Top tips for customer segmentation

Consultancy

Understanding your customers and targeting new customers is a critical business function. An essential starting point in understanding customers should begin with an in-depth analysis of your order book. Understanding who orders your products, how they pay, what price they pay and how loyal they are etc will provide you will invaluable information about your business.

The shock of who your best clients are

Many businesses have a perception of who they think their best clients are and this can be based on a number of factors including the volume of orders they place with your company. However, more often than not, these clients will be most demanding. Your larger clients often achieve discounts, special payment terms and preferential treatment, which can incur costs to the business. Whilst these benefits can be associated with client retention policies, they need to be carefully monitored.  Such clients can become marginal or even worst unprofitable through a slow erosion of profit at the expense of volume.

How to check you are not busy fools!

Most businesses follow the parent rule that suggests 80% of your clients take up 20% of your resources, whilst the remaining 20% of your customers account for 80% of your corporate effort. This is fine as long as the 20% of customers are also providing 80% of your profit – but in our experience, they do not!

Customer segmentation

Customer segmentation is a simple process of grouping customers together based on some common attributes. It is important to group customers together in a meaningful way and that is to produce a segmented customer database that can be used in a purposeful way such as to drive retention programs, or acquisition opportunities. An example would be stores cards, and these schemes analyse an individuals purchasing preferences and use this insight to target new offers and discounts to provide retention positive perceptions of the brand to the consumer.

How to segment you customers

There are number ways to segment your customer database. These can range from being product or service based, or perhaps against customer preferences such as online purchases or store visit frequency. Multiple profiles can be built against an individual customer, however it is often limited by the amount of robust information available, which has been collected and relates to a specific client.

Enhancing customer profiles

You can help customer segmentation strategies through enhanced customer profiling. This can include the washing of data from one known database across your own data, therefore enriching your knowledge of your own customers. There are a number of data sources which are available for data profile enhancements, but make sure they all add value to your data and make your marketing strategy clearer!

Strategic segmentation

Make sure you start the process of customer segmentation with clear objectives. Work with the information you have and enhance your data through customer self-profiling, customer research and if needed, data profiling. Once you have profiled your data, use it in your marketing/customer retention campaigns, monitor and modify your assumptions based on your results.

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