How is Marketing Segmentation Used in Customer Retention?
Aug 28, 2018
Lead acquisition is a hot topic in many boardrooms and teleconferences where marketing and sales have come together to discuss strategy. Sales wants more leads. Executives want more customers. So new customers tend to be the focus as that is what seems the most logical path to increase revenue. The notion is this: new customers = more customers, more customers = more revenue.
While this seems logical, it’s not accurate.
First, gaining more new customers does not necessarily equate to a greater increase in your overall customer base, especially if customer retention is not a priority. What’s more, marketing to new customers takes longer, and is seven times more expensive than marketing to existing customers.
The truth: even though new customer acquisition regularly gets the spotlight, customer retention takes less time and resources while also producing greater results.
Consider these numbers: a study done by Bain & Company found that increasing customer retention efforts by as little as five percent could yield a profit increase of 25 to 95 percent. Also, while the chances of converting a new lead is five to 20 percent, you will close with a repeat customer 60 to 70 percent of the time.
This is because existing customers know your brand and have already expressed interest in what you have to offer. They’ve already chose you once, making them more likely to do so again.
So, you know you need to invest in customer retention marketing. But where do you start? The answer may lie in your data.
Customer retention requires effective communication – the right message for the right people. A blanket message to all of your customers is going to provide you with the worst results. Audiences prefer a personalized experience, but catering to each individual is not always possible, or the most effective, either.
By segmenting your customer data into groups that share similar interests, you can still market highly relevant content to keep them engaged, and do so efficiently. Let’s take a look at some of the most common types of customer segments:
Dividing your customers by their age, gender, education or income would be using demographic variables to group your data. You may sell certain products or services that cater explicitly to women. Perhaps that product or service is a skin treatment that adds elasticity and reduces wrinkles, so you market to women 40 years and older. Taking it a step further, your product is quite luxurious using rare and expensive ingredients that drive up the price, so you market to women aged 40 and older in higher income households. This would be an example of using demographic segmentation to curate the right target audience for your marketing campaign.
Many of the actions of your customers are usually categorized as behavioral segmenting. Your customers may buy a specific brand or product more than others, and some buyers of that brand may use more of a product and some not as much. Let’s go back to the luxury skin treatment that you’re marketing to wealthy women over the age of 40. If these customers are repeat buyers, you can segment the group into frequent buyers and infrequent buyers. To the frequent buyers, you can market the larger size of your skin treatment because you know they are using the product often. To the infrequent buyers, a smaller size may be more appealing and more likely to convert to a sale. Over time, these customers may become more frequent buyers if they are continually provided with more incentive and customized offerings.
It’s quite common to use a geographic segmentation method because many other variables tend to change according to location. Your winter jacket line is not going to do as well in Florida as it will in New York. This also goes for products and services that may make sense for urban areas, but not rural. There are numerous consumer preferences that are dependent on region. Because of this, many corporations target their business to only those areas where they know they will perform well.
The psychographic segment is also referred to as “lifestyle” segment. It evaluates your customers’ various behaviors, beliefs and interests. This isn’t going to reside within your existing customer data, but will require a qualitative approach using proactive and intensive methods to collect the information. Examples of this include focus groups or surveys. In fact, focus groups and interviews are often done in order to segment the questionnaire or survey itself. Market researchers will usually ask at least 1,000 people to rate on a scale how much they agree or disagree with a statement. Sometimes open-ended questions are provided during in-person interviews that show certain questions to be misleading or draw the wrong type of responses that inevitably skew the data. In the end, this method is conducted because it provides greater insight into buyer motivation which cannot be derived from data analysis alone.
The ultimate goal of marketing segmentation is to build customer loyalty by cultivating a positive customer experience. By analyzing your customers’ preferences and carefully providing them with information relevant to their wants and needs, you are much more likely to keep their attention as well as open the door for more sales. When a customer trusts a brand, it is more likely to stick with it – even if it means spending more. This explains why investment in customer retention leads to greater profits.
So, let’s circle back one more time to our luxury skin treatment for women over 40. We’re using behavioral segmentation to target frequent buyers, and we’re going to offer them something for their loyalty. Perhaps they get a small gift when they order the larger bottle, which you know they’ll enjoy because they use the product often. Or maybe they get a discount only available to members of your loyalty program.
Customer loyalty programs keep customers returning, converts more purchases, and often increases average order sizes as well. Your most loyal customers are going to be your most receptive audience, requiring less of your time and budget. The right customer loyalty management tools will help you gain the best insight into how your program is performing, as well as ROI reports that you can bring back to the boardroom.