Hello, and if you've been following our blog series for retail marketers, welcome back!
In this fourth part, we explore customer segmentation. It's the third of our top five metrics and insights to boost customer acquisition, retention and engagement, and follows our blogs on data literacy, single customer view and customer lifetime value.
What is segmentation?
Marketers will be familiar with segmentation - it's a well-established technique to group together customers (and prospects) who have similar, and relevant, attributes and behaviours. Segmentation analysis enables you to understand customer behaviour and drive future behaviour through marketing actions.
It’s well established as it's a very effective way of understanding and managing your relationships with customers and driving long term value.
How to segment customers and prospects?
There are many segmentation models covering demographic, geographic, behavioural and value-based attributes, and one size does not fit all. It’s important to determine what’s right for your business based on your objectives and Datitude's golden rule is to only create a segmentation model if you can (and will) treat each segment differently.
Examples of successful customer segmentation models include:
Lifecycle stage – prospects, subscribers, active customers, at risk, lapsed and dormant customers
Customer lifetime value and order count – how much each customer is worth and the total number of orders placed across their lifetime with you
RFM (recency, frequency, monetary value) – this is a proven marketing model used to identify which of your customers are most likely to purchase again. It brings together how recently, how often and how much money a customer spends with you. The model predicts that the most recent, highest frequency and highest monetary value customers will be the ones that are most likely to buy again.
Whatever segments you use, we'd recommend you regularly review and revise them to make sure they’re relevant to your business and market. For example:
How are you setting the cut-off for a “high” average order value relative to your average order value and vertical benchmarks?
At what point should an active customer be re-classified as lapsed? If you’re dealing with fast-moving consumables and a customer’s last purchase was over 6 months ago, it may be more appropriate to classify them as lapsed. Conversely, if you’re selling large ticket furniture items, it wouldn’t be.
A good CDP (customer data platform) will enable you to manage and analyse customer segments dynamically, including slicing and dicing data in different ways for more sophisticated analysis and deeper insights. Email services providers and marketing automation platforms may also offer segmentation capabilities.
Why is segmentation important?
It's vital for any customer lifecycle marketing as it provides rich insight on commonalities within groups, including demographics, geographies and behaviours, to inform and change your marketing actions, to maximise a customer’s value and grow revenue.
It’s also a key enabler for tailoring and personalising marketing campaigns to specific customer groups to drive acquisition, retention and engagement.
How to use customer segmentation?
You can use segmented data to drive efficiencies in your marketing spend and build lasting connections; targeting prospects and identifying opportunities to cross-sell and upsell products and services to customers.
Segmentation use cases really are endless. Some common ones include:
Understanding what’s happening within segments (eg. new vs returning customers, revenue, products purchased, returns, frequency and order value) and why
Spotting potential VIPs early based on repeat purchase activity
Identifying customers at risk of churning
Identifying and targeting lookalikes based on specific segments
Establishing when to offer a promotional discount, and to whom (and when not to)
Nurturing VIPs
Establishing opportunities to re-engage with lapsed high-value customers.
We’ve now covered single customer view, customer lifetime value and customer segmentation in this blog series. The final two in our top five metrics and insights to boost customer acquisition, retention and engagement are:
We'll look at the importance of understanding the relationship between products and customer loyalty next time and how to gain the insights that matter. Follow us on LinkedIn if you’d like to be reminded when new blog posts are published.
About Datitude
We do data! Datitude is a fast, robust, customer and retail data platform that helps businesses make sense of their data. Combining data warehouse and data lake, systems integration, and business intelligence, Datitude's platform integrates, processes and unifies your key data from multiple systems and channels, both on and offline, to unleash the most powerful customer and trading insights. Whatever the data source, we can process it.
Business intelligence, reports, and analytics are built-in and automated as standard, including visualisations and sophisticated interactive dashboards. Get a single customer view, lifetime value, segmentation analysis, product and customer loyalty analytics, device insights, and more.
If you need to turn your data into valuable intelligence, insight, and action, let's talk!