The importance of customer segmentation to improve business intelligence

customer segmentation

As the well-known proverb states, “one shoe will not fit every foot”, and the same applies when it comes to customers. Brands cannot simply treat all their customers in the same way. Customers will want and need different things, and, therefore, will expect the brand to deliver an exceptional, personalized customer experience which reflects this. As a result, brands and their marketers will need to develop ways in which they can communicate with, and satisfy, these varying groups. This is where customer segmentation can help.

Customer segmentation “is the division or categorization of prospects and customers into distinct groups”, and can include attributes such as purchase frequency, geographic location, buying habits, and socio-economic groups. Through customer segmentation, brands can drill down into their customer database and uncover insights that may not have been known if they were to observe their customer database in its entirety. These insights can include identifying their most and least loyal customers, opportunities for cross-selling or up-selling, and buying habits. The ability to uncover these insights can dramatically improve business intelligence. Here’s how…

Segmentation by geographic location

Geographical segmentation in its simplest form relates to where your customers live, however, can also provide insight into their local area, including climate, time zone, cultural preferences, and language. This increases the accuracy of your marketing efforts as it allows you to target your customer database more effectively with messaging that is relevant for them. For example, you can send them exclusive vouchers to spend in their local store, promote items that may suit their lifestyle, or notify them of an upcoming event which is taking place in their local area, all of which will improve their customer experience.

Not only will geographic segmentation benefit your customers, but it will also improve your business intelligence. By uncovering insights relating to geographic locations, you’ll gain a better understanding of how each of your stores/branches is performing, which can be used to make important decisions such as where to place sales reps or where to open a new location.

Segmentation by customer demographic

Demographic segmentation divides customers and potential customers based on common traits such as age, gender, occupation, salary, nationality, and family status, and will be helpful when creating your Ideal Customer Profile.

Segmenting by customer demographic can improve your personalization efforts and increase product relevance. For example, a car manufacturer can use the demographic data available to target their potential customers with the car which is best suited to their lifestyle, i.e. if your customer has a family, they may want a car which is suitable for children. Alternatively, if they earn a lower salary, it’s unlikely that they’d be interested in purchasing a top of the range car.

A well-known cosmetics group and BlueVenn customer, used geo-demographic segmentation to segment their customers by gender. With this, they were able to see how the buying behaviors of their male and female shoppers differed according to geographic location. The results allowed them to make data-driven decisions on key aspects of their business, including distribution of stock, staff training, in-store marketing campaigns, promotions, etc. Furthermore, they were also able to dive deeper into these segments to look at sales based on age across various locations, deepening their understanding of their customers and enabling them to improve business intelligence.

Segmentation by customer behavior

Behavioral segmentation is based on the intricate customer behaviors, including purchasing habits, buying frequency, and engagement levels, and will give you access to more granular insights about your customer’s buying journey and their purchasing motivations. For your brand, these insights will allow you to identify your most frequently purchased products, the products with the shortest interval between purchases and repeat purchased rate and can influence what products you advertise and impact future research and development. According to research from McKinsey, “companies that utilize customers’ behavioral data outperform competitors in sales by 85%”.

The same BlueVenn customer used behavioral segmentation to improve business intelligence by analyzing the likelihood of repeat purchases of their various products. By using BlueVenn, they were not only able to identify the product which drives the most sales, but also compare this to the product’s repeat purchase rate. Upon examination, the data showed that the product with the highest repeat purchase rate had a lower number of customers than the product which drove the most sales, meaning that they could use this insight to pinpoint the products that will generate a higher customer lifetime value (CLTV).

Segmentation by product type

Product segmentation is key to business success as it enables you to streamline your product offering to ensure they fit the requirements of your target market. Furthermore, by segmenting your products into various categories, you can evaluate the profitability of each segment or individual product and identify new opportunities or identify the products that may need to be discontinued.

Despite the importance of customer segmentation, it is still a time and labor consuming task for many businesses as they struggle to overcome the obstacles caused by fragmented and siloed data. For these businesses, they must rely on their data analysts or IT department to collate and analyze the data, before sharing with the rest of the team, causing operational inefficiencies and poor return on investment.

To make full use of your customer segmentation strategy, technologies such as a Customer Data Platform (CDP) and Omnichannel Marketing Hub are available to help.

A Customer Data Platform works to maintain a unified marketing database which stores all customer information on a central system. Within the CDP, you can create a trustworthy, clean and reliable Single Customer View (SCV) which combines all your data sources across online and offline channels. The SCV drives intelligence and insight to your marketing team by giving the team access to the information they need in a few clicks, which they can use to analyze data and spot any patterns.

A CDPs capabilities can increase tenfold when combined with an omnichannel marketing hub, and provides marketers with visual, drag & drop analysis and segmentation tools to ensuring that all marketing communications and campaigns are effective. In addition to customer segmentation tools, an omnichannel marketing solution like BlueVenn Engage provides marketers with real-time marketing insights, facilitating the ability to amend, pivot and update campaigns in real-time, thus optimizing campaign results, and reducing wasted budget.

If you’d like to find out more about how BlueVenn’s unique Customer Data Platform and Omnichannel Marketing Hub, please get in touch with us and one of our experienced consultants will talk you through.