Personalization, better targeting, effective acquisition and retention, better ROI, new opportunities for growth and product development… These are just a few benefits of customer segmentation.
In this highly competitive business environment, being customer-centric is not optional anymore. It’s imperative. Knowing who your customers are, how they like to be approached, and what makes them tick is paramount (and not as hard to understand as it may seem).
We like to say that with a great customer base comes great responsibility. Even more so if you’re actively looking for ways to nurture and expand the relationship you have with your clients.
This is why today we will be taking a closer look at the segmentation process and talking about some of the most popular customer segmentation tools on the market. Consider it our small guide to customer segmentation.
Benefits of customer segmentation tools
Search engine optimization (SEO), email and social media marketing, pay-per-click (PPC) advertising, content marketing- they all have something in common: they have to be precisely targeted and personalized according to the needs and preferences of your audience. Customer segments will help you better meet those needs and get a deeper understanding of your customer segmentation base.
Here are the advantages of using customer segmentation tools in your business activity:
- Precision: segmentation software uses AI and machine learning, thus offering more accurate insights and predictions than you could get on your own, by manually sorting out your customer base
- Accuracy: unlike us, people, automated tools are less prone to errors and do a much more reliable work
- Speed: you can get the insights you need in a matter of minutes
- Better targeting to support your marketing efforts
- Organization: after breaking down customer data, you can manage it more effectively; you may also save your segments and build audiences based on their characteristics
- Lots of features and segmentation criteria: as mentioned before, there are numerous segmentation tools and platforms and you can choose the one that works best for you depending on your industry, the size of your business, the kind of marketing efforts you are deploying, and so on
What is customer segmentation?
Everyone that buys something from you at some point leaves behind precious information about them and their online/offline behavior. It’s called customer data and the way you manage it can help you boost retention rates, notice patterns, identify your best customers, and find new ways to get more such people on board.
The truth is that people are different and they all expect you to treat them accordingly. Customer segmentation means breaking down your customer base into small, manageable customer segments, organized according to RFM scoring, traits, habits, preferences, location, and so on.
This opens up new and exciting opportunities for more effective and personalized communication and offers. By knowing all of these details about your customers and by correctly identifying the people that are similar in taste, personality, values, preferences, or buying patterns you can improve the quality of their experience and boost loyalty, thus increasing the customer lifetime value (CLV).
These are the most common bases for segmentation (or segmentation criteria, if you will):
- RFM scoring (based on the Recency, Frequency and Monetary value of a customer)
- Demographics: age, gender, income, marital status, education, languages spoken
- Geographic segmentation: city, state, country, region
- Behavior: buying patterns, the stage of the buyer’s journey they’re in, benefits sought, preferred products, product use
- Psychographics: personality, values, interests, activities, lifestyle, opinions, attitudes
- Technographics: what devices they use, how they access the Internet, the apps and instruments they use
What can segmenting your customers help you achieve?
- A better understanding of your customers: what motivates them, what drives the purchase, whether they are happy with your product/service, how often they order from you, and so on
- Better targeted ad campaigns: by better knowing the segments within your customer base, you can better cater to everyone’s needs and preferences
- Better ROI for your ad campaigns: more personalized ads mean more chances for people to buy (or keep on buying) from you
- More loyalty: meeting your people exactly where they are and delivering the right content and solutions at the right time can lead to increased customer retention
- A more effective customer support team: different people have different issues and it’s useful to know how you can help each segment out in a more meaningful way
- Understanding who your best customers are: this way you can reward them for their loyalty and turn them into brand advocates
Customer segmentation strategy
Now let’s take a closer look at the customer segmentation process and the steps you need to take in order to build a sound segmentation strategy:
- Start with why: define your customer segmentation goals
What are you doing it for- to increase sales, boost retention rates, better handle your customers’ issues? The segmentation process should fit in the broader strategy of your company and align with your long-term goals. These goals may vary depending on the size of your business, the area you’re operating in, your industry, and the kind of customers you serve (is your company a B2B or B2C one?). This is why you’ll never find a universal approach. You’ll need to build your segments and test out various strategies and tactics before finding the winning ones.
- Segment your customers according to your goals and needs
Here are some segmentation examples: you can do channel-based segmentation to approach customers depending on the channels and social networks they’re most active on. You will then know who prefers keeping in touch with you via email, text messages, Facebook, Instagram, Twitter, LinkedIn, and so on. Or you can go for demographic segmentation if you’re interested in the age, income, occupation, and family size of your customers.
Furthermore, you can focus to find out who your most valuable customers are so you can create an Ideal Customer Profile and then use it to better-target your paid campaigns. For this, you will need to apply the RFM segmentation and discover who your “soulmates” are.
- Use the different segments across your organization
Your marketing team will need them in support of their marketing automation efforts. Your sales team can use them to increase conversions. Your customer support team can use them to prepare materials and resources that will help them better meet the needs of these segments. Your product development team can gain precious insights by looking at the various segments you have built.
- As goals change, adjust your segments as well
Your target customer(s) may not remain the same over time. You may expand your portfolio, bring new products or services to the market so, naturally, your customer base will change. As you review your goals and objectives, you should also revisit your customer segments. That way you can be sure that you remain relevant and talk to the right audience.
Customer segmentation software
Segmentation tools should definitely be part of your arsenal of management tools because knowing your customers is one of the highest priorities of every high-performing business. More often than not, customer data comes from lots of different places, making it difficult for you to build the segments manually.
Luckily, there’s plenty of customer segmentation software solutions available on the market, each with its specifics and individual features. Some are more intuitive and user-friendly, while others require a bit more operating knowledge. Choosing the one that best suits you depends largely on what you hope to achieve. Here are our top picks:
Reveal is one of the most complex customer segmentation tools out there. It’s more than just a customer segmentation software: it’s a customer intelligence platform. It uses RFM (recency, frequency, monetary value) segmentation to help you group your customers into precise categories based on their buying behavior. Buying behavior is one of the most important indicators of future repeat purchases and customer loyalty. It is also a key indicator of your customer lifetime value.
Reveal allows you to see:
- When people buy (recency)
- How often they buy (frequency)
- How much they spend (monetary value)
This way, you can focus on the segments that matter most to you without losing sight of those who have the potential to bring value to your business in the future. With Reveal, you’ll also be able to see what made people buy from you, as well as what made them stop doing it at some point. It helps you see the most popular and promising brands from your portfolio too. Here are the criteria you can use to organize your customer data:
- Customer segment (Fresh apprentice, Platonic friend, Flirting, Passionate new guy, Potential lover, Lover, True lovers, About to dump you, Breakup, Ex-lovers)
- Revenue vs. Margin by customer type
- Product return rate (also by segment type)
- Average retention rate
- Chances to place next order
- NPS score
- Customer distribution
- Lifetime value
- Buying habits
- Top brands & products
This opens up numerous possibilities for your company: you can better personalize your customers’ experience across all channels, prioritize the customers that matter most, reduce your customer acquisition costs, increase the customer lifetime value, and solve your customers’ problems faster, so they will stick to your business for a long while.
Yet perhaps the most important detail about Reveal is its user-friendly interface. It’s easy to set up, crunches the data quickly, and offers you precise, actionable insights in a matter of minutes. The reports are clear and concise so you can use them right away, regardless of the area of your business that you need to improve.
Google’s analytics tool is perhaps one of the best known and most used by businesses across the world. It allows you to group transactions by:
- Cohort Analysis
- Lifetime Value
- Demographics (the distribution of Sessions/ % New Sessions/ Average Session Duration/ Bounce Rate/ Pages per Session on your property by age group and gender)
- Acquisition, behavior, and conversions metrics broken down by age group, gender, and interest
- Affinity categories
- In-market segment
- Device, software/operating system, internet clients, and browsers
Based on these segments, you can discover two important categories of customers: converters and non-converters. Then you can use these segments to build audiences for your Google Ads campaigns. The major downside of Google Analytics is that it is pretty much limited in terms of customer information, it is best used for visitors and traffic information.
Suitable for: eCommerce stores or B2B businesses
Price: Free for Google Analytics/ around $150,000/year for Google Analytics 360
Hubspot’s segmentation software helps you segment customers with active and static contact lists and organize them by:
- Contact, company, or deal properties
- Activities on your customers’ contact record
- Products they’ve bought, quantity, price
- List memberships
- Form submissions
- Marketing email activity
- Ads interactions
- Email subscriptions
- Page views
The number of features and criteria differs depending on your plan: free, starter, professional, or enterprise.
Suitable for: B2B businesses
Price: starts from $50/month
Salesforce is one of the most popular CRM (customer relationship management) platforms, aiming to help your marketing, sales, commerce, service, and IT teams work cohesively. It uses AI and machine learning to help you segment your audience more precisely and its segmentation criteria include:
- Behaviors & Lifestyle
- Devices used
- Exposure to your ads
- Customer journey
With Audience Studio from Salesforce, you can add data from any source, for more accurate and detailed descriptions of your target audience. This way, you can uncover patterns in your customers’ journeys across all channels and platforms and reach your audience more easily.
Suitable for: B2B businesses
Mailchimp is an all-in-one marketing platform for small businesses. Their segmentation options include:
- Subscriber data (automation activity, campaign activity, postcard activity, contact rating, conversations activity, date added, mailbox app used, email marketing status: subscribed/unsubscribed/non-subscribed/cleared, changes in personal information, landing page activity, language, location, survey activity, signup source, email marketing engagement)
- Lifetime value
- Likelihood to purchase again
- Behavior (app engagement, website engagement)
Among other features, they also offer predictive insights and the option to filter the data by details that are unique to your needs using tags and custom form fields.
Suitable for: eCommerce stores and B2B businesses
Price: starts from $14,99
Customer segmentation tools have moved from “nice-to-have” to “must-have”. Your target customer is out there, waiting for you to do your fair share of research and adapt your marketing/advertising efforts to their needs and preferences. Luckily, you’ve got lots of options to choose from. Making the right call will help you grow your business, focus on the right people, and deliver the content they expect from you.
Keep in mind the specific needs of your business and the areas where you’re going to use those segments. This will make it easier to pick the software that matches your goals and purposes.