Knowing your customers is both the first and the most important step in executing a business strategy. Proper customer segmentation enables a business to create offerings that can provide maximum value to the business. In this write-up, we will delve into customer segmentation, its relevance, and how the AARRRC framework can help devise a more sophisticated segmentation strategy.
Definition and Meaning of Customer Segmentation
Customer segmentation is when a business divides its customers into different categories or “buckets” that have something in common. This makes it easier for the business to offer the right services at the right price. This strategy ensures that a business satisfies its customers regardless of whether they are high-end or low-end clients, by ensuring all products are tailored to fit the right market price.
Consider, for example, a customer looking to purchase a product that is priced R s 500. If you tried selling them a product that costs R s 1000, rightfully, they will either leave or end up buying something they do not need. Customer segmentation enables the business to ensure that its products and marketing strategies reach appropriately segmented customers.
Linking Customer rather Client Segmentation and CRM
A small shop owner knows few details about customers like their age or purchases. However, with the help of CRM, the shopkeeper can target customers more precisely. For example, the owner of a saree shop can target customers who have the buying capacity of high-end sarees costing Rs. 50,000, and the other group can be targeted with a saree priced at Rs. 2000.
CRM enables segmentation and automated personalized communication so that the customers are given the right offers at the right time.
The AARRRC Framework
The AARRRC framework allows businesses, from small enterprises to above 10 million dollar companies, consider their customer base divided into segments which ultimately creates a cycle that tries to increase revenue. They are:
- Acquisition: The act of bringing new customers.
- Activation: The initial purchase a client makes.
- Retention: Keeping customers for the long-run ensuring customers will purchase repeatedly.
- Referral: Persuading clients to introduce new clients.
- Revenue: Assessment of the monetary worth obtained from a client over extended periods.
- Churn: Lost customers can be defined, re-captured, and re-initiated.
With the right utilization of AARRRC framework, businesses benefit from continuous growth and profit over time.
Types of Customer Segmentation
There are a variety of ways to focus on and tailor products for customers based on their behaviors and traits. Below are some of the most frequently used strategies in customer segmentation:
1. Demographic Segmentation
This type of segmentation categorizes customers based on the following:
- Age
- Gender
- Income
- Education
- Marital status
Knowing these factors allows businesses to identify the most appropriate product or service for their clientele. A good example is that a higher income earner is likely to use more premium products.
2. Geographic Segmentation
Geographic segmentation categorizes customers based on the following:
For instance, urban customers may have different tastes than those living in rural areas, so this structure is incredibly helpful.
3. Psychographic Segmentation
The last type of segmentation focuses on a customer’s personality, values, interests, or attitudes, and is built over time. Companies can use this form of segmentation to introduce the right product according to their customers’ specific lifestyle needs.
4. Technographic Segmentation
Businesses track how customers engage with audiences and what form of technology they use. This includes what device customers use to access products or services, such as:
- Mobile
- Desktop
- Apps
- Software
Tech usage is valuable insight when determining whether a customer is best served through mobile apps or computer software.
5. Behavioral Segmentation
Behavioral segmentation analyzes customer actions to sort their needs. This classification includes:
- Tendencies: Customers emotional response and how it makes them feel after a certain action, like watching a movie, for instance.
- Frequent actions: The customers’ regularly practiced actions, like going to the grocery store and always browsing the fruit aisle.
- Feature/product use: The rationale behind purchasing a product like a mobile phone.
- Habits: Whether the customer buys something and how often the item is consumed.
6. Need-based Segmentation
Also, segmentation based on different types of needs employs marketing strategies focused on addressing particular pains.
7. Value-based Segmentation
In this value-based segmentation form, customers are sorted by level of income profitability for every particular client. Thus, those who provide better lifetime value are segmented for higher priced offerings.
CRM Auto-Segmentation
Using CRM systems, the segmentation process of the customer is automated based on customer data. For a taxi company, for instance, a customer’s prices and options might differ depending on phenomena such as usage or time of day. If one customer is in a hurry, the CRM can plan a more expensive, faster ride. On the other hand, the customer is less pressed for time may be provided with a more economical option.
In this way, companies using CRM can come up with more offers in marketing campaigns with a clear division of the customers and cater to the distinct tastes of each group.
Key Takeaways
- Segment Customers Effectively: Determine whether the services needed by the customer correspond to the price the customer is willing to pay, and mark them for future reference.
- Implement the AARRRC Framework: This framework serves an important role in the process of acquiring and retaining customers, as well as in driving further revenue growth.
- Choose the Right Segmentation Type: Find out what customer segmentation the business relies most upon and what is most effective to them.
