How to Use Marketing Segmentation to Improve ROI

Segmentation is one of the foundational best practices marketers use to create highly-relevant, impactful customer experiences. It can be challenging to determine the best ways to segment your customers and how to use segmentation in your campaigns. Below, we provide an introduction to segmentation, walk through the most common segments marketers use, and share some specific campaigns you can test for your business.

What is segmentation?

According to Wikipedia, segmentation is: “the activity of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics.”

For businesses, segmentation typically happens inside of an application. This can be a CRM system, a social media platform, or a marketing solution like Podium. These systems typically allow marketers to select a handful of dimensions and corresponding values that define each segment. For example, all customers with one purchase in the past month could be defined as “new customers.”

Segments can either be one-time or persistent. One-time segments take a snapshot of customers at a given point in time and are typically used for a single marketing campaign. For example, during a holiday sale, a business might want to create a segment of all customers who have not yet made a purchase. In contrast, persistent segments are used for ongoing marketing campaigns. An example of a persistent segment would-be customers who completed an appointment in the past 24 hours. 

Why is segmentation important?

To have the greatest impact, your marketing must be relevant to each customer. This applies to the campaigns they’re included in, the messages they’re sent, and the contents of each message. The only way to achieve relevant marketing at scale is through effective segmentation.

Using segmentation, you can divide customers into multiple groups and create a highly effective campaign for each group. For example, you can divide customers into segments based upon the type of product they are most interested in. Then, your team can create a promotional campaign for each product and only send it to the appropriate audience. Each customer still only receives one campaign, but you’ll sell a lot more product.

Segmentation is also helpful for determining which messages each customer should receive. You probably have some customers who respond well to coupons, and some who don’t. You also don’t want to send a coupon to a customer who is going to purchase anyway. By segmenting customers into groups – coupon shoppers, non-coupon shoppers, full-price buyers – that determine which text message they receive, you can improve the performance of each message.

Finally, segments can be used to refine the content of individual messages. For example, most customers respond better to messages that include details about their experience with your business. You could create segments that group customers based upon the location they shop at or the employee that they work with. In your message, you can say: “Hi Bruce, how was your visit at our Brooklyn office with Lloyd?” This message will perform much better than a one-size-fits-all copy.

Do I always need to segment my audience?

No. While campaigns that properly use segmentation will likely perform better than those that do not, it’s not practical or worthwhile to always segment your audience. 

As local business owners and marketers, your time is limited. As a result, it’s not possible to segment every marketing campaign. You’re better off focusing on how segmentation can improve the performance of your most impactful marketing campaigns. Additionally, segmenting a marketing campaign takes time. There are many cases where segmentation would improve the performance of your campaigns by 5-10%, but that boost in performance does not justify the amount of time you would need to invest to make it happen.

What are the best ways to segment my audience?

There’s an infinite number of ways that you could segment your audience, and you should develop segments based upon what’s best for your individual business. At the same time, most companies typically segment customers in similar ways. Here’s a list of the most common segments:

By lifecycle stage: It’s helpful to think about your customers in terms of their lifecycle stage. At a minimum, you should have a segment for new customers, long-time customers, and customers at risk of churning. These segments will allow you to create value through lifecycle marketing.

By product or service: Segmenting your customers by the products or services they purchase is another best practice. A department store like Macy’s should know which customers buy men’s socks and which buy children’s backpacks and tailor their marketing efforts accordingly.

By the amount of spend: It’s important to show your best customers how much you appreciate them, and identify customers who could spend more with your business. These segments allow you to send rewards to your VIPs and promotions to those with room to purchase more.

By geography: Many businesses operate in different locations. Each location might have its own team, branding, products, and way of doing business. As a result, you should separate customers based upon the location they visit and use it to tailor your marketing accordingly.

By level of engagement: Some customers want to interact with you more, and some want to interact with you less. Segmenting customers based upon their desired level of engagement is critical to good marketing. These segments allow you to send a high volume of messages to your top customers and only send the most important messages to those who desire a low level of engagement with your business.

How can I segment my customers?

There are many software tools that you can use to segment your customers. Here are a few of the most common tools that can be used to streamline your efforts:

• Microsoft Excel or Google Sheets: You can create a spreadsheet in one of these tools that list each customer in a row, along with the corresponding data that you plan to use for segmentation. Here’s an example of what this spreadsheet might look like.
• Email marketing software: Many email marketing solutions come with a feature that can be used to segment your customers. Since these systems likely have a decent amount of information about your customers, this is often the most efficient approach. It’s ideal if your email marketing tool is able to export your segments for use in other applications. Some might even sync directly with platforms like Google Ads and Facebook.
• Your primary software solution: Many businesses have one piece of software that is used to support the majority of their most important functions. This could be an ERP system, a point-of-sale solution, dealership software, or practice management software. Often times, these powerful tools have functionality that can be used to segment your customers. If it does, this is an ideal tool to use, because it likely contains a significant amount of information about each of your customers, and is always up to date.

What Campaigns Should I Start With?

You can apply segmentation to pretty much any marketing campaign. As mentioned above, it’s best to identify the campaign that is most impactful for your individual business and start there. With that said, here are a few campaigns that most businesses have that can benefit from segmentation:

Your welcome series: Most businesses create a marketing campaign that is sent to customers after they share their contact information or make their first purchase. These campaigns are an excellent use case for segmentation. If you have an email welcome series of three emails that are sent to customers after their first purchase, you should consider segmenting it based upon the product they purchased, which location they visited, and the person on your team they spent the most time with. You can use this information to insert specific information about the product they bought into the emails, mention something relevant about the community around that location, and structure the email such that it comes from the team member they worked with.

An appreciation campaign for your best customers: Most businesses have an outstanding relationship with 10-20% of their customers who love your product and services. It’s important to let these top customers know that you appreciate their loyalty, and reward them for it. You can create a segment of the customers who have made the most purchases from your business in the past 12 months, and share a special promotion with them. For example, your top customers would probably love receiving a text message from you thanking them for their business with a link to a coupon they can use during their next visit.

Increasing the frequency of your most impactful marketing communication: You probably have a regular marketing campaign that works really well for your business. This could be a recommendation email, a monthly newsletter, or a text-based promotion. A reliable way to increase its impact is to send this campaign to your most engaged customers more frequently. For example, if you send a newsletter each month, find the customers who always engage with the message. Experiment with sending these customers a newsletter every week. Sending the campaign four times as often won’t 4x its performance, but it could double its impact within this segment.