Customer segmentation: why it matters to SMEs

Customer segmentation means dividing customers into discrete groups based on common characteristics. It primarily makes for more targeted communication and deeper business-customer connections.

How does it achieve that? Well, just look at what a total lack of segmentation implies:

1. All my customers are the same
2. All my customers share the same needs
3. All my customers can be reached the same way

None of those statements are true. Quite the opposite, in fact: especially in the age of customer-centricity, customers expect more personal levels of engagement. Olive Huang, vice president of research at Gartner puts it like this:

In other words, just lumping your customers together and blasting them with the same impersonal, non-relevant messages, is definitely a losing strategy. Segmentation doesn’t need to be limited to existing customers only. Your entire contact database - your prospects, suppliers, and partners - can be subject to smart segmentation.

Roughly, we can distinguish 3 types of segments:

• A priori segmentation: based on publicly available variables; for B2C, these include education, age, geography, gender or income. For B2B, it could be industry, company size, company location or revenue. Basically, these segments are based on readily available information rather than extensive research or experience.
• Needs-based segmentation: based on the specific needs customers express for the services or products you offer, like a family needing air-conditioning during summer, or a company looking for your business software to gain a competitive advantage. These needs are discovered through market research or just plain experience.
• Value-based segmentation: based on the economic value a group of customers represents to your business. This helps define the ideal customer that will deliver the most profit.

A priori segmentation takes less effort than the other two, but of course, also offers less strategic insights. Still, all three are valuable, especially when used together for maximum impact. What’s more, is that they are universally applicable, so your small- or medium-sized business can reap the benefits of a good segmentation strategy just as much as the next company.

As an SME you potentially have a large database of contacts to manage, but you probably don’t always have the proper resources or overview to manage your contacts in an (almost) one-on-one relationship. Don’t tie yourself in knots over it - customer segmentation doesn’t need to be complex.

It can start with as little as recognising two or three distinct customer types. For example, segmenting your customer base based on where they live, how much they have to spend, or the industry they’re in, will already create a clear distinction, with a whole lot of concrete applications.

Want to send out an invite to a local event? Geographical segmentation makes it easy. Launching a new luxury product? Target your bigger-income customers only. Looking for upselling opportunities? Send a marketing offer for product B to customers who once purchased product A. Small steps in customer segmentation can go a long way for your business.

We’ve listed reasons why customer segmentation - before, during, and after a sale - can be useful.

1. Identify the best prospects and leads: When you sell to potential customers, it’s key to pick the right prospects. Identify your ideal customers by segmenting, for example, on industry, employee size, specific needs, and so on. Focus all your efforts on those who can really benefit from your product and service and have proved to be a fit in the past.
2. Focus on the right sales opportunities. Next, when an opportunity presents itself to close a deal, segment all your deals based on urgency; those that require the most attention will be on the top of your to-do list. Some of your prospects will have a compelling event coming up, urging them to buy. So make a segment out of them! Or group hot prospects based on the number of contacts you’ve had over the last 2 months.
3. Provide a better service. Split up your customer database based on their stage in the customer journey, e.g. new customers, loyal ones, and true brand ambassadors. To turn those first two into ambassadors - your best customers - it might be useful to check in every 3 or 6 months, which is easy if you segment again on the last point of contact.

Moreover, any insights into who your best customers are and what they love about you will improve your service. Don’t forget to create a special segment with customers that have stopped doing business with you too: not only can you learn from previous mistakes, but you might want to reach out to them again in the future.

Ghislaine Rahier, customer segmentation and onboarding expert at Teamleader:

4. Send a more relevant marketing message. A general message to your entire customer database doesn’t resonate well with every client. Imagine you’re selling to all sorts of age groups. For a younger age segment, you’ll likely promote an entirely different product offering as opposed to 55 to 65-year-olds. You could also group your regular customers into a segment, and then send them a targeted message with a special offer to make them feel appreciated.

Say what?

• Compelling event: a business pressure forcing the customer to make a decision on a purchase
• Customer journey: the total amount of experiences a customer goes through when interacting with your brand
• Brand ambassador: a customer who’s so enthusiastic about what you offer, they actively promote your business through positive word-of-mouth

The benefits of customer segmentation are ample. It’s not just your marketer or salesperson, but your account manager or customer service staff that can benefit from it too.

In general, segmenting your customers based on specific common criteria means understanding what makes them tick. And a better understanding of the customer leads to better marketing, better sales and better customer service - just a better business altogether.

To start with customer segmentation, you don’t need much more than database and spreadsheet software, although its effectiveness will be highly dependent on your skills with formulas and filters. Customer segmentation is often also a feature of marketing tools, CRM systems and business software.

Options are many and affordable, which makes customer segmentation seem a smart move for SMEs to get their message across better, sell to the right customers at the right time and provide a better customer experience across the board.