Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately. Segmentation allows marketers to better tailor their marketing efforts to various audience subsets. Those efforts can relate to both communications and product development. Specifically, segmentation helps a company: Create and communicate targeted marketing messages that will resonate with specific groups of customers, but not with others (who will receive messages tailored to their needs and interests, instead). Select the best communication channel for the segment, which might be email, social media posts, radio advertising, or another approach, depending on the segment. Identify ways to improve products or new product or service opportunities. Establish better customer relationships. Test pricing options. Focus on the most profitable customers. Improve customer service. Upsell and cross-sell other products and services.

1. Every Product and Marketing Team’s Question

4. Customer Segmentation

6. So what is segmentation?
• Market segmentation is about classifying customers into groups of
similar life stages, lifestyles, preferences, or behaviors. To build a
sustainable relationship with your customer, you need to understand
them — their challenges, their concerns.
• Customer segmentation is the first step in a three-step strategic
marketing process.
1. Segmentation – grouping customers based on similar needs
2. Targeting – focusing on specific customer segments depending on your
organizational objectives (e.g. growth, profitability, competitive analysis)
3. Positioning – distinguishing your organization, brand, product or service
from your competition, with a clear point of difference for your specific
customer segments.

8. Why?
• Trying to market to an entire population is expensive and generally
doesn’t work due to lack of focus (ie. trying to be all things to all
people). Instead, tailoring your marketing planning to particular
customer segments:
• makes most efficient use of your time and money
• allows you to compete more effectively and more quickly, and
• creates, delivers and communicates better value for that customer
segment, increasing your opportunity for profit.

9. How?
Types of Segmentation
• Macro – Grouping of customers based on demographics
• Strategic – Long term differentiation
• Micro – Tactical, Action oriented tool for immediate targeting

10. Segment Management
Business Goals
• Get Customers - Acquisition
• Keep Customers – Retention
• Grow Customers - Development

13. Customer segmentation and targeting success
factors
• Customer profile characteristics (demographics) - the classic traditional marketing approach.
• Customer value current and future. Targeting the most valuable and most growable segments in a
matrix of current against future are the most common approaches
• Customer behavior in response and purchase (observed and predicted). This is often known as
RFM or FRAC analysis.
• Customer multi-channel behavior (channel preference). Grouping customers according to channel
preference.
• Customer personas including psychographics. A common approach for making websites more
customer centric.

15. Customer Segments with RFM Model
Customer Segment Activity Actionable Tip
Champions Bought recently, buy often and spend the most!
Reward them. Can be early adopters for new products. Will promote
your brand.
Loyal Customers Spend good money with us often. Responsive to promotions. Upsell higher value products. Ask for reviews. Engage them.
Potential Loyalist
Recent customers, but spent a good amount and bought more
than once.
Offer membership / loyalty program, recommend other products.
New Customers Bought most recently, but not often.
Provide onboarding support, give them early success, start building
relationship.
Promising Recent shoppers, but haven’t spent much. Create brand awareness, offer free trials
Customers Needing Attention
Above average recency, frequency and monetary values. May
not have bought very recently though.
Make limited time offers, Recommend based on past purchases.
Reactivate them.
About To Sleep
Below average recency, frequency and monetary values. Will
lose them if not reactivated.
Share valuable resources, recommend popular products / renewals at
discount, reconnect with them.
At Risk
Spent big money and purchased often. But long time ago. Need
to bring them back!
Send personalized emails to reconnect, offer renewals, provide
helpful resources.
Can’t Lose Them
Made biggest purchases, and often. But haven’t returned for a
long time.
Win them back via renewals or newer products, don’t lose them to
competition, talk to them.
Hibernating Last purchase was long back, low spenders and bought seldomly.
Offer other relevant products and special discounts. Recreate brand
value.
Lost Lowest recency, frequency and monetary scores. Revive interest with reach out campaign, ignore otherwise.

17. RFM analysis readily answers these questions for your business…
• Who are my best customers?
• Which customers are at the verge of churning?
• Who has the potential to be converted in more profitable customers?
• Who are lost customers that you don’t need to pay much attention
to?
• Which customers you must retain?
• Who are your loyal customers?
• Which group of customers is most likely to respond to your current
campaign?

18. Challenges
• How frequently are your segmentation studies currently
refreshed/updated?
• How does this frequency vary with type of business or purpose of
segmentation?
• What is the “optimal” refresh cycle for segmentation studies that will
be a good compromise between the cost to refresh segmentation
research and the risk of using outdated segmentation research for
marketing/development decisions? How will this vary by product,
business, market or geography?
• How can you reduce the cost of refreshing segmentation research
(possibly using online data collection on a continuous basis)?