Customer segmentation is likely among the most natural business practices out there today. It hinges on a simple truth of everyday life; we all have different backgrounds, innate characteristics, and interests. These and other factors affect which communication styles and methods best resonate with us. They inform our psychology, expectations, and decisions.
In this vein, digital marketing takes up this reality to inform business decisions. Thus, they may use customer segmentation to inform lead generation strategies, personalize outreach, improve post-purchase engagement, and so forth. Of course, all of these refinements aim to increase sales, often by improving the customer experience in customer-centric strategies.
Still, this multi-faceted endeavor may present challenges, so let us explore just how to use customer segmentation to increase sales effectively.
Defining Customer Segmentation
Initially, let us define customer segmentation itself. This practice refers to segmenting and profiling customers based on different characteristics, which typically include:
- Occupation and income
- Race and ethnicity
Naturally, this practice aims to identify different target groups more accurately and inform business decisions accordingly. From content style and tone to outreach frequency and chatbots, different customer segments will react differently, affecting conversions and sales.
Moreover, these demographic characteristics aside, customer segmentation may frequently delve into psychological, behavioral, and other differentiation types. Thus, it’s likely safer to view “customer segmentation” as an umbrella term for different types of segmentation.
Customer Segmentation Types
Customer segmentation may then be divided into many types. Marketers may disagree on the exact number or their unique merits, but typically recognize 3 to 7 types. The 3 main ones are, arguably:
- Demographic; innate characteristics, education, income, etc.
- Psychographic; personality, interests, values, etc.
- Behavioral; habits, recurring behavioral patterns, etc.
Others expand on this list, adding:
- Geographic; location
- Technographic; mobile or desktop use, software, etc.
- Needs-based; group-specific needs
- Value-based; economic value to the business
Notably, not all of these types will have an equal value to all businesses. It’s thus rarely wise to engage in all of them or any that don’t hold the potential to increase sales. Success in business hinges on using the right tools and ensuring a good return on investment (ROI), after all.
Customer Segmentation Software
Finally, on the subject of segmentation tools, there are many software solutions that enable this practice. The most notable segmentation software type is Customer Relationship Management (CRM).
As the name suggests, CRM seeks to manage all aspects of a business’s interactions with customers. To do so, it typically offers a consolidated customer database, marketing automation features, and lead analysis features. Furthermore, CRM is often divided into types for more precise focus into different functionalities:
- Operational; marketing, sales, and service automation
- Analytical; deeper customer segmentation, profitability analysis, predictive modeling
- Collaborative; interaction and channel management
Thus, analytical CRM is often ideal for customer segmentation purposes. Still, all CRM offers new chances for your business, depending on your unique needs and focus. However, it’s noteworthy that CRM solutions frequently differ significantly in features, functionalities, and qualities. As such, careful research is highly advisable. Usability aside, which tackles the common challenge of adoption rates, integration options are crucial in this context. Businesses may use Contact Management Systems (CMSs) and various analytical tools to engage in segmentation, so integration is nigh imperative.
Using Customer Segmentation to Increase Sales
With the above context in mind, let us now explore how to use customer segmentation to increase sales.
For the sake of text economy, these suggestions will start with two presuppositions in mind. One, that you’ve set your S.M.A.R.T. (Specific, Measurable, Achievable, Realistic, Time-Bound) goals in advance. Two, that your sales and marketing teams have both embraced your customer segmentation tools of choice.
1. Create Buyer Personas
The most fundamental step to utilizing segmentation for marketing purposes is to create buyer personas. In essence, buyer personas are buyer profiles that draw from your target audience’s attributes. They are a way for businesses to consolidate their insights into fictional people who embody their target audience.
While opinions will vary, most starting businesses will typically have 3 to 5 ideal buyer personas. To craft them, they draw from their audiences’ primary demographics, personalities, and behaviors. In doing so, they can ensure deeper marketing personalization, and thus higher conversion rates and sales.
2. Use Personas to Refine the Customer Journey
Having crafted buyer personas, businesses may then use them to engage in customer journey mapping and refine the sales funnel. Customer journeys are typically divided into 4 phases:
- Discovery; where the potential customer learns of a business
- Research; where they search the market for alternative proposals
- Conversion; where they make contact to complete a purchase
- Post-sale engagement; where additional communication and customer service take place
Buyer personas assist in this regard in many ways. Businesses may review the customer journey on very theoretical terms, maintaining an inside view of the funnel. Personas allow for a more unbiased exploration of a customer journey by emulating customers’ interests, habits, and pain points.
Finally, it’s worth noting that, outside of increased sales, customer journey mapping offers notable benefits in terms of customer retention. An enhanced customer experience (CX) across the funnel helps ensure higher retention rates. When acquiring a new customer costs 5-6x more than retaining an existing one, this is an invaluable metric to gauge.
3. Personalize Outreach
With such customer insights in hand, businesses may then personalize outreach to enhance their marketing efforts’ effectiveness. This is likely the most direct way to use customer segmentation to increase sales. Among others, consider three primary forms of outreach.
Emails remain a very powerful marketing tool today. Through segmentation, businesses can personalize email campaigns to cater to specific audiences instead of using universal material. From copy, style, and tone to titles and visual elements, different segments will react differently to email marketing material.
Social Media Ads
Similarly, social media ad campaigns are remarkably effective and boast considerable ROI. Moreover, prominent platforms like Facebook offer excellent hyper-targeting and retargeting options. Thus, the deeper one understands their target audience, the more effective their social media ads will be.
Social Media Posts
Finally, social media activity is an increasingly popular strategy to both raise brand awareness and provide post-sale engagement avenues. Customer segmentation insights can thus inform business decisions in this regard, from content creation to post style and frequency.
4. Analyze Up-Sell and Cross-Sell Opportunities
Near the end of the conversion phase, one may use customer segmentation to delve deeper into up-selling and cross-selling opportunities.
“Cross-selling” refers to promoting complementary products and services on purchase. An example of this practice in eCommerce is eBay’s “people who viewed this item also viewed” suggestions on product pages. Banks and insurance agencies also engage in this practice by cross-selling on registration.
Cross-selling hinges on identifying the customers’ needs and tendencies and offering related suggestions of value at opportune times. Interaction records, purchase history, and psychographic and behavioral segmentation can all help reveal such opportunities to increase sales.
In contrast, “up-selling” refers to convincing customers to opt for higher-priced products or services. Unlike cross-selling, this practice relies on affecting customers’ initial choices – often by convincing them of higher value for money (VFM).
Similar to cross-selling, up-selling requires deep knowledge of the customer’s pain points to succeed. Indeed, it does not suffice to present the customer with a better model or premium alternatives. Instead, one needs to know which customers are prone to this practice and how and when to offer alternatives. Thus, customer segmentation can increase sales by enabling up-selling and, in turn, increasing average order value (AOV).
5. Use Chatbots for Omnichannel Communication
Finally, customer segmentation overlaps with AI and omnichannel in the form of chatbots. Chatbots can help enhance customer experience (CX) while also collecting lead data for future outreach and providing customer support.
Initially, chatbots can profile leads that reach your website or eCommerce platform. Then, using tags, they can help segment leads and provide a personalized customer journey. Finally, they can progress each interaction closer to the point where customers provide their actionable data. Opt-in forms are ideal for such data collection, both in terms of efficiency and legality.
Moreover, AI-powered chatbots can facilitate personalized communications for different customer segments. In doing so, they can more efficiently answer inquiries or redirect them to appropriate agents. In turn, agents with CRM access can use historical interaction data to provide quality customer service, enhancing customer satisfaction.
To summarize, there are multiple ways to use customer segmentation to increase sales, which frequently starts with customer profiling. Segmentation can enhance the entirety of one’s sales funnel, starting with lead generation through hyper-focused ad targeting. It can inform content creation and social media activity, guiding customers from discovery through the research phase and toward conversions. There, it can reveal cross-selling and up-selling opportunities and inform outreach type and timing. Even in the post-engagement phase, it can enhance customer service to allow for higher retention rates and recurring purchases. It is thus a holistic tool that can inform your sales funnel and help you refine it for different journeys.
About the Author:
Nathan Turner is a freelance digital marketer and copywriter. He frequently contributes content to moverstech.com and other websites dedicated to technology and the relocation industry’s needs.