How can you identify low-value customers using customer segmentation methods?

1 What is customer segmentation?

Customer segmentation is the process of dividing your customers into groups based on their characteristics, behaviors, preferences, and needs. By segmenting your customers, you can tailor your marketing messages, offers, products, and services to each group, and increase your customer satisfaction, loyalty, and retention. Customer segmentation can also help you identify new opportunities, gaps, and trends in your market.

2 How to segment customers by value?

One of the most common and useful ways to segment customers is by their value to your business. Customer value can be measured by different metrics, such as revenue, profit, frequency, recency, retention, referral, or loyalty. Depending on your business goals and data availability, you can use one or more of these metrics to calculate the value of each customer or group of customers. For example, you can use the RFM model, which stands for recency, frequency, and monetary value, to score your customers based on how recently, how often, and how much they have purchased from you.

3 How to identify low-value customers?

Once you have segmented your customers by value, you can analyze the distribution and characteristics of each segment. Low-value customers are typically those who have low scores on the value metrics you have chosen, such as low revenue, low profit, low frequency, low recency, or low loyalty. They may also have high costs of acquisition, service, or retention, or low satisfaction or engagement. You can use descriptive statistics, such as mean, median, mode, standard deviation, or quartiles, to compare the segments and find the thresholds or cut-off points that define low-value customers.

4 How to deal with low-value customers?

After identifying low-value customers, you have several options to deal with them. One option is to try to increase their value by offering them incentives, discounts, cross-sells, up-sells, loyalty programs, or personalized recommendations. Another option is to reduce their costs by automating or simplifying their service, support, or communication channels. A third option is to re-evaluate your pricing, product, or positioning strategy to attract more high-value customers and deter low-value customers. A fourth option is to fire or terminate low-value customers who are unprofitable, problematic, or harmful to your business.

5 How to monitor and evaluate your customer segmentation?

Customer segmentation is not a one-time activity, but a continuous process that requires regular monitoring and evaluation. You should track and measure the performance of each segment over time, using key performance indicators (KPIs), such as revenue, profit, retention, churn, satisfaction, or loyalty. You should also update your segments periodically, using new or updated data, to reflect changes in customer behavior, preferences, needs, or market conditions. You should also test and experiment with different segmentation methods, criteria, or variables, to find the best fit for your business and customers.

6 How to get started with customer segmentation?

Customer segmentation can be a powerful tool to identify and manage low-value customers, as well as to optimize your marketing strategy and customer value. To get started with customer segmentation, you need to have a clear understanding of your business goals, your customer data, and your customer segments. You also need to have the right tools, such as software, platforms, or frameworks, to collect, analyze, and visualize your data and segments. You can use online resources, such as blogs, books, courses, or podcasts, to learn more about customer segmentation methods, best practices, and examples.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?