How Segmentation and Targeting Can Drive Customer Loyalty?

If you are a brand wondering how to put forth a message that resonates with your audience, you need to be paying attention to individual differences. Thus, segmentation is said to be the natural result of individual differences. Although every customer has their own unique set of needs, it's practically not feasible to craft loyalty programs based on individual needs. A good customer retention targeting strategy will require brands to segment similar individuals and deliver messages based on them.

In this article, let’s learn how segmentation and targeting can boost customer retention and loyalty.

What is Segmentation and Targeting?

Segmentation and targeting are marketing strategies used to identify and target specific groups of customers with tailored products or promotions. Segmentation involves dividing customers with similar needs or characteristics, while targeting involves selecting one or more segments to focus on and developing a marketing mix that appeals to those segments. The goal of segmentation and targeting is to increase the effectiveness and efficiency of marketing efforts by reaching the customers who are most likely to be interested in a product or service.

How to Segment your Customers?

Every interaction with consumers must be based on relevance. Segmentation allows brands to divide similar interest groups and create targeted marketing communication based on it. There are several ways to segment customers, including:

#1. Demographic segmentation

Dividing customers into groups based on characteristics such as age, gender, income, education, and occupation.

#2. Geographic segmentation

Dividing customers based on where they live, such as by country, region, city, or neighborhood.

#3. Psychographic segmentation

Dividing customers based on their lifestyle, values, personality, or interests.

#4. Behavioral segmentation

Dividing customers based on their behavior, such as their purchasing behavior, usage rate, brand loyalty, or readiness to adopt new products.

#5. Value-based segmentation

Dividing customers based on the value they bring to the business, such as their lifetime value, profitability, or potential for future growth.

It's important to note that you can use multiple criteria to segment your customers. For example, you could segment by demographic and psychographic criteria, or geographic and behavioral criteria. These segments can help brands effectively target customers with marketing communication.

How to Identify High-value Customer Segments?

A major part of the revenue is usually generated from your most loyal customers. In fact, 1% of a retail website’s users generate as much as 40% of its revenue. There are several methods to identify high-value customer segments. Here’s how you can do it:

#2. Financial analysis

Analyze customer data such as purchase history, lifetime value, and profitability to identify which segments generate the most revenue or profit for your business. Financial analysis can be used to identify high-value customers by analyzing customer data such as purchase history, lifetime value, and profitability. Here are a few specific techniques that can be used to conduct a financial analysis:

A) Lifetime Value (LTV) calculation

This is an important customer retention metric. It is a measure of the total value of a customer to a business over the entire course of their relationship. LTV can be calculated by multiplying the average purchase value by the average purchase frequency rate by the average customer lifespan. High LTV customers are those who generate the most revenue or profit over time.

B) Profit Margin Analysis

This analysis focuses on the profitability of each customer segment by looking at the profit margin generated by each customer segment. By determining the profit margins for each segment, brands can identify the most profitable segments and target them with their retention marketing efforts.

C) Customer Acquisition Cost (CAC)

CAC is the cost of acquiring a new customer, including all marketing and sales expenses. Companies can compare the cost of acquiring new customers to the lifetime value of existing customers to determine high-value customers. High-value customers are those whose LTV is higher than their CAC.

#2. Recency, frequency, and monetary value analysis (RFM analysis)

RFM analysis is a method of analyzing customer behavior by looking at how recently a customer has made a purchase, how often they make purchases, and the monetary value of their purchases. This analysis can help identify the most loyal and valuable customers.

#3. Cohort analysis

This analysis is used to track the behavior of specific groups of customers over time. It allows brands to identify patterns and trends in customer behavior and identify high-value segments based on retention and revenue.

#4. Market research

You can use surveys, focus groups, or interviews to gather information about customer needs, preferences, and values, and then use this information to identify segments that are particularly interested in or loyal to your products or services. Additionally, you can also leverage user testing wherein a product is tested with a group of customers to gather feedback on its usability, functionality, and overall appeal. This can be valuable in identifying segments that are particularly interested in or loyal to your products or services.

#5. Sales data

You can analyze sales data such as customer purchase history, frequency of purchase, and average transaction value to identify which segments are most active or valuable to your business.

Sales data can be used to identify high-value customers by analyzing customer purchase history, frequency of purchase, and average transaction value. Customers that have made the most purchases, have the highest average transaction value and have been customers for the longest period of time can be segmented into high-value customers. These customers are likely to be the most loyal and valuable to your business.

#6. Segmentation- targeting-positioning (STP) analysis

You can use STP analysis to identify segments that are large, growing, profitable, accessible, and responsive to your marketing efforts. It is a three-step process used to identify and target specific customer segments.

A) Segmentation

Divide the market into smaller groups of customers with similar needs or characteristics. This can be done using demographic, geographic, psychographic, behavioral, or value-based criteria.

B) Targeting

Select one or more segments to focus on and develop a marketing mix that appeals to those segments. This step involves evaluating the attractiveness of each segment and choosing the segments that are most profitable and accessible.

C) Positioning

Develop a value proposition and messaging that differentiates your product or service from competitors in the minds of your target segments. This step involves creating a unique value proposition for each segment and adapting your product, pricing, promotion, and distribution strategies to meet the needs of those segments.

STP analysis allow businesses to increase the effectiveness and efficiency of their marketing efforts by focusing on the segments that are most likely to be interested in their products or services. Businesses can create marketing and customer loyalty programs that are tailored to the specific needs of those segments, and thus increase the likelihood of building long-term loyalty among those customers.

#7. Customer feedback and reviews

You can also analyze customer feedback and reviews to identify common issues and concerns, and use this information to identify high-value customer segments that are likely to be most impacted by these issues. Customers who consistently give positive feedback or have high satisfaction levels are more likely to be loyal and valuable to your business.

Additionally, customers that are showing interest in, or are open to, new products or services may have a high potential for growth and should be targeted for retention efforts. Segments that are consistently giving low satisfaction or loyalty scores may require additional attention and resources to retain.

You can also leverage sentiment analysis which uses natural language processing to automatically classify the sentiment of customer feedback and reviews. This can be useful to identify the overall sentiment of a segment and understand how they perceive your products or services.

How are Customer Segmentation and Loyalty Related?

Customer segmentation and loyalty are closely related as they both involve understanding and targeting specific groups of customers. Segmentation allows brands to understand and identify different groups of customers with distinct needs, characteristics, or behaviors, while loyalty focuses on building long-term relationships with those customers. Segmentation allows businesses to target high-value customers and can create marketing and loyalty programs that are tailored to the specific needs of those segments. This increases the likelihood of building long-term loyalty among those customers.

Additionally, understanding the segments that are most loyal to your brand can help you assign more resources toward retaining and growing those segments. These segments are more likely to continue to do business with you, recommend you to others, and are less price sensitive. Segmentation can also help companies identify potential loyalty issues with certain segments, for example, if certain demographic or geographic segments have lower loyalty scores, the company can focus on understanding why and addressing those issues.

How to Segment and Target Customers to Boost Retention?

To segment and target customers to boost retention, here are some strategies that brands can use:

#1. Identify High-value Customer Segments:

As mentioned previously, high-value customer segments are more likely to be the most loyal customers. Hence, using data and research to identify which segments are most valuable to your business in terms of revenue, profit, or lifetime value. 

#2. Analyze customer behavior

Customer behavior can be defined as the habitual buying behaviors of customers that includes frequency of purchase, and social trends that are influencing their shopping habits. Customer retention targeting is more effective when brands analyze customer behavior and segment them to send relevant marketing communications. Using data on customer behavior, such as purchase history, frequency of purchase, and engagement with marketing efforts can help to identify patterns and trends among different segments. This can help you understand which segments are most engaged and loyal to your brand.

#3. Create tailored retention strategies

Based on the segments identified, create customer retention strategies that are tailored to their specific needs and preferences. For example, if a segment is highly price-sensitive, offer them discounts on their next purchase or ask them to sign up for your loyalty programs. If a segment is more engaged with your brand on social media, focus on building a stronger presence on those platforms.

#4. Personalized communication

Segmentation can help brands personalize communication with customers. This can include targeted email campaigns, personalized offers, and personalized messaging on your website or mobile app. For instance, for a segment that shops over $50 a month, personalized messages such as exclusive offers, discount coupons can incentivize them to purchase more. In addition, when they receive such exclusive offers, it makes them feel more valued and understood, thus, helping you drive retention.

#5. Monitor and measure

An important step for any brand is to regularly monitor and measure the effectiveness of retention strategies and adjust them as needed. Identify what works best for each segment and adjust your approach accordingly.

How can Vizury help with Segmentation and Targeting to improve Retention?

Vizury’s Engage360 captures customer insights by tracking 50+ attributes around customers’ demographics, browsing history, purchase history, and frequency of purchases. Allowing brands to make every customer engagement contextual by understanding their current stage in the customer journey and picking up right where they left off from.  

Such personalized customer journeys nudge the customer to take the desired action, be it making a purchase, signing up for the loyalty program, or referring a customer. 
For example - if a customer has been a sports fanatic and has made frequent purchases in this category, a brand could target such a segment of customers with access to an exclusive launch event for this category. 

The Ultimate Test for Customer Loyalty

Customer retention is a continuous process, and the strategies that work best will change over time. Regularly reviewing and updating your retention efforts can ensure that you are always targeting the right segments and that your strategies are effective in retaining them. Ready to level up your retention game? Book your demo with Vizury day