John Wanamaker once said
“Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” This is certainly a dilemma that all marketers face. In this situation, customer profiling and customer segmentation are the most effective solutions to limit waste. Because customer segmentation helps to identify the right target audience, to run advertising campaigns for the right product/service, on the right channel, and at the right time.
This article will present an overview of customer profiling and customer segmentation, its role in business and marketing, how to segment customers and its applications.
Customer profiling and customer segmentation in business and marketing
Customer profiling and customer segmentation in business and marketing
Data needed for customer profiling and customer segmentation
Depending on the business sector, marketing goals, etc., different businesses need different types of data to create customer profiles. In particular, customer data often includes the following information:
Demographic data:
Name, age, ethnicity, religion, gender, marital status, occupation, income…
Geographic data: place of residence, place of work, place of study…
Behavioral data: purchasing habits, frequently used products/services, purchase time, payment methods…
Purchase History
Feedback and reviews
By compiling customer data , businesses can build customer profiles. Then set up conditions to segment customers into different groups.
The Role of Customer Profiling and Customer Segmentation
The question is: Why do businesses need to profile and segment customers?
The most important role of a customer profile is to help businesses understand their customers.
This is the key to helping businesses:
Provide or improve products/services according to customer requirements
The indirect effects of these roles can include: increasing profits, promoting word-of-mouth marketing, enhancing the reputation, position and market share of the business…
Why you need customer profiling and customer segmentation
Why you need customer profiling and customer segmentation
Next, customer segmentation helps businesses reach each target group with their own message, product/service, and marketing strategy. In other words, personalize the customer experience – something that 73% of shoppers now expect from brands: sending the right message, through the right channel, at the right time. Reaching the right target helps businesses increase profits, while marketing costs are significantly saved.
According to Bain and Company
Businesses that tailor their strategies to customer segments generate 15% higher annual profit growth compared to 5% for businesses that do not.
Create customer profiles and categories to segment customers
Depending on the needs, goals, business sector, customer profile structure and customer segmentation will be different. Below are some common customer segmentation categories:
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Demographic segmentation
Demographic factors include: name, age, gender, ethnicity, religion, job, income…
Customer segmentation by demographics
Customer segmentation by demographics
Examples of demographic segmentation applications in marketing:
Suppose you are selling a set of office clothes for women priced at 600,000, in the mid-range segment, suitable for people with average income or higher. This group of people will likely be concentrated in big cities – where many companies and industrial parks have developed such as Hanoi, Ho Chi Minh, Da Nang, Da Lat, Bac Ninh, Hai Phong…
So, your target customer file is office workers in big cities, female, aged 23-35. Then, you research the time of social media usage of this group, the peak time is usually between 11am-1pm, after 7pm. These are not the working hours of office workers, so they will spend a lot of time surfing social media.
When running ads on social networking sites, you also set up specific conditions like that, instead of just generally defining the gender as female.
Therefore, researching customer profiles and demographic segments helps you understand your target audience, narrow down your advertising scope, and still reach the right target, while saving a lot of costs.
Geographic segmentation
You need to identify your target audience by geographic scope to have appropriate policies. The geographic division by level (country, province, region, etc.) depends on the product, scale, etc. of your business. Then, depending on the product, you need to research the characteristics of the geographic segment you have divided. For example, if you sell food, you need to research the culinary culture of that area.
For example: you are in Hanoi and sell a type of cake that is only used during the day, the main form of delivery is motorbike taxi technology. Therefore, when setting up advertising, you should set a range of about 10km around your shop location, to suit the method of transportation and ensure the quality of the cake when it reaches the customer. If you set up Hanoi, there may be locations that are too far away, you cannot hire a motorbike to deliver during the day, or the shipping fee is too high and customers will not buy, which will waste advertising money.
Or a typical example of McDonald’s, studying geographical segmentation to adjust products to suit the local population, leading to menus in different countries having their own characteristics, to blend with the culinary culture of each country. For example, in India, people do not eat beef, so McDonald’s created the Maharaja Mac hamburger made from chicken, while the original flavor is from beef. The flexibility of studying geographical segmentation to adjust the menu helps McDonald’s to be welcomed in many different countries, even though the cuisine of each country is separate.
Psychographic segmentation
Psychographic segmentation includes personality, attitudes, values, and preferences.
Patagonia’s success comes from applying psychological customer segmentation.
Patagonia’s success comes from applying psychological customer segmentation.
Patagonia, an outdoor clothing brand, has achieved incredible success by adapting its products and communications to the psychology of its customers. Based on customer profiles, Patagonia found that they were increasingly interested in sustainable and environmentally friendly fashion products. Understanding that, Patagonia developed high-end product lines according to customer psychology, and communicated the message “Don’t buy this jacket” to the company’s best-selling fleece jacket at the time. The company then encouraged customers to buy used products to protect the environment. Surprisingly, this approach increased the company’s revenue by 30% in 2012 and its loyal customer base continued to grow.
Technology segment
Technology segmentation refers to factors such as: the type of devices customers use, the hardware and software they use, whether they use social networks or e-commerce sites to make purchases, etc.
There are many customer insights you can tap into from the technology segment, for example:
If customers use tablets to go online, they are most likely middle class or above.
If your customers use computers and are online intermittently during office hours, online a lot during lunch breaks and after 7pm, it is likely that your potential customers are office workers.
Based on whether customers often shop via social media platforms or e-commerce platforms, you can set up ads on the appropriate channels to reach customers and boost sales.
Behavioral segmentation
Behavioral segmentation is determined based on: purchase history, purchase frequency, purchase habits, response to marketing campaigns… Depending on the criteria suitable for your business, you can choose to segment behavior into:
New customers – old customers – customers who have researched but not yet purchased
For old customers, you can divide them into groups: loyal customers (who have bought your products many times and regularly), infrequent customers (low purchase frequency), and churned customers (who have not purchased for a long time).
Depending on your target how to create a podcast or content for your ears audience, you will have different marketing campaigns to achieve different goals.
The algorithms it creates help Netflix customize everything from its homepage to its show recommendations to each customer. Netflix also uses A/B testing to track the impact of different recommendations and personalization features.
Segmentation based on needs
To run a successful business, you definitely need to understand the needs of the customer base you are targeting, which could be the needs for product attributes, services, delivery methods, warranty policies, etc.
A great example of need-based customer segmentation is Beauty store Revolution. Instead of organizing products by brand, the brand organizes products by skin concerns and ingredients to directly target consumer needs. This makes it easier for customers to find the right product group for their skin condition, instead of wasting time researching a wide range of products from different brands.
Value-based segmentation
Value-based segmentation helps you identify your aqb directory valuable customers: potential or loyal customers who are likely to generate high revenue for your business. You can then focus your marketing efforts on these customers.
To identify this customer file, you can use the CSAT or NPS scale to measure customer satisfaction and the likelihood that they will continue to use your products/services. In addition, you can run ads, email marketing, etc. to identify this customer file.
Value-based segmentation applications:
Merkle, a marketing firm, helped Global Cruise- a global travel company segment customers based on value and then implement marketing strategies.
As a first step, they sent the same message to every customer, regardless of whether they were new, returning, loyal, or churned. Once they identified their highest-value and most loyal customers, they focused on nurturing them better across the sales funnel with smaller, more personalized campaigns. As a result, they saw a large number of loyal customers return, and they shortened their purchase cycle by 24%.