Customer Segmentation Definition
“Customer segmentation can be defined as the action of grouping similar customers into categories to customize offerings and actions based on their profiles” – Forte Wares, in the book Credit Card Customer Segmentation: Essential first step for a profitable credit card customer portfolio.
By dividing the customer base, companies can target individuals based on common characteristics so that it can market to each identified group effectively. Segments are created based on different factors such as gender, location, age, interests, income groups, and buying habits.
The entire process of customer segmentation needs a well-planned and detailed strategy for grouping customers based on several factors. Customer data from interviews, surveys, and social media forums need to analyzed to create segmentation.
Customer Segmentation Advantages
1. Focused messages
Customer segmentation creates specific groups of customers with similar likes and dislikes. This is advantageous to a company as it helps to create a very specific marketing message, which is as per the taste of the recipients. This increases the chances of conversion.
2. Customer Retention
When a company has customer segmentation, it becomes easier to connect to the customers based on the likes and dislikes of the group. This brings about a personal connection with each customer segment. This will eventually lead to customer retention.
3. Customer Relationship
Customer segmentation gives an opportunity for better customer service as it is targeted to a specific group of people. The resolutions can be crafted with exceptional care as the company already knows the customers based on the segmentation. This leads to a better customer relationship.
Customer Segmentation Example
Zillow, a real estate and rental marketplace, makes use of customer segmentation so that it can design the right marketing messages to the right customers based on their preferences. When they have a set of people who are looking out to buy a home, they target such customers and send emails giving details of homes in their preferred locations. They also send out communication relating to the price changes regularly.
By using the customer segmentation, Zillow has been able to achieve a 161% lift in their open rate and an 18% lift in their click-to-open rate.