I find that customer segmentation is powerful when it’s tied to overall company goals and focused on increased value for customers. First, categorizing customers into market or service groups points you toward winning and retaining “the right customers.” Second, customizing service delivery by different segments helps you to service groups of customers in the ways most valuable to them while increasing profitable revenues and wisely utilizing limited resources.
As a customer experience (CX) strategy, segmentation provides a systematic way of reaching different people with different messages that are tailored specifically to them, and it can vastly improve how you service customers proactively. It enables you to be strategic about audience growth and development of audience relationships.
But why does segmentation for the sake of service sometimes get a bad reputation? It may be due to the idealist notion that all customers should be treated exactly alike so segmenting them to treat them differently is unfair. Well, not only is it fair, but it’s also necessary, from a business perspective, in order to grow business. If your customers are not alike and yet you are treating them exactly alike, you’re heading in the wrong direction—against their best interests and your own.
Here’s why segmentation is, in fact, a delicious CX strategy:
Your CX segmentation strategy can wildly enable your company’s overall business strategy if you think and act intelligently about it. Look at what US Bank achieved when Kelly McSwain-Campbell took CX to the next level using segmentation as one of her strategies.
Let me also be abundantly clear about what I’m not saying. I’m not saying that ALL customers shouldn’t be treated like the extremely valuable customer asset they are. BUT different treatment levels do exist; these levels should start at a baseline of exceptional experience for all customers, and then rise from that foundation by adding customization for different groups of customers—especially those who are most valuable to company goals.
The many means of customer segmentation include geographic location or development of new geographic markets, customer size (account and revenues), customer profitability, future opportunity, brand identity, specific experience needs, support channels used, new product focus, and so on. It’s important to ask several questions: What is the customer—and the company—trying to accomplish? What is the purpose of segmenting customers? What changes do we need to make across the organization to accomplish segmentation? What benefits do we want to achieve, and how do we measure those benefits?
We’re all advancing CX for very clear reasons: your customers’ realized value and achievement of their business outcomes, along with great experiences that create more loyalty, wallet share, and profitable lifetime value—so your segmentation solution should support those reasons. Understanding the purpose of segmentation enables decision-makers to determine whether their approach supports company goals, and to decide whether the approach is strategic, tactical, or both.
Strategic segmentation is used for broad, enterprise-wide purposes, i.e., branded CX or value proposition within specific industries. For example, retailers in the vein of Neiman Marcus may focus, as a strategy, on the loyalty of a broad segment: high-end, luxury online shoppers. These retailers could market continuous, specialized offers both to entice potential customers who meet that demographic standard and to stimulate increased spending by their current customers.
Tactical segmentation is used for more specific purposes such as expanded selling with current customers (e.g., through up-selling or cross-selling) or channel migration. Continuing with the example of luxury retailers, they may use technology and sales data to identify retail items similar to customers’ past purchases and then push that information, promoting those items through email or social media, to create more spending in that portion of their customer base. Tactical segmentation should “roll up” to the strategic segments in a precise way and should support overall company goals.
From a CX perspective, different customer segments have different expectation levels. For example, US Bank found that “to best serve high-net-worth customers, you need to understand their whole family. You need to learn how that individual is looking to share their wealth with the whole family. With their mass-market customers, it boiled down to customers feeling valued. They want to feel like they aren’t just another account number.”
Profit potential varies dramatically across a company’s customer base. Recognizing that simple averages won’t accurately capture your customers’ preferences drives home the point that one size does not fit all—and that’s a key point in developing a sound segmentation strategy.
By using a customer-lens approach to every facet of CX strategy, you’re better able to allocate resources to create the right opportunities and realize the full revenue potential of your products, services, and relationships.
A few risks to be mindful of: Companies sometimes develop segmentations that are based on conflicting business objectives, are not broadly understood or shared within the organization, or cannot be readily acted upon. A segmentation strategy will succeed only if it is embedded in the company’s overall strategy, crosses the boundaries of all business units and functional departments, and produces clear and actionable guidance. Don’t over-segment or under-segment.
Stay tuned weekly as I delve more deeply into the remaining best practices for higher customer retention identified in Mend the Holes in Your Leaky Bucket. This 10-article series will give you valuable insights and guidance as you plan, develop, and implement your own customer retention strategy.
Ready to move forward more quickly? Interested in personal assistance? Let’s chat. Please sign up for my complimentary one-hour Customer Insight Strategy Session by calling our office at 617.848.4589 or emailing [email protected].
Lori Carr is a customer experience pioneer and expert. Working with Fortune 500 companies for the past 25 years, she helps popular brands and emerging brands to dramatically increase retention, loyalty, and profitable revenues.