It is a given every business needs to build a customer treatment strategy to cater to the diversity in its its audience and/or target market. But there are so many criteria to measure and to monitor. It’s easy to get overwhelmed. What’s a marketer to do? What to prioritize? Don’t be caught snoozing. Here are the seven types of segmentation you must consider when building your customer treatment strategy.
#1. Attitude: Understand the customer’s attitude towards your offering and your brand. For example: Is (s)he a value-oriented shopper, or an early adopter? Will this person pay more for brand exclusivity or for specific features? This information can be extracted via market research but you will need to map the attitude categories into your database marketing. Key takeaway: Use this when building your promotional offers.
#2. Demographic: This is categorization of the population based on gender, age, ethnicity, linguistic preferences and other criteria that you cannot change. Key takeaway: Use this when developing your marketing communications.
#3. Behavior: How does your audience behave and what it purchases. The commonly known RFM (Recency, Frequency, Monetary value) segmentation is a version of behavior segmentation. Key takeaway: Use to map out customer valuation tiers – what channels and promotions influence the most lucrative segments.
#4. Life stage: This is a map of a customer through various lifestages. Typically this is useful for financial services organizations – who have offerings catering to different stages in their customers’ life.Small and medium businesses do not typically use this segmentation. Their product or service offerings do not span several life stages.
#5. Needs: The distinction of “needs” from the “wants” listed in the Attitude segmentation is subtle but is best characterized as the reason why someone starts shopping – versus what makes the person close the deal. Key takeaway: Use to understand why customers purchase your products (their needs) and map it to their attitudes (the wants) it creates a powerful one-two punch in closing a deal.
#6. Psychographics: Psychographics is a type of Lifestyle categorization that merges several schemes in the list above. These segments however, are also developed around customer opinions. There are market research companies that specialize in this area. Key takeaway: Use for strategic guidance such as market sizing and directional guidance in media purchases.
#7. Valuation: Valuation is distinct from the Behavioral segmentation like the RFM segmentation discussed earlier. Valuation (unlike RFM) is a projection of the value delivered by the customer into the future. This can incorporate predictive analytics to estimate the next likely purchase or the long term value (LTV) delivered by similar customers over an extended period of time. This has been mostly useful for services companies. Key takeaway:
Do you need them all?
Absolutely not! For example consumer products companies typically tend to focus on behavioral and attitudinal segmentation. Services companies on the other hand put strong stock in valuation or profitability modeling. In an upcoming post, we shall discuss some guidelines for picking segmentation schemes that suit one’s business.
To see how a retailer built an annual customer engagement plan using four segmentation schemes and embedded the analytics in their marketing processes download the case study below.