How can you use customer segmentation to increase customer lifetime value?

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Customer segmentation is the process of dividing your customers into groups based on their characteristics, behaviors, and preferences. By doing this, you can tailor your marketing, products, and services to meet their specific needs and expectations, and increase their loyalty and satisfaction. In this article, you will learn how customer segmentation can help you increase customer lifetime value (CLV), which is the total profit you can expect from a customer over their entire relationship with your business.

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Sanjay Kumar

Indian Navy Retired, QA, HR, Supply Chain, Ware Housing, Procurement, MIS, SAP, Admin, Budget, Industrial Safety
Vanessa S.

Active SECRET Cleared Deputy Program Manager | CSM, Project+, Security+ CE, ITIL 4 Specialist
Abdul Aleem Shaik, BE, PGPQS, PMP?

Planning & Control Engineer at Ranya Contracting Establishment

1 Why customer segmentation matters

Customer segmentation matters because not all customers are the same. They have different needs, preferences, goals, and motivations. By segmenting your customers, you can understand them better and communicate with them more effectively. You can also offer them more relevant and personalized solutions that match their pain points and desires. This way, you can increase their satisfaction, retention, and advocacy, which are key drivers of CLV.

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Sanjay Kumar

Indian Navy Retired, QA, HR, Supply Chain, Ware Housing, Procurement, MIS, SAP, Admin, Budget, Industrial Safety
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Using customer segmentation allows for personalized marketing, product recommendations, and tailored communication, thereby enhancing customer satisfaction and loyalty. By understanding distinct customer needs, behaviors, and preferences, businesses can deliver targeted offerings, anticipate future needs, and foster stronger customer relationships, ultimately increasing customer lifetime value. Moreover, segmentation aids in identifying high-value customer segments for focused retention efforts, leading to improved CLV through enhanced customer retention and repeat purchases.

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Vanessa S.

Active SECRET Cleared Deputy Program Manager | CSM, Project+, Security+ CE, ITIL 4 Specialist
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Customer segmentation is crucial as it recognizes the diversity among customers in terms of their needs, preferences, and behaviors. By categorizing customers into distinct groups, businesses can tailor their communication, products, and services to meet the specific requirements of each segment. This personalized approach not only enhances customer satisfaction and retention but also fosters loyalty and advocacy. Effective segmentation enables targeted marketing strategies, leading to increased customer lifetime value (CLV) by delivering value that resonates with each customer's unique needs and desires.

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2 How to segment your customers

Segmenting customers is a key part of any business strategy, and there are many ways to do it. Demographic segmentation looks at age, gender, income, education, and location. Psychographic segmentation looks at personality, lifestyle, values, and attitudes. Behavioral segmentation looks at purchase history, usage patterns, feedback, and loyalty. Value-based segmentation considers the profitability, potential, and cost of serving each customer. You can use one or more of these methods to create meaningful and actionable segments for your business. Surveys, analytics, CRM systems, and customer feedback platforms can be used to collect and analyze data for segmentation.

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Vanessa S.

Active SECRET Cleared Deputy Program Manager | CSM, Project+, Security+ CE, ITIL 4 Specialist
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Segmenting customers is crucial for crafting targeted business strategies. Key methods include demographic (age, gender, income), psychographic (lifestyle, values), behavioral (purchase history, loyalty), and value-based (profitability, potential) segmentation. Using a mix of these approaches allows for precise customer groups. Tools like surveys, analytics, CRM systems, and feedback platforms aid in collecting and analyzing data for effective segmentation. This enables businesses to offer personalized services and products, enhancing customer engagement and satisfaction.

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3 How to target your segments

Once you have segmented your customers, you need to target them with appropriate strategies and tactics. Consider their needs, wants, and expectations; pain points and challenges; goals and aspirations; perception of your brand and products; preferred interaction with your business; and buying behaviors and triggers. With this information, you can design and deliver targeted marketing campaigns, products, and services that resonate with each segment. Additionally, segmentation can be used to prioritize segments based on value, potential, and fit for your business.

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Vanessa S.

Active SECRET Cleared Deputy Program Manager | CSM, Project+, Security+ CE, ITIL 4 Specialist
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After segmenting customers, tailor your strategies to meet the specific characteristics of each segment. This involves understanding their needs, challenges, goals, brand perceptions, preferred interactions, and purchasing triggers. Armed with this insight, craft marketing campaigns, products, and services that precisely address the unique preferences and requirements of each segment. Segmentation also allows for prioritization of customer groups based on their value, potential, and alignment with your business objectives, ensuring resources are focused where they can generate the greatest impact. This targeted approach enhances customer engagement, satisfaction, and ultimately, business performance.

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4 How to measure your results

To measure the impact of customer segmentation on CLV, you need to track and evaluate key metrics for each segment such as Customer Acquisition Cost (CAC), Customer Retention Rate (CRR), Customer Churn Rate (CCR), Customer Satisfaction Score (CSAT), Net Promoter Score (NPS), and Customer Lifetime Value (CLV). By comparing these metrics across segments, it's possible to identify which segments are more profitable, loyal, and satisfied. Additionally, these metrics can be used to calculate the Return On Investment (ROI) of your segmentation and targeting efforts.

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5 How to improve your segmentation and targeting

Customer segmentation and targeting are not static processes. They require constant testing, learning, and adaptation. You need to monitor your segments and their behaviors, preferences, and feedback regularly. You also need to experiment with different strategies and tactics to see what works best for each segment. You can use tools like A/B testing, surveys, analytics, and customer feedback platforms to collect and analyze data for improvement. You can also use tools like customer journey mapping, personas, and value propositions to create and refine your segment profiles and messages.

Customer segmentation and targeting are powerful ways to increase CLV. By understanding and addressing your customers' needs, preferences, and expectations, you can create more value for them and for your business. You can also build stronger relationships, loyalty, and advocacy with your customers, which can lead to more referrals, repeat purchases, and cross-selling opportunities.

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6 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?

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Abdul Aleem Shaik, BE, PGPQS, PMP?

Planning & Control Engineer at Ranya Contracting Establishment
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In my view, apart from above mentioned strategies, storing individual customer's data from starting point of interactions till it's live in the business needs to be plotted over a time and compared to analyze their overall behaviour trends which will help in predicting agile service towards the customers prior to his/her request being placed.By this way their place of segments can be changed as theu are dynamic in nature.This will result in higher customer's satisfaction and contributing towards dynamic segmentation process.

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Erkan Can

The Art of Empowerment is available now. Championing the future of new work and team empowerment.
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Using customer segmentation effectively can dramatically increase customer lifetime value (CLV). Here’s a brief example: A software company might segment its customers based on usage patterns, business size, and industry type. By understanding these segments, the company can tailor its communication and product offerings. For instance, a segment consisting of small businesses in the retail industry might benefit from targeted marketing about the company’s retail-specific features and resources for small businesses.

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How can you use customer segmentation to increase customer lifetime value?

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1 Why customer segmentation matters

2 How to segment your customers

3 How to target your segments

4 How to measure your results

5 How to improve your segmentation and targeting

6 Here’s what else to consider

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