Customer segmentation is no longer a good to have feature. With more and more companies using customer segmentation as the base of their marketing and advertising efforts, it is something that is required for success in any industry. Effective use of customer segmentation will no longer give you a competitive edge, but in-fact it has become a feature that will keep your company competitive in the market. So what is the use of customer segmentation? You can find good amount of literature on this topic, but to sum it all up in a few of words – effective customer connection.
Online stores like Amazon and retailers like Best Buy have done great work in this area. Amazon pioneered the space with customized recommendations for the customers and a personalized home page. Best Buy’s application of customer segmentation in the brick-and-mortar World is very impressive. They remodelled their specific sections and at some places entire stores based on the segmentation data, trained their store associates accordingly and sent out coupons and set discounts based on this data. Best Buy now has radically different strategies to target different segments from young professionals to soccer moms.
To put it in very simple words, what these companies are doing is trying to get their customer what they think the customer is interested in. To lay parallels with an everyday example, you go to your favorite deli or coffee shop around the corner and the person attending you comes and asks – “the regular?” and (most of the time, if you are not in mood for the complete opposite or something else,) you say yes! That’s customer connection in its purest form. But if your business is not the deli or coffee shop where you can remember all the customers, with the help of computing power and analytical software, you can very well “remember and recall” what the customer is looking for and connect to the customer in a proactive way.
Another way customer connection can be enhanced is by proposing the customers what meets their requirement based on what features they used or products they purchased in the past. This can be done using the techniques of inference. Going back to our analogy of the deli, you order a specific sandwich most of the time, and the deli just came up with something that goes well with that sandwich or is a new sandwich similar to your favorite one, the person attending you can suggest it to you and most of the time you might go for it. Customers love suggestions or recommendations when they are sensible and unobtrusive. By forming segments, it can be inferred what the customers in this virtual segment will be interested in and can be served accordingly.
So let’s look into the specific contribution of segmentation over here. I think segmentation provides a couple of very important handles in the entire concept of customer connection. It helps companies deal with large number of customers. Most of the times it is practically impossible to connect to each customer one-on-one. So in order to give a close to one-on-one experience, the marketers can segment customers into buckets and connect with a segment of customers in the same way. Another benefit of segmentation is adding relevancy. By reviewing the activity of customers in a segment, a pattern can be derived and used to target that particular type of customer. The basic concept is to add relevancy to what customer is looking for, whether it is in form of showing relevant advertisements, promoting products or providing relevant content. By adding relevancy to the advertisements, they are not obstructive, but in-fact informative. Same is true for product promotion. If the product you are promoting is useful to the customer, it is not hard-selling, it is being helpful to the customer.
To sum it all up, segmentation basically provides the touch of practicality to the entire process of customer connection. In today’s World, where customers have lots of options and their time is more valuable than ever, proper customer connection is becoming a required feature. And to scale this to millions of customers in this global economy, customer segmentation is nothing but an essential tool.