Case Overview

Every successful business reaches a point where it becomes impossible for them to know their customers intuitively. To ensure continued success, businesses cannot assume that all customers have uniform needs and reach out to them in the same way. What does this mean?

It means, based on customer data, businesses need to understand their customer base in a structured, identifiable manner – to be able to visualize different personas – and find ways to serve them better.

Types of Customer Segmentation

Typically, customer behavior is measured on following key elements:

a. Demographics: Such as gender, age, marital status, education and occupation

b. Geographic: Localities, Type of city and depending on the business, could include country, town or state

c. Psychographics: Social class, personality and lifestyle

d. Behavioral: Spending and purchase behavior, product/service usage, awareness etc.

If done well, customer segmentation gives businesses immediate understanding of their customers. It is important to highlight here though, that customer segmentation in itself is not a strategy to judge which customer segments to pursue. Instead, it should be used to understand the different types of customers using the product(s) or service(s), and how is the customer base evolving with growth in business.

Insights from Customer Segmentation

a. Understanding customer behavior: Some customers may buy a product every week, while others may do so once a month. Customer segments allow businesses to know who are the most engaged customers, who are the least engaged and so on

b. Business focus: Different segment of customers have different attributes. One segment may have higher lifetime value and generate revenue over a period of time. There could be another that buys premium products, and generate higher margins. Depending on the strategy, businesses can choose which segments to focus on

c. Effectiveness of marketing strategies: With targeted marketing, businesses can use the segment growth metrics to understand if marketing strategies are working, or there is a need to refine the tactic

d. Customer Personas: Allows a better understanding of customer personas, therefore allowing the R&D team to come up with better product ideas and identify growth opportunities

e. Hidden Gems: Segmentation could reveal customer groups that the business overlooked and never focused on OR a business may discover that a specific segment is growing with no marketing focus on the segment

f. Targeted Offerings: Humans are innovative, and they may use a product/service in a way the business has never thought before. An example is Porsche identifying the need for a sporty vehicle for daily use by women and younger drivers

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