The ABC of Customer Segmentation

As you know, not all customers are created equal from a sales perspective. Most businesses find that 20% of their customer databases are producing 80% of their sales yet that 80% of  their time is spent serving the needs of the 80% of the non-sales-producing customers.

In many situations, I recommend that business owners undertake some customer segmentation activities to identify the profile of their ideal customer, cull the 80% who aren’t as profitable and focus on serving the needs of the 20% more effectively. Nine times out of ten even though they’ve dramatically reduced their customer base their sales still increase.

Here are some customer segmentation tips to help you increase your marketing results…

Imagine this … two types of potential customers:

Please note: this is an exaggerated example just to illustrate a point 🙂  …

One potential customer is a single truckie who is on a fairly low income. He drinks and swears a lot, loves to go “roo shooting” on his days off and his main values are alcohol and womanizing. He often sleeps wherever he falls (in his truck, on the lounge, on the floor … wherever) as most evenings he’s full of grog.

The other person is a reserved, well-educated mother of four who works part-time for a public relations consultancy and lives in an upwardly mobile suburb of a major city. She drives a Range Rover and spends her spare time ferrying her children around to sporting fixtures. She pays particular attention to her own health and the health of her family. She suffers from lower back problems.

Now, imagine you own a mattress company.  Both of these people are potential buyers of mattresses as everyone needs to sleep, yet the way in which you would market to each of them is vastly different.

The woman has a back problem and is on a higher income, and health is important to her. The man is on a budget, and health and back comfort are of less importance to him.

Obviously then, the approach you use to advertise your mattresses will be different for each person.

The woman will be focused on comfort and back support and the man will be focused on something that is cheap.

To market to the woman you’d use softer, more elegant language. To market your mattresses to the man you’d use more masculine, working class language.

Make sense?

So – to maximize the effectiveness of your marketing efforts it’s important that you understand who your customers are, what their values are and what motivates them to buy.

So – let’s do that now.

Who is going to buy your product?

The answer to that question is simple. It’s the people who have similar traits, likes, dislikes and needs to your best customers.

So – identifying who your target market is, is as simple as developing a profile of your existing “A” customers. Notice how we mentioned the term “A customers”.

If a select group of your customers spends $2,000 with you each year and other customers spend just $200, it naturally makes sense to find more customers who are like the ones who spend $2,000, doesn’t it.

That’s why segmenting your customer list and profiling your customers are both very important.

Segmenting your customer list or database simply means differentiating between the customers who spend the most with you and the customers who spend the least with you. Once you’ve done that, the next step is to develop a profile of these customers.

Let’s take a look at customer categories in more detail …

– These are your biggest fans. They refer up a storm, spend an enormous amount of money with you each year, and they’re absolutely a pleasure to deal with.

B – They are good customers but perhaps haven’t invested in your services or products in a while, but with the right encouragement and nurturing, they could turn into A customers.

C – These are customers who are either:

  • Trouble – they have an annoying personality; or,
  • Average, small-time, low investment non-committals.

How to Categorise your Customers

If your database or accounting software enables you to sort customers in order of revenue generated by them over a year, print out a copy of your customer list in order of $$ spent.

By looking at this list you should be able to see an automatic division of customer categories, but if you can’t, here’s a rough guideline:

  • A The next 20%
  • B The next 30%
  • C The next 50%

Next to each customer, write their customer category and arrange for a field to be created in your contact management software called ‘customer category’ or ‘customer type’.

Once you’ve done that it’s also important to categorise your prospects into A, B & C.

  • A – They’re red hot and you’re 99% sure they’ll invest in your services very soon
  • B – They were quite interested in your services, but for some reason or another haven’t yet invested.
  • C – Tyre-kickers or low $ prospective customers.

Customer Segmentation Action Steps:

  • Categorise your customers into A, B and C
  • Develop a profile of these customers. How old are they? Where do they live? When do they buy? How much do they spend? Why do they buy from you? What is important to them in life? What are their buying motives? How price conscious are they? Write a long list describing everything you know about these people.
  • Use your customer profile as a reference point when you write all your marketing communications pieces.
About Kristina Mills:
Kristina Mills is a highly regarded direct response copywriter, marketing strategist, entrepreneur and success strategist having worked with and produced great results for some of Australia's most inspirational entrepreneurs, speakers, event companies, professional services firms, property companies, and internet entrepreneurs. She is the author of Invisible Genius Vol1 and 2, Freelance Copywriting Fast Track Course, Direct Mail Mastery, Web Copy Mastery, Invisible Genius Vol.1 and 2, Mortgage Broker Letters that Sell, Real Estate Letters that Sell, How to Create a Sales Explosion With Every Ad and Letter Your Write. To find out more about how Kristina can help you live your potential, arrange a free 15 minute phone chat.

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