selling

Based on the buying behavior of your groups, you can leverage opportunities for upselling and cross-selling. You will be able to identify which segments are most likely to purchase additional products/services. 

Consider a sports franchise looking to drive ticket revenue. Some examples of use cases include: promoting a multi-game ticket package to customers who have purchased tickets 1-3 times in the past, season tickets to customers who purchased tickets to 4+ games last season (but not season tickets), and upgraded seats or a suite to current season ticket holders. 

Customer Retention & Churn Prevention

Segmentation may help you identify groups that are at risk for churn and may require additional attention, as well as those with the highest potential value. Based on these identifications, you can better craft targeted marketing strategies to engage customers and improve their experiences. 

Higher Customer Satisfaction

Improve customer service with segmentation. Understanding your customers better will also help you understand their needs, pain points, and churn risks. This can help you craft a more robust and targeted customer service strategy with your customer service teams. It can help you focus on the best channels for customer service for various segments as well as specific messaging. 

Improve Customer Loyalty & LTV

Utilizing customer segmentation to personalize messaging, upsell and cross-sell appropriately, prevent churn and improve customer service will all lead to huge KPIs for your business like higher LTVs.

Data for Customer Segments

To create effective segments, you need to draw from the best data source. Data quality management is arguably the biggest challenge in creating customer segmentation. Collecting all of the necessary data is complex, especially when considering all of the different channels you must evaluate. It’s imperative to focus on proper data quality and management, especially first-party data. 

Multiple Data Sources

One major challenge that organizations face regarding segmentation is that they have multiple data sources. To perform an effective customer segmentation analysis, you must have a comprehensive collection of data. For example, sports franchises need ticket purchase data, game attendance scans, social media followers and more.

The need for a single source of truth for data leads many companies to Customer Data Platforms (CDPs). CDPs attempt to centralize customer data from multiple channels, but they include several limitations, like time-consuming setup and maintenance. In reality, CDPs are not the future, nor the best solution for segmentation. 

Utilizing the Data Cloud

In order for you to have confidence in the customer segments, you need to utilize the single source of truth for your first-party data. The Data Cloud, or data warehouse, is the best place to collect, organize and store this data.

Customer Segmentation is Crucial

As we’ve outlined above, customer segmentation is no longer a differentiator for your business, it is now vital for successful marketing strategies. The better you know your target audience, the better you can develop offers for them, resolve their challenges, and market to them.

Effective customer segmentation can help you address the following key business questions:

  • Which groups of customers does our business currently service?
  • Who are the most profitable customers? Who are the least?
  • What is most appealing about our product/service to customers?
  • How do our products/services address our customer’s pain points?
  • How can we improve customer satisfaction?
  • How effective are our various sales channels?
  • What are the best challenges for communication and customer engagement?

Flywheel Software for Segmentation

For the easiest way to segment the data in your data warehouse, turn to Flywheel Software. Our customer segmentation platform runs in your data warehouse, leveraging your single source of truth data. The visual audience builder and automatic audience sizer empowers marketing teams to create intelligent customer segments. 

Easily activate these segments in all of your preferred marketing channels without coding or leaving your data warehouse. Craft your customer lists in minutes, without any SQL. Send your segments to over 30 destinations and then easily measure revenue lift for each customer segment. 

Take advantage of all of the key benefits that segmentation offers with the help of Flywheel Software. Learn more about how our platform can streamline your segmentation and improve your personalized marketing efforts today. Contact Flywheel today!

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