What Is Customer Segmentation? Definitions, Uses and Success Tips

customer segmentation best practices

What is customer segmentation? It’s a key principle for doing business in a digital environment, but many companies don’t apply it effectively. Here we’ll discuss what it means, different ways you can do it, and how to leverage technology to apply it effectively. We’ll discuss the subtle shade of difference between customer segmentation and audience segmentation, two terms with some overlap that are often used interchangeably. We’ll look at the different ways you can segment your customers and when to apply each. And we’ll reveal pro tips for leveraging customer segmentation using today’s technology.

What Is Customer Segmentation vs. Audience Segmentation?

Customer segmentation is a method of customizing customer interactions by dividing customers into categories based on specific characteristics. For example, you might divide your customer base up into customers who have purchased a particular product and those who have not, allowing you to limit an email marketing promotion to customers who have not purchased the product. You can segment customers based on virtually any characteristic or behavior, including:

  • User demographics
  • Sales funnel stages
  • Onboarding progress
  • Feature adoption
  • Customer support history
  • Renewal status
  • In-app behaviors, such as whether a customer has logged in during the last 7 days

Customer characteristics can also be combined into customer segmentation models which define how your customer engagement team will interact with your customers. Elements such as contract value, annual and monthly recurring revenue, company size and growth potential can be combined into profiles defining corresponding engagement strategies, such as:

  • High touch
  • Hybrid touch
  • Low touch
  • Digital touch

These segmentation models can form the basis of standard procedures to optimize engagement with each type of customer.

What Is Audience Segmentation?

The term “customer segmentation” is often used interchangeably with a similar term “audience segmentation.” While these two terms have some overlap, they also have some nuanced distinctions, as their different names indicate.

Both terms share the concept of segmentation. However, audience segmentation is geared towards audiences segmented from a marketing and sales perspective. For example, you might wish to stress one marketing angle for a certain target audience and another for a different audience. As this illustrates, audience segmentation doesn’t need to be limited to your customers but can include prospects who haven’t purchased from you yet.

In contrast, customer segmentation is specifically geared toward customers. It can be used for marketing and sales interactions with your customers, in which case it is essentially similar to audience segmentation. However, it can also be used to deliver targeted service or support, not limited to marketing and sales applications. For example, you might segment customers based on those who have completed onboarding and those who have not. This makes customer segmentation different in emphasis and application from audience segmentation as it is used in marketing.

What Are the Different Ways You Can Segment Your Customers?

You can use virtually any characteristic distinctive of subsets of your customers for purposes of segmentation. In a B2B context, here are some of the most useful ways to segment customers and when you might want to use each:

License Utilization

This criteria segments customers based on how many licenses an account is utilizing out of the total number available, an important engagement metric. This information can indicate how actively an account is being used, which can, in turn, suggest actions such as intervening to promote more active usage or offering an upsell to encourage greater usage.

Active Users

This indicates how many users have logged in across all accounts as well as information such as how many users on an account have used a product at least one time within a designated time frame, such as 3 days, 7 days, or 14 days. This can help indicate whether an account is tending toward churn or renewal and what corresponding action should be taken. It can also be defined granularly to focus on the usage of specific features.

Customer Health Score

Customer health score is a metric that integrates a number of indicators to measure customer satisfaction and indicate whether an account is at risk of churn or on a path to retention. Segmenting your customers based on health enables you to take appropriate action to promote satisfaction. For example, customer success managers may reach out to customers with high health scores to cultivate sales opportunities.

Customer Success Email Campaigns

Customer success email campaigns can be segmented in Totango’s platform based on marketing criteria as well as engagement criteria defined by customer profiles or behaviors. For example, you can send a discount promotion to all customers who are due for renewal within the next 30 days, or you might send a tutorial tip to all customers who have used a specific feature within the last 7 days.

Type of Stakeholders 

This allows you to segment accounts where client engagement includes different types of stakeholders, such as those who have direct daily interaction with your product versus those who are indirectly affected by your product. This can help you plan different engagement strategies for different types of stakeholders.

Account Status

Account status lets you segment accounts based on where they are in their customer lifecycle. For example, you can see whether an account is in the onboarding phase or the adoption phase.

How to Optimize Customer Segmentation with Totango Technology

Segmentation works best when paired with the right technology. Several considerations enter into play when selecting technology.

One factor is the need to organize segments into useful groupings. While it is possible to segment data based on any criteria whatsoever, to be useful, customer segments need to be grouped based on relevant criteria, such as where customers are in their life cycle. A good solution needs to balance the ability to group customers based on relevant criteria with the ability to drill down into granular detail within segments. You need to be able to combine customer attributes into hyper-segmented groupings. This results in smaller lists, but the outcomes are better because it delivers the right message to the right person based on their specific attributes.

Another consideration is how customer segments will be put to practical use. To be practical, segmentation needs to generate analytics business insights that lead to action. Taking advantage of data segmentation allows you to use analytics to understand patterns at aggregate levels so that you can take data-driven action. For maximum efficiency, a technology solution should use data segmentation to trigger automated action. For example, you might want to automatically send a renewal notification to all customers who are due to renew within 30 days.

Totango’s Spark platform is built to optimize segmentation and harness it for practical use. Built-in tools make it easy to organize data segments around your customer journey map, so that you can group customers based on where they are in each stage and what specific actions they have taken within each stage. You can drill down into as much granular detail as you desire when defining segments.

Spark also empowers you to trigger automated workflows known as SuccessPlays based on best practices for each stage in the customer journey. This lets you put segmentation to its highest and best use to promote desirable outcomes for your customers at every point in their interaction with your brand. The result is higher customer engagement, satisfaction and retention.

Leverage Customer Segmentation to Optimize Your Customer Journey

Customer segmentation divides your customer base into groups sharing common characteristics, allowing you to deliver a more customized experience for greater satisfaction. It is similar to audience segmentation, which applies the concept of segmentation to marketing and sales, but it can be used for any type of interaction at any stage of the customer journey. In a B2B context, you can segment customers based on criteria such as license utilization, customer health or marketing campaign criteria.

Totango’s Spark platform is designed to let you apply segmentation to customers at any stage of their customer journey for personalized communication and engagement, promoting better customer experience, greater satisfaction and higher retention. Try it free to see how Spark can help you increase engagement and retention of your B2B clients.

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