When you know your audience well, good things happen. Customer experience, conversions, and your bottom line get a healthy boost. But first, you need to filter out the bottom feeders who don’t value what you have to offer — in order to home in on your money-makers. The best way to do this? Customer segmentation.
What is Customer Segmentation?
Customer Segmentation is a technique used to group customers based on shared characteristics. There are several different ways one can look to segregate their customers, and based on the method used, it can help you better understand your audience, brand, and relationship with your buyers.
Why Customer Segmentation?
Segmenting customers into groups can be beneficial for many marketing strategies. It can allow you to create marketing campaigns catered to a specific audience, develop customer loyalty, and understand your most profitable consumer. No matter how it’s implemented, segmentation helps you promote the right products to the right customer, and overall, provides you with a unique understanding of your audiences.
Typical Segmentation Strategies
Some of the common segmentation strategies revolve around grouping customers based on their shared characteristics. These can vary greatly based on the user’s need, but some that see frequent use include:
- Age
- Geography
- Income
- Marital Status
- Occupation Type
- Customer Relationship Duration (How long they’ve purchased or interacted with you)
These can help you better understand the customer’s interest and needs, which in turn can help support your marketing strategies.
Red Door’s Segmentation Method
What if you could only market to your best customers? Or tell which customers might churn? Red Door’s approach to customer segmentation can help answer these questions, as well as develop efficient strategies to market and interact with each audience.
Our algorithm involves using machine learning and statistical analysis on customer data to derive the firs step in creating a catered marketing model for your audience. Depending on the business model, we take into account several characteristics of the customer and the products they buy to ensure we have accurate and valuable segmentation.
Most use-cases begin with determining what fields are available from the consumer database, and which ones we can use to create a good segmentation model. Some commonly used data points include:
- Customer Sales: Which products they bought, and at what price.
- Customer Details: A unique identifier to differentiate between each customer.
- Customer Age: How long they’ve been with your brand.
- Order Details: Includes information like IDs and purchase dates.
When looking at an eCommerce model, we can implement segmentation with as little as 5 pieces of data: Order date, total price, order ID, customer ID, and optionally, the product SKU. This allows us to not only enable quick turnarounds, but also helps us maintain anonymity of user data and eliminate any need for Personal Identifiable Information (PII).
After ensuring the existence of these fields and checking that the data is clean and accurate, we then score each customer based on their values. This helps provide a net value for our machine learning model to use to segment customers. We rely on a clustering algorithm to support the machine learning model, which, based on data variability, generates 3-5 valuable segments.
Red Door’s Customer Groupings
Our approach to customer segmentation generates groups that provide you with valuable information about the customer base and their relative brand loyalty. These identified audiences will help you prioritize segments and focus marketing and engagement efforts. Identified segments based on loyalty measurements can include:
- Elite Customers: These are your best customers. They’ve consistently topped the list for buying your product most often, most recently, and for generating the most revenue.
- Loyal Customers: These are your repeat customers; people who buy the most often from your store.
- Committed Customers: Customers who buy frequently, but usually don’t spend a lot.
- Regressed Customers: Customers who were in good standing but haven’t bought anything in a while.
Creating these segments can go a long way in determining the best approach for engaging and marketing to your unique audiences. It can help focus marketing dollars toward your most valuable customers, create catered emails to engage with your regressed audience, and provide incentives to people who are advocates of your brand but don’t spend a lot. Overall, this will help you increase revenue, improve conversion rates, and drive-up customer retention.
Ready to Grow Your Business?
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