Effective Customer Segmentation Strategies: what works best for my business?

Regardless of the type of business you’re in, segmentation of your customer base can increase sales, and improve loyalty, experience and satisfaction.

Segmentation enables stronger personalisation. Offers to a customer can be more specific to their particular needs and preferences, so they are more likely to respond positively.

Communications can be delivered via ‘personalised’ messaging and promotions. Most of us get such ‘personalised’ offers sent to us daily, especially if we have subscribed to various retailers or online marketers.

Most marketers will have segmented their subscriber database by past purchases or behaviours, so the messages and offers they receive are more likely to be of interest and relevance. This is basic ‘Database Marketing’ to identified customer segments.

AI & Machine Learning is now enabling ‘real time segmentation’ by analysing what users watch/listen to, how long they do so, and when they stop. This enables marketers like Netflix to create complex audience segments and deliver hyper-personalized recommendations at scale to drive engagement and retention.

Real time micro-segmentation also helps Spotify deliver relevant content at the right moment. Spotify leverages listening behaviour, time of day, and music mood to create dynamic playlists.

Hyper-personalisation can be derived from user behaviour on your own platform as well as their traceable digital behaviour on the web. This can serve up dynamic content to interested users visiting your website and drive greater conversion.

Real-time segmentation, and most database marketing is based on observed behaviours. It enables an understanding of what people purchased in the past or the type of content people consumed before and are therefore more likely to consume in the future, ie “You may like this’. Often there is only a matter of seconds to keep users on your customer journey down the purchase funnel.

However, despite all the data processing sophistication and predictive power of AI/ML it still fails to understand the ‘why’?  Why did someone watch a documentary rather than an adventure film or ‘chic-flick’? Why did they buy this product rather than a very similar other one at the same price point?

Adding psychographic insight to a segment, can provide this insight.

Understanding the psychology that underpins a customer segment enables the marketer to appeal to their underlying needs, motivations and values. When we understand the psychological needs and drivers of customers in any segment it makes targeting much more precise, and communication far more effective.

Psychology also helps us understand how customers make their decisions, so we can explain why they buy certain products or services and not others. Why they watch certain types of programming. Demographics alone cannot do this.

‘Psychographic segmentation’ is a much more powerful tool that drives real business results.

If you have not segmented your customer database or you want to make your database marketing more effective with psychology and AI/Machine learning, contact us.