Why Customer Segmentation Is Good For Business

Why Customer Segmentation Is Good For Business

Last week we wrote a high-level overview about the importance of taking a customer-centric approach to your retail strategy.

However, to dive a little deeper into the concept of customer centricity, it’s necessary to discuss customer segmentation as it’s the first essential step in moving your organization toward an increased focus on your customer – which in turn will reduce inefficiencies and improve the bottom line.

Let’s start by defining customer segmentation.

Noun: the practice of dividing a company’s customer or prospect base into groups of individuals that are of similar types in specific ways relevant to marketing, such as age, gender, interests, spending habits, and media preferences, in order to sell to each segment more effectively.

Because not all customers are the same, taking a one-size-fits-all approach to your marketing, as opposed to a segmented approach, wastes time and resources.

By combining household-level data with your transaction data, it’s possible to identify buying patterns that will help you develop your customer segments.

Then based on the profile of each customer segment, you will develop a deeper understanding of those customers’ needs, tastes and spending habits. This allows you to personalize your relationship with your customers because you know how, where and when to direct your sales and marketing activities.

You’ll be able to tailor your messaging and engage in conversations with your different customer segments in relevant, meaningful ways.

Measuring sales per customer, profit per customer, and cost to acquire also becomes easier because customer segments are relatively stable over time.

Furthermore, as time goes on, you’ll be able to refine your advertising and promotional efforts to hone in on which customers will respond to which offers.

Segmentation will allow you to streamline your advertising and marketing efforts, which will cut costs while identifying future high-value customers faster.

However, it’s not only the improved marketing and advertising to existing customers that will drive higher growth and profits, but also the more effective marketing to prospective customers based on your now comprehensive customer insights.

By understanding what your best customers look like and which ones respond best, you can fine-tune your targeting of potential customers – ultimately driving momentous improvements in cost per conversion and return on investment.

The Bottom Line

Aligning your sales, marketing and merchandise mix with a customer’s buying process makes it easy for customers to choose you once they’re ready to buy.

Customer segmentation provides the insights into consumers’ needs and preferences across a wide range of dimensions that allow you to evaluate the fit between how you serve your customers and how they want to be served.

Learn more about the steps involved when putting your customer at the center of your growth strategy by downloading Buxton’s latest report: The Four Data-Driven Steps to Customer Loyalty.