Why You Need to Use Data-Driven Behavioral Segmentation

How do you think about your customers? You probably think of them in the basics, first, such as where they live or how long they’ve been buying things from you. At its most basic, data about your customers will do the work of figuring out commonalities in geography and demographics, which can help you create some natural segments (for example, people with young children, people with no children).

But there’s so much more to segmenting customers, and a lot of the new research into it talks about behavioral and psychographic characteristics that can help you bucket them together. To do that, of course, you need to gather data and you need to figure out how to group that data.

When you think about segments, you want to think about not just similarities, but differences – the segments you pick should be clearly different from one another. How else can you use segmenting? This article explains it.

Why You Need to Use Data-Driven Behavioral Segmentation

Co-authored by Jessica Bennett and Kaylee White

Why You Need to Use Behavioral Segmentation

We are long past the days when you could just hammer a billboard into the ground and hope consumers somehow found you. Our ability to use technology to identify shared characteristics and track the behavior of consumers has thrown open the doors to personalized marketing.

Whether you own a local candy shop, a national company that sells men’s suits, or an online startup launching a line of high-end sunglasses, marketing segmentation is an absolute must. The four primary marketing segmentation categories are:

  • Demographic
  • Geographic
  • Psychographic
  • Behavioral

While each segment can be a powerful way of understanding and communicating with your audience, the most useful is arguably behavioral segmentation. What is behavioral segmentation, and how can it help you tune into exactly which consumers are most likely to buy your products?

What is Market Segmentation?

Market segmentation is one of the most useful and practical strategies used in business planning and marketing. Segmentation is a process of dividing the market or consumers on the basis of commonalities and differences and grouping them together on the basis of specific characteristics that are relevant to marketing, for example, income, occupation, gender etc.

A Quick Review of Marketing Segmentation

Marketing segmentation helps identify the shared traits of different segments of your audience. A company can use that knowledge to communicate to its audience in a personalized and authentic way.

For example, a mom-and-pop candy shop in Albany, New York, doesn’t need to spend money on a national Facebook ad campaign (unless its website has a national or international reach). A national company that sells suits performs marketing research and learns that a good portion of its customers are women who purchase suits for their husbands or sons. These are examples of segmenting audiences based on geography and demographics.

Psychographics refers to segmenting audiences based on more esoteric factors: lifestyle, social class, and the way someone wants to see themselves. For example, your online startup sells funky, luxury sunglasses aimed at urban, professional millennials who want to be seen as trendsetters.

Now we need to examine the last type of marketing segment: behavioral segmentation. What makes this particular type of segmentation so valuable?

Behavioral Segmentation Definition

Behavioral segmentation looks at how and when a consumer decides to spend their money on a product or service. It focuses on consumers’ shopping behavior, how they make their decisions, why they choose one product over the other, and how they feel about a product, company, or service.

Questions that behavioral segmentation can help answer include:

  • Who are your most loyal customers?
  • When are certain customers most likely to buy your product or service?
  • Is your customer buying based on price, or because they prefer your brand?

To really understand behavioral segmentation, we need to dive into the heart of this segmentation category. These are the six subcategories within behavioral segmentation that will help you understand the planning, decision, and buying journey of your customers:

  • Purchasing behavior
  • Occasion purchasing
  • Customer usage
  • Benefits
  • Loyalty gauge
  • Buying stage

At the end of the article, we’ll review how putting in the time to mine this information can help explode your marketing ROI.

Purchasing Behavior

What is the thought process a consumer uses before making a specific purchase? For an expensive suit, a consumer may gather lots of information, compare several different labels, and read tailoring and fabric reviews before making a purchase. When buying candy, a teen with $5 may scan the assorted goodies and make an impulse buy based on which treat looks the most tantalizing. Out of sheer habit, another customer may place the same order for a dozen chocolate-covered pretzels every Saturday morning.

Purchasing behavior varies from customer to customer and can be difficult to quantify. It may be best to use customer surveys to learn this information. When you do understand this data, however, it can give you great insight into what motivates consumers and how to support their buying decisions.

Occasion Purchasing

When do your customers purchase your products or services? Is it for a specific, external event? Do they buy your products regularly or just every once in a while?

If you’re a candy shop, your most profitable day of the year is most likely Valentine’s Day. This is an obvious occasion that compels many consumers to grab those heart-shaped boxes. However, this isn’t the only occasion to consider. It could also be highly useful for a candy shop to know a consumer’s birthday or wedding anniversary.

Outside of external occasions, consider when else a consumer might purchase your products. Do sales of your company’s funky sunglasses pick up in the summer? Do certain clients purchase a new suit every few months, while others only do so once? Understanding the rise and fall of purchasing behavior over the days, months, and years can help you get ahead of seasonal trends to power up your results.

Customer Usage

One of the most important subcategories of behavioral segmentation is customer usage. You need to know who your power customers are: These are the people who are buying most often from your company. They deserve extra attention and the most personalized marketing you can create.

However, be careful with this metric. It’s easy to get dazzled by the numbers. Your most active customers aren’t always your best customers. The teenager who spends $5 in your candy shop every week is a regular customer, but they don’t compare to the party planner who spends $300 every other month when they have a special event.

It’s useful to identify your heavy, medium, and light users so you can effectively market to them. Heavy users need special attention. Medium users can be encouraged with special promotions. You may decide different types of segmentation to advertise to light users or to use your limited marketing budget in another way.

Benefits

The benefits segmentation answers the question of why consumers buy from you. What benefits do they receive from your product? They may desperately need to solve a problem that only your product or service solves. Alternatively, they may want to showcase a posh and fun fashion sense with your funky sunglasses. Or the entire purchase decision may be based solely on price.

This is an important question to answer. If you discover that a majority of your customers only frequent your candy shop because it’s within walking distance of their house, work, or school, then you want to consider an ad campaign that targets this specific audience. You also don’t want to advertise your new, high-end, luxury suit to the segment of customers who buy only when you have sales or other promotions.

Customer surveys and A/B testing can really help you uncover the true motivations of your customers.

Loyalty Gauge

How much do your customers actually care about your products or your company versus your competitors? Your most loyal customers are as precious as diamonds. Walter Rogers explains, “The 80/20 rule of territory management says that 20% of your customer base drives 80% of your revenues and commissions.”

If you only have the means to focus on one behavioral segmentation subcategory, your best bet may be to identify your most loyal customers and treat them like the royalty they are. It is also useful to identify who aren’t loyal customers. You’ll need to market to them in a different way, especially if a competitor is trying to poach them.

Buying Stage

Where is your customer in the buying process? Maybe they’re not even a customer yet and still qualify as a lead. Perhaps they’re a lead; they’ve seen some of their friends wearing your glasses, but they just aren’t ready to invest and get their own pair.

Users can be placed in a variety of buying stages:

  • Nonusers have never heard of you.
  • Prospects have an inkling but aren’t sure they want to buy.
  • First-time buyers have given you their money. Now what?
  • Regulars are old friends of your company.
  • Former customers jumped ship and are now your competitors’ customers.

The way you speak to each of these consumers will be very different. Nonusers need to be educated about your industry, products, and services. Prospects need a little more guidance to get them over the finish line. First-time buyers have already made the investment, so now it’s time to double down with benefits to inspire their loyalty. Your regulars may be ready to upgrade with additional products and services. Finally, if you’ve improved your product or can offer an incentive, you may be able to win back former customers.

Why It All Matters

Behavioral segmentation is a harder nut to crack than the other segmentation categories, especially demographics and geography, but the work is worth the reward. After all, understanding why someone chooses to buy your products or services is the holy grail of marketing research.

When you segment your audience by their behavior, your efforts will allow you to:

  • Develop key insights into what motivates consumers to buy from you
  • Identify your most loyal users and learn how you can keep them happy
  • Figure out when certain groups of consumers buy so you can reach them at the right time
  • Send the right message to the right consumer depending on where they are in the buying process
  • Spend your marketing budget more wisely on consumers who aren’t ready to buy, who have low loyalty, and who won’t be heavy users of your products and services

This is all another way of saying that behavioral segmentation lets you tailor your marketing. It allows you to take advantage of the existing buying behaviors of your key customers. You’ll be able to speak the right language at the right time to the right person. Every marketing dollar will stretch a little further and give you greater returns.

Benefits of Data-Driven Market Segmentation

 

Increases Clarity

Data-Driven Behavioral SegmentationThe first and foremost use of market segmentation is to develop clarity. After mining and cleansing your data, all you have is the most accurate and relevant information about the customers. Once you have the data ready, you can use this information to put the customers, who share particular business-relevant attributes, together in a group.

The primary objective of segmentation is to remove the unimportant clutter of information and keep what is useful and actionable on your desk.

Develops Consumer Insights

If “Know thy customers” has always been an oft-quoted mantra in marketing, it has become even more loaded with meanings in the digital era. Today, your customers are just a click away, expecting you to frequently pat them on their backs.

With clearly defined customer segmentation and contact profiling, you can know who your customers are, where they are, and what they need better.

Improves Customer Engagement & Brand Loyalty

Customer engagement is one of the most important strategies to identify and, sometimes, even to influence the customers’ needs and interests. Customer behavior data collected from the social network sites, mass media, discussion platforms and purchasing history helps businesses to develop a psychographic segmentation of the customers and target marketing and ad campaigns to address their needs.

Engaging customers with communications and motivational offers has proved to be the most effective way of improving brand loyalty and customer retention in the age of e-business.

Streamlines Mass Customization

Mass customization is a process of providing specially tailored products or services to fit the specific needs of a large number of customers in the specific segments. The growing amount of clickstream and customer behavior data has helped businesses to apply more accurate customer segmentation, which has made the practice of mass customization more effective.

Mass customization significantly improves the level of customer satisfaction by helping your company to offer value-added and custom-tailored services to a large segment of customers.

Optimizes Cost-efficiency & Resource Management

Market segmentation is an important tool for developing business intelligence and maintaining a competitive advantage. It gives a deeper insight into the market and helps business firms to identify the segments of customers with greater profits and allows them to carry out more targeted micromarketing.

All the top-notch companies make the best use of their data to implement precisely defined market segmentation in their marketing and service delivery.

Grows Niches Marketing Capabilities

Data plays a mission-critical role in discovering the hidden dynamics of the market and in developing newer insights and marketing strategies. Using the market/customer data to systematically segment the market can help your business to discover the potential niche markets where you can maintain your lead and domination with a rapid customer conversion and market expansion.

The bowling pin strategy applied in niche marketing has helped many online businesses to grow rapidly. You can take Amazon as an example.

Promotes the Application of Business Data

These days, all businesses, regardless of their size and scale, generate business data and have access to data across the industries. Companies today have the advantage of using both the a priori and post hoc methods in market segmentation. Moreover, you can also use data visualization and cluster analysis techniques to improve the process of customer segmentation.

Enhances Reliable Assessment

Segmentation of the big market of customers into the small chunks not only makes customer service and marketing efforts more manageable, but it also makes it easier for you to measure the success of the segment-specific projects, policies, and strategies measurable.

The growing access to multi-platform real-time data has helped businesses to study and assess their market penetration and performance and reorient their marketing policies or re-segment the targeted customers.

Maintains Freshness

It would be misleading to presume that customers who fall into a group or subgroup of segmentation stay there forever. In this digital era, customers are bombarded with information, which continuously influences their preferences and priorities, increasing their mobility across the segments.

Data-driven market segmentation heavily relies on the accuracy of the customer profiles with the new information on a regular basis. It helps your business to deal with your customers with up-to-date information.

Keeps Focused & Goal-oriented

The whole purpose of market segmentation is to know the customers better and to cater to their needs in an effective manner. Data provides the very precise and accurate customer insights and helps you to stay focus and targeted.

Segment Like Your Marketing Depends on It

You don’t have unlimited time and energy, and certainly not an unlimited pile of money, for your marketing efforts. Marketing segmentation, especially behavioral segmentation, lets you supercharge every dollar with key insights and knowledge so you can sell to the audience who’s ready to buy.

Why You Need to Use Behavioral SegmentationAuthor Bio: Jessica Bennett is a writer, editor, and novelist. Her clients span a number of industries. She’s written blog posts, product descriptions, articles, white papers, and press releases— all in the name of inbound marketing. She’s proud to be Inbound Certified, but her VP of Morale, Avalon, doesn’t quite get what all the fuss is about. But he’s a rabbit, so you can’t really blame him.

 

Sources: 1, 2

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