#4 (Re)Grouping: How to Segment Your Customers?

How to Segment Your Customers?

Direct Marketing tips by Mediapost Hit Mail

#4

(Re)Grouping

What is segmentation?

Segmentation came out of the need to communicate more efficiently

with customers. It is crucial for direct marketers.

As your customers have many

different needs, it will be easier to

give them what they want if you

divide them into groups sharing

similar needs and threat each group

differently.

This division into homogeneous groups is usually called ‘segmentation’.

Segmentation benefits

Activities where segmentation can help you:

Identifying your most/least profitable customers;

Focusing your marketing on the customers who will be most likelyto buy your products or services;

Avoiding the non-profitable for you markets;

Building loyal relationship with customers by developing and offering them the products and services they want;

Improving customer service;

Getting ahead of the competition in specific parts of the market;

Using your resources wisely;

Identifying new products (combined with a relevant research);

Improving products to meet customer needs;

Increasing profit potential by keeping costs down.

Before you start segmenting..

... define what exactly do you need to know and

how a customer segmentation could

help you.

How to start segmenting:

Take a customer/ product inventory: literally pull out a list of your customers where you can see what they buy from you;

Form the groups of your customers using different segmentation criteria.

Some segmentation criteria

B2B /business to business/:

Area of activity: industry sector,

public or private, size, location

etc.

Operation: technology, how

they use your products.

Buying patterns: how they place

orders, their size and frequency.

Behavior: their loyalty and

attitude to risk.

B2C /business to consumer/:

Location: town, region, country.

Demographics: age, gender, income, occupation, education, social class.

Attitude and lifestyle

Buying behavior: product usage, brand loyalty, purchasing frequency, benefits they seek for in your product or service etc.

Promotion frequency: how often they have been offered by you and how they respond.

Your segments should be:

Mutually Exclusive: They cannot be overlapping and your

customer shouldn’t be members of two segments at the same

time.

Substantial: There must be enough members of a segment so

that you can take advantage of the economies of scale when

communicating with them. It has to be big enough in terms of

members or money and stably growing.

Homogenous: A workable market segment has members that

are similar enough to react the same way to your marketing

message or offer. They need to value the same things, do similar

things or interact with your product or service in a similar way for

your segmentation strategy to work.

How many segments?

It depends in part on the

size, but mostly on the

complexity of your

business.

The rule: the lower the

number of segments,

the better.

Our five segmentation tips:

1. Use your customers’ list and their purchase history as a start point;

2. Create the demographic profile first;

3. Look for deeper segments with criteria like product usage or

lifestyles;

4. Keep the number of segments as small as possible for simplicity

and better focus;

5. One proven segmentation model is the RFM method.

"R" is for Recency, how recently a customer has made a purchase.

"F" is for Frequency, how many orders have been placed.

"M" is for Monetary, how much the customer spends.

A point to remember

A meaningful segment is

a group of customers that

meets three criteria:

1. Common characteristics;

2. Profitable;

3. Growing over time.

More to come:

1. Why Do You Need Your Own Database?

2. How to Build a Database?

3. How to Manage Your Database?

4. How to Segment Your Customers?

5. Tests - How to Run and Analyze Them?

6. The Deliverability Problem

7. Personalization

8. Online & SMS Promotions

9. Useful Direct Marketing Tips

10. How to Launch Your CRM Program?

11. The Advantages of Direct Marketing (Summary)

two more slides...

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just one more...

Hello,

This is the forth presentation in the “Direct Marketing Tips”series. I hope you liked it. I will be grateful if you share your opinion on it with us. Just drop us an e-mail at

[email protected],

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Hristo Radichev

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