The success of your business in today’s world is largely determined by how well you know your customers.
Unfortunately, many businesses have very little understanding of who their customers are and what they need because they want to sell to everyone.
Naturally, this puts them at a disadvantage because their budget is spread too thinly, their marketing message lacks personalization, they generate poor leads and poor profit in the end.
Market segmentation or customer segmentation is the process of dividing target customers or markets into smaller, unique categories based on their interests, needs and other similarities they share.
Benefits Of Customer Segmentation
Sharing your target customers into smaller groups has various benefits, which includes:
1. Effective Marketing
Customer segmentation positions your small business to effectively market its products or services.
It helps your business to fine-tune its marketing message to a select group of customers, which makes it more successful than a generalized message.
When you know who your customers are, how to reach them, what makes them buy and their price points, you can create a marketing campaign that not only uses the right words that would appeal to them the most, but also the right channels that are guaranteed to reach them.
Your marketing would be so personalized that it speaks to them.
Instead of shouting your message to the crowd and hoping to generate good results.
2. Meets Customer Needs
When you’re preparing a dish for 100s of people, it would be very difficult to make it in a way that everyone wants.
For some customers, it would be too peppery, for others it lacks enough pepper and many personal demands.
But that is not the case when you’re serving just one person.
You can prepare the meal in the way that they prefer.
This is the same thing with a business. When your small business is selling to a huge market, it would be difficult to address the needs of customers.
With customer segmentation, the business can personalize its products or services, so it’s better able to serve that class of customers.
3. Acquire Profitable Leads
When you cast your net anywhere, you’re bound to catch different types of fish and other sea creatures.
And for the small business that has not segmented her customers, they tend to well everyone. After all, the more customers the better, right?
The reality however is that some of those customers are not as profitable as others, some even become a liability to your business because they cost more than they are bringing in.
Customer segmentation helps small business owners to generate more profitable leads because their data has shown them which class of customers are more profitable and which are not.
By focusing on generating profitable leads, the business spends less on poor leads and concentrate their efforts on the few profitable leads that would push their business forward.
How To Segment Your Target Customers
There are four ways to broadly segment your customers.
This is when a business divides its target customers based on their interests, age, gender etc.
For a business that serves other customers, the demographics could be the size of the company, industry, revenue etc.
This is an easier and the most popular way to segment customers because it is based on statistics that are easier to get hold of.
Psychographics is the classification of customers based on their traits, beliefs, motivations, and priorities.
As you can imagine, dividing customers by their psychographics is harder to do because it’s relative and not based on any hard data.
When you divide customers based on their response or reactions to your products specifically, then that’s behavioural segmentation.
To classify customers by their behaviour, you need data on how different types of customers have reacted to your products over time.
Your sales information would give you an insight into which customers are making repeat purchases and which ones are buying more.
Now that you know how to classify your customers, follow these steps to segment your customers.
A. Research – Your segmentation must be based on data.
You can use your sales data, focus groups, surveys, or data from various government and private bodies. This research would help you determine who your main customers are.
B. Create Target Customer Segment(s) – Based on your research, you should be positioned to know which types of customers want your products more, what makes them unique and more information that would enable you to create customer segments using any of the categories above.
Choosing one or two customer segments does not mean you’ll have to stick with them forever. Keep testing the demand, researching customer trends and demands so that you can update your customer segments appropriately.