Customer Segmentation to Achieve Customer-Centricity

Technology has transformed our world, it is undeniable. In the business world, this transformation has resulted, among other things, in an intensification of the dialogues between consumers and companies, as well as an increase in the customer's capacity for decision making and expression. Businesses have understood that listening to the customer means refining the experiences they provide and, therefore, optimizing their results. All of this has caused companies to radically change their focus, moving from viewing the world from a company-focused perspective to a customer-centric perspective.

estrategia customer segmentation orientada a customer centricity


Why customer centricity?

Customer centricity is, basically, a change of perspective that consists of cementing all business strategies and actions on the customer, starting with active and constant listening, as well as the incessant effort to know, understand and empathize with him/her.

This change has occurred as a result of circumstances because, today, it is no longer the companies that dictate what the user wants or needs, but it is now the customer who, indirectly, conditions the offer by stating their needs, desires and wills. Therefore, listening to them and responding to their warnings means success.

It is increasingly important to have a multi-panoramic understanding of our consumers. The general information - age, gender, profession, etc. - that was used to define and outline a portrait of who they are, is no longer sufficient. Now it is necessary to go a step further and explore their consumption and leisure habits, their hobbies and interests, the channels they use, their experiences as consumers, their pain points, their dissatisfactions... Not offering the client what he wants, how he wants it and in the conditions in which he requires it, will cause him to opt for another of the thousand options that the market offers him; one that will listen and be interested in what he has to say.

In short, today it is the customer himself who demands us to create a customer-centric business strategy. In this sense, one of the fundamental bases of customer centricity is customer segmentation


What is customer segmentation?

According to Borja Martín, Head of Data Strategy & Insights at Bismart: "Segmenting is basically classifying our market and structuring it into groups that allow the company to better understand the needs of customers and the opportunities that arise.

Customer segmentation, therefore, consists of analyzing and organizing all the information we have about our customers, enriching it as much as necessary with external information and, based on this, classifying them into customer groups or clusters in order to subsequently make decisions based on these. Clusters are groups of clients that have homogeneous characteristics among themselves and that, in turn, present heterogeneous qualities with respect to the other segments.

This practice serves, essentially, to understand the different types of clients we have and to orient our actions to each one of them. In addition, it helps to place the client in the center since the process involves listening to him, classifying him and adapting business strategies to his needs. In other words, by segmenting, companies manage to develop strategies that are totally focused on each type of customer and, therefore, satisfy their needs better, improve their user experiences, etc. Segmentation also contributes to achieving conversion and leads to better business decisions that will now be conditioned by the defined variables of each of our customer groups.

Basically, customer segmentation manages to offer each customer exactly what they want and need.

On the other hand, customer segmentation entails knowing our customers better, since, in order to classify them, it is necessary to carry out an individual exploration exercise -for each one- that forces us, for example, to determine which variables allow us to categorize them better or to collect additional information that perhaps we did not know. In relation to this, customer segmentation has evolved the same way information and big data have. General data - age, gender, profession, etc. - that were previously used to define and profile a portrait of who they are, are no longer sufficient. It is now necessary to go a step further and explore more specific aspects such as their consumption and leisure habits, their hobbies and interests, the channels they use, their experiences as consumers, their behavior, their pain points, their dissatisfaction, their use of channels and devices, data related to the SAC and the customer journey, etc.

Segmentation is also oriented towards differentiation. In the words of Borja Martin, "the final purpose of segmentation is to promote actions that help us differentiate ourselves from the competition." In other words, if we carry out this exercise it is, precisely, to be able to develop innovative, original and differentiated actions from those carried out by our competition and which, in turn, are adapted to the different types of clients we have. In relation to this, it is convenient to create our own segmentations beyond the automatic ones that, for example, Google, Amazon or Facebook provide. "If we use these segmentations and do not use added information, we run the risk of making little difference."

To obtain this information, it is essential to carry out a data integration process that allows us to have all the information integrated and united, analyze it (data analysis) and complete it. Only in this way, segmenting will be effective and we will be able to make decisions based on the data (data-driven decisions).


Types of segmentation

There are a lot of ways to segment such as client ABC, client scoring, etc. Some of the most recurrent are:

  • Lifecycle segmentation: Customers are classified into age groups and variables related to the needs and behavior of each age subgroup are determined. An 18 year old person probably does not have the same economic possibilities or the same work status as a 40 year old person. This is just an example of how variables related to the age or lifecycle of clients can be determined.
  • RFM (Recency, Frequency, Monetary): The RFM model is based on classifying customers according to three variables: Recency -the last time the customer had contact with the company-, Frequency -frequency of customer consumption with respect to my brand- and Monetary -customer spending-. It is a transactional analysis based on investigating how our customers relate to us in a more complete way than other types of segmentations.
  • Transactional segmentations: In this case, customers are classified by purchasing behavior. In other words, clusters are defined according to the products or services they buy, the times or frequency in which they buy, the amount they usually spend, the channels or devices from which they purchase the products and other specific criteria related to the business sector of each organization. For example, a hotel company could define clusters based on variables such as the type of room the customer stays in, whether they come on weekends, working days or vacations, how many days they stay, the services they request, etc.
  • Behavioral segmentation: Users are segmented based on deeper variables related to their behavior: purchase habits, analysis of browsing patterns, content consumption, channels and means of consumption, etc.
Segmenting by Buyer Persona

Another way of segmenting, which deserves a separate section, is through the Buyer Persona system. This system consists of, once we have defined our clusters, humanizing them so that they stop being statistics and become portraits of our customers. This entails a further step in our efforts to understand and get to know the customer and involves acquiring an even greater understanding of their behavior, dissatisfactions, needs, interests, lifestyle, etc.

A buyer persona is, basically, our ideal customer. Obviously, once we are clear about the different customer segments we have, we know that we should not create a single buyer persona, but rather we should build several ideal customers according to our clusters. In general, companies tend to create between 3 and 8 buyer persona.

When creating a buyer persona, we must consider as many aspects as we can and, at a minimum, we should define their demographics, educational level, job and work situation, their interests, hobbies and leisure activities, their family situation, their social circles, their dissatisfactions and needs, as well as their beliefs, values, opinions and objectives. In addition, we should not limit ourselves to summarizing all these aspects in one word, but rather create a complete story for each of our types of buyers.

Regardless of the type of segmentation that we carry out, in order to obtain beneficial results, it is fundamental to base our analysis on quality data (data quality) about the users and to have historical data so that the information has a solid base.


The value of segmenting

Digitalization has  transformed the connections between businesses and customers, increasing the consumer's decision-making capacity and forcing companies to execute their activity by placing the clients at the center: customer-centricity. Within this framework, segmenting is a necessary and indispensable process to develop strategies tailored to the needs, desires and peculiarities of customers.

In addition, segmenting means optimizing resources, since it contributes to stop making inconsistent or mistaken investments that do not provide any value to the user, and instead allocating resources to strategies that really satisfy their needs and provide benefits.

For all these reasons, segmenting contributes to strengthen the loyalty of our clients and, without a doubt, is beneficial for both the company and the user.

If you have any questions regarding customer segmentation, do not hesitate to contact us, we are here to help!