All your customers are not equal. Some of them buy a lot, some buy more occasionally, and unfortunately, some will also churn and stop buying from you. In other words, your customers are not all equally profitable for your business. Segmenting your customer base according to their behaviour allows you to understand what type of messaging to put in front of different people. Crucially, once your base is segmented, you will be able to set objectives and take action to move more customers into your most profitable segments.
So let’s have a look at how you could segment your customers:
These are people who have engaged with your marketing assets. They may have subscribed to your email list, downloaded a few of your free documentation, and even gotten in touch with you to ask questions. They are already in the sales funnel but have not purchased from you yet.
As you might expect, with this segment, your objective is to drive the first sale. What you want to do is nurture these people until they reach a state where they are ready to buy. For key insights into how you can do this, make sure to check out our blog post on the Purchase Funnel.
Once you have given enough material to your prospects to evaluate you, how will you push them over the edge and encourage that first purchase? Will it be a discount? Or maybe a free trial or ‘money back guaranteed’ offer?
In the ‘New Customers’ segment, we will group anyone who has only recently become one of your customers. They may be people who have only placed one order. If you offer a SaaS, they are the people who only recently signed up and started using your service. The key question you need to ask yourself is how you are going to make these people continue to buy from you. You have spent money on marketing to nurture them into buyers, so it’s time to maximise this investment. Remember that it can be significantly more expensive to acquire new customers than to keep those you already have! And the better you are at retaining customers, the higher your customers’ lifetime value.
You may want to offer a lower price for the one-year subscription to your service than for the monthly plan to ensure they commit to you for a longer period of time. Or, you may decide to surprise your audience with customised offers.
This is your most profitable segment. You should set yourself objectives and do everything you can to ensure you have as many people as possible in this category. They are the people who buy from you regularly. They are the long-time users of your subscription service, or people who buy from your store regularly. Do everything you can to keep this group of customers happy and keep them for as long as possible. Provide them with excellent service and make sure they are fully satisfied with every interaction they have with you so that they are not tempted to go check out your competitors.
This is the danger zone. In this segment, you should group any of your exiting customers that used to be active, but are now either buying a lot less from you, or haven’t placed an order in a long time. Your efforts in this segment should be focused on limiting your churn rate. Can you find the reason why these people are moving away from you? If you offer a service and you see a customer is leaving you, it is worth asking them directly why. You may find that there is a key selling point your competitors have that you don’t. Or you may find there is a common problem several customers have with your business.
What can you offer lapsing customers to convince them they should stay with you?
And finally, let’s have a look at your ex-customers that are not buying from you anymore. You will need to determine after how much time of inactivity you will consider someone as lapsed. Is it a month? Is it a year? This will greatly depend on your industry. The question you need to ask is why have these people let you and what can you do about it.
Depending on your business, another great way to segment your customers is by their individual value to your business. If you run an e-commerce store, you can segment your customers per average basket size, or per frequency of purchase. What do the people that place large order have in common? What about those that buy with high frequency? How can you tweak your marketing activity to bring more of these high value customers to your business?
As you have understood by now, the point of doing this type of customer segmentation work really is to set objectives for yourself and your business according to your analysis of where the money is coming from. If you focus your efforts on catering to your most profitable customer, you really are maximising your efforts towards what is turbocharging your bottom line.
Hyphen can help you use your data efficiently to segment your customers and maximise your ROI. Contact us now for a free audit.