We all know we should have better segmentation strategies. We should be segmenting our audiences more. Both prospects and customers. We also know we probably don’t do it enough.
There are many reasons why. It’s a lot to manage. We’re not sure what to say. We don’t know if the ROI is high enough for the effort. Or, we’re not sure where to begin.
Whatever the reason, we should be segmenting our audience.
Irrelevant messages are annoying and it doesn’t make sense to waste time and money on an audience that is never going to convert.
This should be a fairly strong reason to do more segmentation.
The goal of segmentation is to put the right message, in front of the right client, on the right channel, at the right time.
If you know you need to segment your audience better, and you want to get closer to the segmentation goal above, here are five segmentation strategies to begin segmenting your clients and when to use each.
The segmentation strategies we’re going to look at are:
- Persona based segmentation
- Behavioral segmentation
- Lifecycle segmentation
- Recency frequency monetization (RFM) segmentation
- Lifetime value segmentation
Now, read on to get five actionable segmentation strategies.
Persona based segmentation
Defining persona’s is a critical part of your marketing strategy. It gives you a detailed understanding of who you should be crafting your message for.
This should be the first level of segmentation you do.
What is persona segmentation?
Buyer personas are your detailed descriptions of your target audience. This is the segmentation method where you include demographic, firmographic, language, location, and possibly personal preferences.
In this strategy, you’ll create buyer personas, which you will then use to segment your clients.
An example of a buyer persona could be a marketing manager at a mid-market company in the United States. Then, you can elaborate and get fairly specific about preferences and other information that help you speak this marketing managers language.
A persona creates a fairly good idea of a target, but it is still fairly broad. Although, for this segmentation strategy, that is what you are looking for.
When should you use it?
Now that you understand what persona-based segmentation is, the real question is when should you use it?
Given this is a high-level segmentation strategy, this type of segmentation should be used for:
- Broad messaging
- Blog articles
- Email newsletters
If we think about our goal from the beginning – putting the right message, to the right client, on the right channel, at the right time – this strategy is all about getting the right message.
Persona segmentation is best used as a messaging segmentation strategy.
The next segmentation strategy – which is not mutually exclusive from persona segmentation – is behavioral segmentation.
What is behavioral segmentation?
Behavioral segmentation is creating action-based segments. That means, when a prospect or customer takes an action, this enrolls them in a particular segment. Then, you engage with them in that moment.
This can be someone viewing your pricing page, which puts them into a retargeting audience or an email workflow.
This could also be something like using events throughout your website or application that creates audience’s or triggers. For example, someone is on the pricing page, then clicks a “how it works” button on the page. This could enroll them in a small campaign of retargeting, email, or chat. All directed at educating the user how your product works.
When should you use it?
Behavioral segmentation is a key segmentation strategy to get your message in front of your audience at the right time.
You should use this particular strategy when prompting users to take actions. Such as clicking CTAs, filling out forms, or setting up their account with you. Then, in the moment they have you top of mind, you can provide them with the next logical action.
Persona segmentation strategies create timely marketing campaigns.
From our segmentation goal, this strategy is putting our message in front of our audience at the right time.
Creating lifecycle stages for your prospects and customers is a critical part of your marketing strategy. It creates your marketing qualified leads (MQLs), sales qualified leads (SQLs), your customers, and any others in between.
You can then create segments based on those stages and create targeted marketing campaigns.
But, we can take the lifecycle stage concept one step further. Distancing this from a traditional prospect-based lifecycle stage. We can think about this in terms of our customer and what their next logical purchase would be.
What is lifecycle segmentation?
Your customer lifecycle is the journey your customer takes, not just in your products ecosystem, but also what they do once they purchase your product. It is their journey in consuming your product and the journey leading up to consuming your product.
To use lifecycle segmentation, you can create segments of customers based on the products they consume. Then, you can offer them the next logical product. This creates a sense of relevance.
For example, if you sell wedding cards, a next logical product might be holiday cards the customer could send out that emphasize the couple’s first holiday together.
The segment here would be customers who purchased wedding cards. Then, you can market to them knowing they will be spending their first holiday’s as a married couple. And, they are likely to send out holiday cards to their friends and family.
When should you use it?
Using this segmentation strategy is great when you want to know what to offer a customer next.
It’s a pertinent strategy if you have individual products that customers buy and you need them to come back to you in order to purchase that product again. Or, if you are encouraging multiple purchases, but customers typically don’t need to buy the same product multiple times in a short time-frame. Like, wedding cards.
Lifecycle segmentation strategies are a great way to get the right message to the right audience. It accomplishes two parts of our segmentation goal.
Recency frequency monetization segmentation
Recency frequency monetization (RFM) segmentation is about segmenting your customers based on purchasing behavior.
What is RFM segmentation?
RFM segmentation is a data driven model you build based on your customers purchasing behavior.
To understand RFM segmentation, you have to look at each component. Recency. Frequency. Monetization.
The recency component of RFM is how recently a customer has purchased. For this, you will create segments of customers based on buckets of days or months since their last purchase.
Frequency is how many times a customer purchases in a given time period. This could be how many purchases all time. Or, it could be within a 90-day window.
Monetization in RFM is how much a customer has spent with you each time they purchase. This is going to be your average sale price (ASP).
With these three components, you begin to analyze and model customer purchasing behavior. With that behavior, you can bucket your customers into your best customers, your not so great customers, and customers that might be great but their purchasing behavior has slipped.
A great reference for building an RFM model can be found here.
When should you use it?
RFM segmentation is a great segmentation strategy when you want to encourage multiple purchases of different types of products. And, to increase the frequency of those purchases.
This is best if you are not a subscription business. This is a common model for business to consumer (B2C) marketers. But, it can also work with business to business (B2B) products that are purchased individually.
If you take a consultative sales approach, this segmentation is a great option.
This strategy does look strictly at purchasing behavior. Thus, you will most likely want to add persona segmentation in addition to this to better understand who the customer is in each segment. Which, allows you to craft the right message.
If we think about our segmentation goal from the beginning, RFM helps identify the right audience, and with the recency factor, the right time to reach out.
Lifetime value segmentation
Customer lifetime value (LTV) is a critical metric you should know about your customers. Simply, it’s the monetary value a customer is expected to bring you once you acquire them.
You can have a single LTV for all your customers and this would be just fine. But, if you want to take your customer acquisition to the next level, you can have different LTV’s for different client segments.
Which, is how you segment based on LTV.
What is lifetime value segmentation?
Lifetime value (LTV) segmentation is looking at the overall LTV of your customers. Then, breaking that out into different LTV’s. When you have an average, there is going to be a lot of higher and lower value’s in that average. So, you want to break them out.
A simple way to understand this is if you’re a B2B product and you attract three tiers of clients. You might attract small-medium businesses (SMBs), mid-market companies, and enterprises.
To segment on LTV, you would give each of these client tiers their own LTV. Then, you can adjust your acquisition spend accordingly.
This strategy allows you to spend more on acquiring and retaining enterprise clients and ensure you profitably acquire and retain SMBs.
When should you use it?
LTV segmentation is a great strategy to know how much you can invest in acquiring and retaining clients. It allows you to spend more to acquire larger clients and provides a guiding light to profitably acquire customers in the lower end of the market.
You should be using this strategy if you have different tiers of customers. Like, SMBs and Enterprises. For B2C companies, you might use this if you have a luxury brand and a value brand.
This strategy helps us segment out the right client, as it pertains to our segmentation goal.
Getting a segmentation strategy right is not easy. There are many ways you can choose to segment your clients. These are five options to get you started.
Ultimately, you will need to decide which of these segmentation strategies to try. Then, setup a testing plan to see if the segmentation strategies is right for you. When a strategy fits, you can move one step closer to putting the right message, in front of the right client, on the right channel, at the right time.