3 Steps to Effective Customer Segmentation
- Identify and describe the segment(s) — segment by behavior and understand why these customers are different and their value.
- Identify a clear, singular objective — have one clear and differentiated objective for each segment.
- Experiment rapidly with personalized experiences and measure against the key objective — it is critical to learn quickly if you can do anything to change customer behavior to incrementally improve your objective.
Example: Most companies have a segment of customers I call the "one and dones." These are customers who buy once and don't come back for a repeat purchase. The value of getting more of these customers to buy again can be significant - you get the value of the second order yes, but customers who order twice are more likely to become regular repeat customers, so getting that second order can really increase long term value. At the very least, a second order gets you another data point on what the customer is interested in (did they buy the same thing as a reorder or replenishment or did they buy an entirely different category of product? This data is extremely valuable for subsequent personalization.
For these reasons, I recommend brands to be extremely aggressive in trying to get that second order, to the point of not making a profit on that second order - the long term value is just so high that it's worth doing everything you can to get that second purchase. Also, you will save a lot of time and effort in learning which customers just won't ever come back - if you have a great offer that nobody should refuse (say, 50% off) and the customer doesn't bite, you should just ignore that segment (at least for a while), and you can save a lot of marketing and advertising dollars by suppressing them from your future campaigns.
This strategy should allow you to do a few things: 1) increase repeat purchases and multiply long term value of those customers who repeat, 2) gather highly valuable data on those customers you can use for future personalization, 3) quickly identify what messaging, offers, and channels work for convincing these customers to buy again from your brand and 4) identify the segment of "one and done" customers who are just not worth your effort pursuing.
Now that you have a playbook in place for that segment, you can move on to another segment and repeat the same process.
