Marketers have been collecting data to better understand their customers for years. However, as businesses continue to build their products and services around data, there are more opportunities than ever to improve the customer experience (CX) with segmentation.
What is segmentation?
Segmentation is the process of grouping customers into cohorts or groups based on shared attributes. Segmentation might mean clustering customers based on industry, company size, behavior, or location.
You can segment deeper by looking at more micro-level data such as age, gender, marital status, and behavior. How a company chooses to segment depends on their business objectives. Customer segments shouldn’t be static. As customer needs change, segments will change.
How segmentation can improve the customer experience and grow your business
Segmentation ultimately helps you connect with your customers on a more personal level. By connecting with your customers this way, you’ll build trust and make them feel more comfortable about doing business with you.
Let’s look at some ways you can improve CX with segmentation.
Segmentation helps you understand different types of customers
Through segmentation, you’re able to slice customers into different categories and gain an understanding of how customers who share a certain attribute use your product or service, how they think, and what they prefer. When you unlock these insights, you can ultimately keep your customers happier.
For example, let’s say you offer a SaaS product and you’ve segmented your customers by size. With the right data, you can see which segment of customers uses your product the most, and which segment uses your product the least.
From there, you can drill into each segment to understand the “why”, then take action to treat the weaker segments. Maybe that means running a survey for the lower usage segments to understand why they’re not using the product, then coming up with a strategy to improve adoption such as producing relevant content or training materials for that segment. Or maybe it means launching a new marketing campaign to target certain segments. Understanding why different types of customers use your product can help you tune the messaging and experience for other customers.
“Customers buy for their reasons, not yours.”Orvel Ray Wilson, Guerrilla Group
Segmentation enables you to tailor your communication
One size doesn’t fit all. Your customer engagement model should rely on segments in order to communicate with customers in a way that resonates with them more.
A study done by Epsilon shows 80% of consumers are more likely to make a purchase when brands personalize the experience. Through the use of segmentation, companies can personalize the experience they deliver.
For example, an outdoor clothing store shouldn’t be marketing cold weather apparel to people located in Florida. This would be a jarring customer experience. Instead, people located in Florida should receive messaging related to warm weather apparel.
Likewise, customers who don’t have access to a certain feature probably don’t need to be contacted about that feature going away. You can use segmentation to deliver more thoughtful messages to your customers.
In fact, a report from Mailchimp shows email marketing campaigns that use segmentation have a 14.31% higher open rate. So, not only does segmentation help create better customer experiences, it can actually result in marketing wins and ultimately drive more business.
Segmentation helps you focus on the right customers
Customer success managers want to know which customers to engage, why, and when. They use segmentation to gain critical insight into their customers. By using data to segment customers, you can understand which customers are at risk, what stage in the customer lifecycle they are, and which customers might be an upsell opportunity.
Customer success managers can also look at the churn rate for each customer segment, and design playbooks to help reduce churn for the necessary group(s) of customers. All of this results in an improved customer experience.
Segmentation helps fine-tune your pricing model
Once you gain a better understanding of your customers, you can take those insights and use them in your pricing model. For example, say your customers really want a certain feature. You may consider using that feature as an “upgrade lever” by only including it in the higher-paying tiers. This might result in an increase in upgrades and an overall increase in monthly revenue.
Similarly, understanding which features your enterprise customers need and value will help you design your enterprise pricing tier in a way that attracts more enterprise customers.
Segmentation allows you to scale customer support
As your company grows, you’ll need to re-think your customer support model. In the early days, it’s easy to justify treating each incoming request the same. At that stage, volume is lower, and you’re trying to grow a business and stay as close to your customers as possible, even if it means doing things that don’t scale.
However, with growth comes the need for segmentation in customer support. You see this with large enterprise organizations that offer “tiered support”. By grouping your customers into different segments, you can design a model to support each group in the appropriate way. Maybe lower tiers get community support, mid-tiers get email support, and higher tiers get a 1-hour SLA with phone support.
You can also use segmentation to route your support tickets to the right folks. For example, you may want all support inquiries from customers in APAC to be routed to a support agent in the same region, whereas all U.S. customers are routed to someone in the states. A different way to segment would be to route all technical tickets to a special team, and all billing tickets to another team.
Leveraging segmentation in your customer support engagement model can help improve the overall customer experience by tailoring the experience to your customer’s needs.
How to segment customers
There are a number of different ways to segment customers. How you segment really depends on your business and your objectives. Here are some common ways you might segment your customers.
Split your customers into demographic groups. This might be gender, education, marital status, language, occupation, family size, religion.
Segmenting by industry is a common practice for organizations as it enables them to focus on different “verticals”. For example, as a B2B company, you might provide a product or service that’s heavily used in healthcare, finance, and the automotive industry. Each of these industries will have different needs and preferences when it comes to using your product and interacting with your brand.
Use information such as region, country, and state to segment customers. This will give you a better understanding of how each geographic region interacts with your brand, and enable you to send targeted messaging to them.
Leverage your customer’s behavior and product usage data to segment customers. Specifically, you might bucket them by looking at purchase frequency, login sessions per month, or by which channels they use to contact your support team.
This is pretty common with NPS surveys. The very purpose of an NPS survey is to group your customers into three categories: detractors, passives, and promoters. You can then use that data to engage each cohort in a unique way that resonates with them.
Use request type to route incoming support tickets to the right agents. This might be driven off of inputs from a contact form, sentiment analysis, or other data provided by your help desk tools.
Use MRR or ARR to define revenue segments and gain a better understanding of each group based on what they are spending on your product. You might learn your lower-paying customers are happier, which means you’ll need to engage the higher paying ones before they churn.
Segmenting customers based on why they are using your product or service can be super powerful. To do this, you need to be collecting data around why they bought and what their intentions are.
Knowing where the customer is in the journey enables you to engage them in more appropriate ways. For example, you might want to segment your customers to see all users who have abandoned their shopping cart, or all customers who signed up but haven’t purchased.
While historically a marketing focus, segmentation has expanded to the entire customer experience. First, you need to understand your customers and learn their behaviors, then you can segment your customers appropriately. Once you’ve created the segments, you can look at things like health score or engagement data to see how each segment compares. Once you’ve done the analysis, you can make changes to your product or service to improve the customer experience.
Want more information about building great customer experiences? Learn how to use customer insights to improve your customers’ journey.