Mass marketing efforts should be a thing of the past. In today’s fast-paced and data-driven society, where the majority of consumers are price-sensitive and constantly changing their perception of brands, it’s important that companies target an audience that is in need of their products or services. Too many marketing dollars are spent on mass advertising and not enough on direct marketing. There is plenty of big data and technology available today that can help companies not only profile their customers and segment them into like-minded groups, but also target them directly via email, direct mail, social media or online advertising.
“Market segmentation is a natural result of the vast differences among people.” – Donald Norman
Why should a company segment its customers into specified groupings? It’s the best way to identify the most and least profitable customers, and focus marketing efforts on loyal customers who will most likely be interested and therefore purchase your products or services; and for obvious reasons, avoid those customer segments that will not be profitable.
Due to the amount of data readily available via newsletter subscriptions, social media profiles, CRM databases and online browsing, most companies should have valid information on each of their customers. By grouping customers by geographic location, demographics, or their attitudes and behaviours, you will have a better sense of what those particular segments are interested in, and be able to send them promotional offers that relate to their lifestyle. For example, if a big-box retailer mailed out coupons for children’s clothing to their entire database of customers, then they are most likely reaching the mailboxes of people who don’t even have kids – thereby wasting marketing dollars and creating unhappy customers who now may plan to shop elsewhere.
Here are four different ways to segment your customer database:
- Buying Behaviour: How much do your customers purchase? Some customers are profitable, some are not – it’s as simple as that. Segment customers into a tier system, in which the highest spending customers are referred to as platinum or gold, whereas the lower spending segments can be referred to as bronze.
- Geographics: Where do your customers live? Segment customers based on their location – whether that is province, city, or postal code. For instance, customers from out west likely have different interests than those based in Ontario. Similarly, customers from upscale neighbourhoods will have different interests and product needs than those in low income communities.
- Demographics: Who are your customers? Let’s face it – ‘men are from Mars, women are from Venus’. Segmenting customers based on gender is a no-brainer, but it’s also important to segment based on age. For example, baby boomers and millennials are not the same type of customer.
- Interests: What are your customer’s interests? Everyone is different; however, many people have similar interests. Segment customers based on their unique lifestyle, including their hobbies, beliefs, values or behavioural traits. For instance, if you offer yoga classes, target a customer segment that has a healthy and active lifestyle.
For the past year, I’ve been using a segmentation system from Environics Analytics called PRIZM. This pioneering system classifies Canada’s neighbourhoods into 66 unique lifestyle types based on postal codes. The characteristics of each cluster are determined through an extensive amount of data from the Canadian Census, Environics Research and important marketing surveys, and through the integration of geo-demographics and psychographics. This system ‘helps marketers create the most complete picture possible of their customer segments’.
To give you an idea of how you can segment your customers, here are three examples of segments (clusters) from Environics’ PRIZM system with completely different buying behaviours, geographic locations, demographics, and interests:
Now if your company had these three customer segments (which is highly unlikely, but I’ll use them for comparative purposes), which segment(s) would you target if you were selling tools or how about tickets to the ballet? Which segments would enjoy receiving promotional offers via the web versus traditional mediums such as newspaper or radio?
By simply knowing your customers’ postal codes, Environics is able to provide you with this type of data. Obviously, it is not 100% accurate, as some people may behave differently than their neighbour with the same postal code; however, it is most likely that these attributes match the majority of customers within that trade area. See for yourself and enter your postal code into the PRIZM Cluster Lookup.