The Advantages of Segmenting Your Customers.

There are several very valuable reasons for segmenting your current customers and determining, who they are. Ultimately it allows you to determine who your best customers are and then go find more customers just like them.

There are five types of segmentation:

Geographic– This is determining where your best customers are by grouping them together by their physical location. This can be done by country, state, county, city, urban area, suburb, zip code, or even smaller geographic areas, such as neighborhoods or streets. The reason this is a valuable analysis is because of the old saying, “Birds of a Feather, Flock Together.” People that live in close geographic boundaries often have similar characteristics, wants, needs and desires. These types of calculations can be performed through geographic software, cluster analysis, pivot tables, etc.

Demographic– Demographic data is analyzing, who your customers are by characteristics such as age, income, marital status, number of children, education and gender.

This type of information can often be added and overlaid onto a customer database by third party companies that specialize in collecting and compiling this type of data from various sources.

Psychographic Data– is associated with the lifestyle of the customer and their personality. What are your customer’s attitudes, opinions, values and interests? Why do they buy? Where do they buy? What are their beliefs? Knowing these answers can affect positioning of the product, the copy, the distribution, the packaging, etc. An example of this could be art and who’s being targeted with what product.

Behavioral – this can be done by analyzing your own customer database. When are they buying? How are they buying? What offers do they respond? What products are they buying? How often do they buy? Knowing this information can help you know when to send what type of communication message to the customer and via what channel, to the customer. What message and what offer to send.

Types of analysis are market basket analysis- what products are customers buying together. Several years ago, Wal-mart discovered beer and baby diapers were being bought by males. It is either the father stopping in to buy beer and he picks up some diapers or his wife calls him to pick up the diapers, so he buys some beer. Also milk and bananas sell well together.

RFM Calculation (Recency, Frequency, Monetary Calculation) is one of my favorite calculations. It takes into consideration not only the monetary value of the customer, but how recently they purchased and how frequently they purchased. Normally, this calculation is used to segment customers into the top 1%, 2%, 5%, 10%, and then each decile percent there afterwards. Once you find this information then you can use the other three types of segmentation to further analyze your customers in each percentile. This way you know a lot about each segment of your customer database.

Then you can build a marketing campaign to go after more people in your top 1% based off of the data and also a campaign to move your top 2% customers into your top 1%, 5% up to 2%, 10% up to the top 5%, etc.