Recognizing a Good Customer Segmentation Strategy

According to a recent CMO survey conducted by the Aberdeen Group, 81% of CMOs identified "Retaining Current Customers" as their top challenge in the coming year. Retention is a reflection of the customer's experience with your brand, and many aspects of their relationship with a brand go into it - from their interaction with your employees and how easily your Web site helps them accomplish their goals to your assortment and pricing.

But perhaps the most important thing marketers can do to influence retention is in understanding and anticipating their needs. And that starts with having an actionable customer segmentation based on the value your customers have to the organization.

That segmentation sits at the center of everything you do to serve your existing customers. This includes not only targeting offers and promotions to specific customers, but influences the products you sell, and how your best customers are recognized when they contact customer service. But how to you recognize a good segmentation? Take a look at your segmentation and ask the following questions.

1. Do I know people like this? Good segmentation creates groups of customers who are identifiable. They are defined by data - their behavior, their transaction history and other unique characteristics. But they're also based on insights that give people a good picture of what they look like. This makes them real to the organization.

2. Are the differences between segments large enough to warrant treating them differently? A good segmentation clearly defines customers in a way that emphasizes their differences for your marketing and communications. Only then can you define clear business goals with each segment - such as increasing frequency, improving average order value or migrating lower value segments into higher value ones.

3. Is each segment large enough that it is worth targeting? Most companies simply don't have the capacity or resources to act on lots of very small segments. And those small segments aren't big enough to really impact the business.

4. How easy will it be to reach each segment? If your segmentation is difficult to execute, it's of no value. The best segmentations don't just live in a database. They live in your marketing and messaging.

5. Does it help me identify business opportunities beyond marketing, such as the product categories we focus on, how we merchandise, or how we choose our real estate? A good segmentation is not about marketing. It's about your customer, and how the enterprise is aligned around serving the customer.

As you review your segmentation, remember: Your business isn't driven by a series of transactions. Your business is driven by customers. Real, living, people who complete a series of transactions over time. How well do you understand them?