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The Ultimate Guide to Customer Segmentation

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You might be surprised to learn that many companies, especially young companies, do not take the time to think of their customers in terms of separate groups. This process, called customer segmentation, or sometimes market segmentation, is a very powerful tool that allows you to target your customers according to their unique needs, and to maximize customer engagement with your brand. If your business is growing and you want to understand how you can better understand and respond to your customers, then you need to learn the basics of customer segmentation.

Learning People’s Habits

Customer segmentation can happen along many different lines—you might care about how your customers are divided by age, demographic, lifestyle, or any number of other factors. However, the most straightforward, and most immediately lucrative, way to segment your customers is by purchasing habits—specifically, how often do they purchase your products?

Some customers, for example, already love your products and buy them often. These are your most lucrative customers, and identifying them will be very good for your business. By making these loyal customers feel special—say, by giving them extra perks, such as discounts or special offers—you encourage them to remain loyal to your brand. If these customers account for a significant portion of your profits, you want to encourage them to stay loyal.

On the opposite end, some customers are actively bad for business. It is possible for a customer to become a drain on your resources in a number of different ways. Perhaps they abuse your customer service lines, or they regularly seek refunds. Identifying these customers allows you to dissuade them from continuing to engage with your brand—send them elsewhere, and refocus your resources on the customers who matter.

Finding the Middle Ground

In between your best and worst customers, you will find numerous other groups that you can approach in different ways. For example, some people will buy your products occasionally, but also seek out your competitors—they aren’t loyal to you, but they aren’t loyal to anyone else, either. By identifying their needs, you can learn how to better appeal to them to encourage some of them to become more loyal.

Another group to be aware of is those who have engaged with your brand in the past, but have stopped. Their lapsed interest does not necessarily mean that they dislike your brand. Other factors may have led them to another brand, or they might just have stopped buying products like yours altogether. Customer segmentation allows you to find ways to re-engage some of these customers, which can actually be one of the most effective ways to grow your customer base.

Finally, there are new customers who have yet to decided whether they want your product. Yes, even though they aren’t technically customers yet, you should still account for them in your customer segmentation (http://www.wisegeek.com/what-is-customer-segmentation.htm)! The goal here is to learn how these potential customers are becoming aware of your brand, and to figure out how to appeal specifically to their needs and encourage them to try your product. Perhaps new customers most often learn of your brand through one of your products in particular, then go on to try others. In that case, you want to make the introductory product as friendly as possible to new customers.

What’s Next

What this article has described so far is only one possible way to segment your customer base. The truth is, every business is different and has different needs. You will likely find other ways to divide your customers that will be useful for your business. The key is to find identifying factors among your customers that you will be able to use as the basis for action.

For example, you can track what customers of a certain group tend to like, and then develop promotions to encourage members of that same segment to try the products that are popular with that segment. Sometimes, it’s as simple as noticing that many people who buy A also buy B, and then create a deal for people who buy A and B together. You show your customers that you have identified their interests, and you encourage them to engage further with your brand.

As you can see, customer segmentation is a versatile tool that every entrepreneur should have access to.

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