First of all, what is customer segmentation?
Customer segmentation is the grouping of customers or users into segments so you can do a better job of attracting them, and then addressing their needs.
Customer segmentation allows businesses to divide their target markets into more specific groups. This is important for optimizing marketing spend and effective reach.
Dividing a market into segments enables you to deliver more customized messaging and tailored experiences for your most valuable customers.
Customers are more likely to pay attention when a marketing campaign is specific. Specificity sells.
A marketing campaign that pinpoints a consumer’s problem is more likely to convert.
For example, this is an advertisement I saw on a marketing blog I frequent:
Customer segmentation is more than just a way for businesses to optimize their marketing campaigns. Customer segmentation is a two-way street.
Both consumers and companies benefit.
Consumers benefit because:
- They feel like companies have their best interest in mind.
- Content and products address and fulfill their needs.
Companies benefit because they can:
- Optimize their marketing spend
- Increase customer lifetime value (CLV)
- Improve customer service and customer experience
- Implement optimal marketing channel selection for their each segment
- Improve product features and offerings
- Identify and cater to most profitable customers
This video from Steve Blank and Udacity discusses customer segmentation as it pertains to developing a product, but the points he makes cross-over to other fields as well.
So how does this differ from more traditional mass marketing strategies?
Mass marketing strategies cater to huge, ill-defined audiences. They aim for everyone and speak to no one.
The aim of mass marketing efforts is generally to create awareness for the product or service.
For a company as large as Coca-Cola, mass marketing works because the awareness they are attempting to generate isn’t specific to certain customer segments. They’ve turned Coke into a universally adorned and recognized product because of mass marketing.
But this isn’t always the case. For many small and medium-sized companies, mass marketing is not only steeped in capital investment, but it’s also ineffective.
The point here is that mass marketing is ineffective and inefficient in most cases. This is why you need to understand customer segmentation and targeted marketing.
If you’d like to learn more about customer segmentation, check out our beginner’s guide to Customer Segmentation.