In a fast-paced market, relying on years-old analyses can be detrimental when making important decisions. Demographics change, tastes evolve, and channel preferences modernize again and again.
Segmentation helps you understand the real drivers behind your customers’ purchase decisions. Those drivers are usually a blend of:
- Sociodemographic factors (location, age, income…): these factors are not going away any time soon, of course, but they don’t tell the whole story.
- Behavioral indicators: what customers do, what they say, the channels they choose, the transaction frequency, etc. They all contribute to a better understanding of the real customer categories.
- Psychographic (B2C): one’s attitudes, aspirations, values, etc.
- Firmographic (B2B): related to organization attributes (sector, size, financial performance…).
There are two main reasons to conduct segmentation:
- (In)Validate business hypotheses: when you already know the question you’d like to ask. For example, “Is age a factor in purchase behavior?”
- Explore new segments: through advanced analytics, we can also explore the data without a specific goal at first and let segments appear. Then it’s up to us to identify together the segments that deserve further scrutiny to validate newly-found business questions.
Benefits of segmentation
There are many benefits to segmenting your client base, refining it, and updating it over time.
Here are just a few:
- More efficient, more targeted marketing: no longer overspending with generic and vague value propositions. Address specific groups of people in ways they can relate to
- Increased customer loyalty: when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand
- Differentiate from the competition with more personalized communication
- Identify niche markets: segmentation can uncover underserved markets and new ways of serving existing markets
- Easier ways to identify up-/cross-sell initiatives
- Fine-tune your product/service development in line with the wants and needs of the most strategic segments