Customer Segmentation Basics Explained

Customer Segmentation Basics Explained

We all want to get to know our customers better. To understand our customers better, we need systems in place to acquire and analyze data, we need the right approach to using that data, and we need to be able to compromise. We also have the right approach; we want to use this data to better understand our customers and provide a genuinely useful service. But how much should we compromise? Needs-based uses information gathered through thorough market research and interaction to divide customers based on their needs. We think we know our customers – and we are sure that we know our business – and so we make assumptions. The data is there; it is up to you to use it. Interactions develop and flourish, our marketing automation platforms feed more and more data into our organizations, and our situation hand becomes stronger. This is the nature of the compromise we are aiming for. With this level of business intelligence, client understanding and marketing savvy, the sky is the limit for what your business can achieve.

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Customer Segmentation Basics Explained

We all want to get to know our customers better. If we could wave magic wands and have customers walking directly into customized products and services tailored with them specifically in mind, we would. Unfortunately, business – and life – does not work that way.

To understand our customers better, we need systems in place to acquire and analyze data, we need the right approach to using that data, and we need to be able to compromise.

With marketing automation, we already have those systems implemented throughout our company. Marketing automation systems provide us with the insight we need, as well as the means of storing and reporting on large amounts of customer data. We also have the right approach; we want to use this data to better understand our customers and provide a genuinely useful service.

It is the final element – compromise – that can cause difficulty. In essence, customer segmentation is one big compromise; we want to understand our customers on an individual level, but this is impossible. So, instead, we divide our customers into convenient groups and aim to meet their needs in as direct a manner as we can.

But how much should we compromise? How can we get the right balance and provide our customers with seamless services and support?

Segmentation aims

To begin with, we need to devise our aims for segmentation. Writing for OpenView, Tien Anh Nguyen defined the three types of customer segmentation. These classifications are a priori, needs-based, and value-based.

A priori refers to simple segmentation along a range of general characteristics. These might include gender, age, income level, or engagement medium. This is the most basic form of segmentation and uses information that is freely available to numerous other parties. This limits the usefulness of a priori segmentation.

Needs-based uses information gathered through thorough market research and interaction to divide customers based on their needs. This is a far more sophisticated form of segmentation than “a priori”, and goes some way to forming a profound understanding between customer and business.

Value-based segmentation divides customers along boundaries of overall value. This requires the harvesting of data from customer and client interaction over an extended period.

While Mr Nguyen is writing with specific regard to the B2B market, this model still applies to B2C businesses. In order to create manageable and useful segments of customers, we…

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