According to Harvard Business School professor Clayton Christensen, as many as 95 percent of annual product launches fail — and most of these failures are due to poor market segmentation.
Does that figure ring any alarm bells? It should. Any business owner will attest to the importance, and even necessity, of well-designed marketing efforts. But exactly what this means is not always obvious. After all, marketing is a highly intricate process, often more of an art than a science. And understanding the effectiveness of your actions is a serious undertaking in its own right.
There is one marketing practice that’s perhaps more essential than any when it comes to achieving optimal results, and it has the additional benefit of helping you to analyze why your efforts are or aren’t working. We’re speaking, of course, about customer segmentation.
At its most basic, customer segmentation is the act of splitting your customers — and your prospects — into various groups. These groups are called “segments,” and they are a key piece in any successful marketing strategy. Each segment should have some characteristics, or “demographics,” that are common to every member within it, characteristics that influence their buying habits.
It’s not practical to tailor marketing campaigns to each individual customer of interest, but neither is it wise to attempt a “one-size-fits-all” approach. You may achieve a certain level of results through mass marketing, which tends to assume all of your customers are the same, but it’s ultimately not an efficient process. And staying competitive in the cutthroat world of business is all about efficiency in operations.
This is where segmentation really shines. By dividing your extensive base of prospective and current customers into smaller subgroups with shared characteristics, you should find it easier to deliver messages that speak to them on a more personal level. This, in turn, saves you considerable effort and resources in the long run, and leads to more conversions almost immediately. It’s also a great way to develop a better understanding of your clientele, which will pay dividends for many years to come.
Customer segmentation does not need to be complex, but it does need to be done. Smaller organizations, or even just those offering one or two highly specialized services, may only have two or three distinct types of customers. What is relevant is not necessarily surface differences between your buyers but the specific differences that influence their purchasing habits.
If smart customer profile methods are used, customer segmentation can massively improve the effectiveness of your marketing efforts. But when done poorly, it’s at best a waste of your time, money and energy — and at worst, misleading enough to seriously impair your operations. So what are the optimal ways to segment customers?
There are countless potential segments to choose from, but only a select few will truly fit your unique client base. And therein lies the trick of customer segmentation: building the most accurate customer profiles and understanding why these groups look, or should look, to your products or services.
As with any major marketing endeavor, organization and planning is key. Begin with a list of your current customer base, including as much relevant detail as possible. Business mapping software makes it simple to organize your existing clients electronically and generate relevant reports. Business mapping software is a wise investment if you haven’t already invested in such a service. Success here is largely dependent on how well you know your customers and their behavior patterns, so be sure you’ve done some market research in advance.
Next, it’s time to take a closer look at your customers’ basic characteristics. Why do customers buy your product or service, or why might they in the near future? Presumably they do it because it meets one or more of their “needs” or “wants.” And both needs and wants are related to customer demographics.
Traditionally, some of the most frequently used demographics in marketing include:
Of course, that is not to say each of these demographics will necessarily be relevant for your specific needs. Nor is the list comprehensive by any means. Paint a picture of the typical user for each product or service you offer. What qualities are consistent across your customer base? What characteristics influence their desire to buy your product?
Whatever the answer, these are the characteristics around which your segments should be constructed. And remember not all segments need to be equal in value. It is entirely possible one group will represent your most lucrative customer base, while another will represent those infrequent buyers with comparatively little need for your services.
In fact, a common and simple approach in marketing is to do just that. Divide your customer base into a number of groups based on the current level of revenue and engagement they offer. In this way, you can reach out to potential future customers in one fashion, while not wasting any resources and effort to convince those who are already sold on your offerings and simply need to be kept in the loop on news and announcements.
You may even wish to create this set of subgroups for each one of your products or services. If you’ve ever signed up for another company’s news mailing list, only to learn they have separate, product-specific mailing lists as well, you’ve seen this kind of segmentation in action. Do be sure, in any event, that any segments you create are valuable enough to market to at all. You can check the customer’s anticipated value against the cost of your marketing efforts to determine whether it’s worth your while.
No matter how you choose to segment your customer base, it’s important be selective with the demographics you consider. Your segments should contain the minimal number of qualifiers to catch every one of your potential users or clientele, without lumping any customer into multiple groups. If you are hitting the same individuals with targeted advertisements from several different directions, it’s entirely possible to exhaust their interest in what you have to offer.
The flexibility allowed in customer segmentation can make it tricky to know what the best approach is, but this can also be its greatest strength. Your ideal segments could easily be ones your competitors haven’t yet identified, giving your subsequent marketing efforts and profits a dramatic boost.
A recent survey conducted by B2B International found a mere 42 percent of U.S.-based B2B companies used a sophisticated approach to customer segmentation, or one with refined and detailed demographic research. This need not be the case: in Germany, that figure is over 60 percent. But don’t let the hopeless pursuit of perfection keep you from taking action today. Even basic segmentation into broad categories such as “customer” and “prospect” are a great first step toward more relevant messages and higher conversion counts.
Once you’ve developed a comprehensive set of segments that contain each of your relevant target customer profiles, the next step is putting them to work for you. And to do that, you’ll need to take a close look at each of the segments you’ve come up with.
Once you’ve developed a comprehensive set of segments that contain each of your relevant target customer profiles, the next step is putting them to work for you. And to do that, you’ll need to take a close look at each of the segments you’ve come up with.
Be tough but fair in your analysis of these questions. A simple “yes” response to one or more of these questions could indicate at least one aspect of your current approach is working optimally. But if there is room for improvement in any of your answers, that’s great as well. It means you’ve identified a better way to reach your customers and meet their needs. And that’s really what market segmentation is all about.
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MapBusinessOnline runs entirely through your web browser, so it’s compatible with both Windows and Mac, accessible from anywhere, and doesn’t require a beefy computer setup. Our extensive collection of text- and video-based tutorials will help you to hit the ground running. And thanks to our simple-to-use online support and optional training services, we’ll be there to assist as necessary.
If you have a question, contact our team so that you can start using our business mapping tools today!
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