The COVID-19 pandemic and ensuing economic uncertainty has significantly changed consumer behavior. The EY Future Consumer Index noted that most consumers now fall into four main categories: “Cut deep,” “Stay calm, carry on,” “Save and stockpile” and “Hibernate and spend.”
More than one-quarter of consumers told EY that they fall in the "cut deep" category, spending less all around on things such as groceries, clothing, footwear and leisure activities. And while the one-third of consumers who said they are saving and stockpiling have increased grocery spending, they've cut back dramatically in the other categories.
These new consumer behaviors are making marketers take notice, and dramatically change how they reach and engage with customers. What is clear is during this tumultuous time is that brands – especially those that are the most relevant to consumers – are more important than ever before. Old segmentation models are broken because of the pandemic. And those brands who are succeeding now are using updated customer segmentation tools to better engage with consumers in an effort to incentivize increased purchasing and inspire greater loyalty.
Customer segmentation software and cloud-based solutions enable you to separate your customers into groups by certain traits they share. These traits can be as simple as gender, demographics and income, or more complex views of purchasing patterns, interests, personality or habits. These tools can help you collect and integrate data from a wide variety of sources, then you can use customer segmentation analytics to determine commonalities among groups of customers to which you can market.
The combination of these tools will enable you to more accurately tailor your marketing offers and promotions to the interests or needs of these groups of customers. The more information you have about your customers, the better. One study noted that 81% of consumers were willing to share more information about themselves so can receive personalized offers or promotions. However, some customer segmentation tools are limited, since they can only deliver broad views of customer groups, rather than the granular insights that will enable a high level of personalization, even down to a segment of one.
There are a variety of ways that you can segment customers. Hubspot's "The Ultimate Guide to Customer Segmentation" identified seven different models that could applied to customer segmentation strategies:
Much of this information can be culled from a company’s loyalty program and analysis of customers’ interactions with your brand in stores, online, through customer service, via social media and through surveys. But you can also gather data from third-party sources, such as broader consumer trends, location data and website browsing history, to combine with personal information to develop greater insights on the value of particular customer segments.
Segmentation can take a few forms. What most are familiar with is macrosegmentation, which uses basic demographics to divide the customer base into five to 10 groups. This approach can fall short because the groups will often still be so diverse, it is difficult to know what drives these individuals. Microsegmentation breaks these groups down into smaller cohorts using additional attributes like lifestyle, interests and purchase and/or search behaviors, among other factors. By digging deeper, marketers can design promotions that are more relevant to these smaller, more targeted groups. However, microsegmentation can be difficult because it has traditionally relied on manual processes to build and send promotions, limiting the number of segments that can be effectively managed to between 10 and 30.
The ultimate goal is to achieve a segment of one. This is where artificial intelligence and machine learning (ML) combine to eliminate many of the manual processes and automate offer creation and execution on a 1:1 level. This extreme level of customer segmentation can lead to proven revenue growth of up to 10%, an amount that is two to three times higher than those that rely on segmentation alone.
Customer segmentation tools offer brands a data-driven way to make key decisions that will help them meet their business goals. For example, they could play a role in growing the customer base, encouraging greater loyalty among existing customers, and increasing sales and revenue from new customers.
Companies generally use customer segmentation techniques to:
If consumer response to the COVID-19 is any indication, it’s important for consumers not to assume that customers’ segments will always remain the same. Consumers' needs and preferences may slowly evolve as their lifestyles change, such as getting married or having kids. Or they could dramatically shift overnight as in the case of the pandemic, where we now see more people seeking greater value in their purchases or adjusting their shopping patterns to ensure their personal safety. You’ll want to continue analyzing customer data and revamping segmentation to ensure your brand is delivering the most relevant messages and offers, continuing to reach the right customers, and fine-tuning promotions to turn low spenders into high spenders.
Customer segmentation tools can deliver a number of benefits for your brand. As the Hubspot Ultimate Guide highlighted, segmentation can help you:
While breaking your customers down into macrosegments or microsegments can help improve results, using advanced customer segmentation tools to achieve true 1:1 personalization should be the end goal to ensuring your marketing strategy aligns with and can adapt to meet your business goals.