The customer segmentation process begins by identifying all the types of customers who buy from you. The next step is to zero in on the segments that generate the greatest revenue with the least amount of effort.
Once you’ve found those high-value segments, it’s time to start engaging with them. When you focus your sales and marketing efforts on your high-value segments, everything becomes easier.
Your sales cycle shortens because you’re speaking with customers who need what you sell. Your marketing dollars go further because your prospects intuitively understand your value. Even testing and learning new marketing tactics becomes easier—you’re experimenting with your best customers, so you can rest assured that the data you gather from your tests will point you toward other high-value customers in the future.
We’ve seen customer segmentation pay dividends on many occasions. Let’s take a look at a real-life example and then explore how you can begin the process within your organization.
Case Study in Brief: 78 Percent Reduction in Cost Per Lead
We worked with a business that was struggling to get its LinkedIn advertising off the ground. Despite investing $600,000 in a campaign, their efforts turned up zero qualified leads. This was a disheartening result, to say the least.
The good news is that we were able to turn things around with segmentation. We identified the high-value segments and got to the root of what those customers wanted from a company like our client’s.
Guided by those insights, we tailored our client’s LinkedIn advertising messaging to prospects who fit their ideal customer personas. Suddenly, things started to shift. Highly qualified leads weren’t scrolling past the ads anymore. They were clicking, calling, and buying.
By zeroing in on this business’s highest-value segments, we were able to reduce cost-per-lead by 78 percent. The money saved on lead generation was invested back into the business and helped increase sales. When all was said and done, the client saw a $10 million improvement net-net.
Create Segment-Specific Value Propositions
One of the driving factors behind our client’s reduction in customer acquisition costs (CAC) was the creation of segment-specific value propositions for their LinkedIn messaging.
A compelling value proposition is a sentence that communicates who your ideal customers are, what you can do for them, and why you’re able to meet their needs better than any other brand.
You can’t be everything to everyone, though, and it’s likely that the value you bring to one segment differs from what another segment sees in you. That’s why now is the time to revisit your value proposition, with your high-value segments in mind.
Create a value proposition for each high-value segment. If you’re struggling to get started, return to your data. Take a look back at those customer interviews you conducted in the process of creating your buyer personas. Are there words and phrases you see repeated? Your ideal customers are telling you in their own words what they value about your business—put that knowledge to good use!
A great value proposition isn’t a laundry list of features or services. Instead, it speaks to the emotional or psychological pain point you address for a customer. Again, this may vary among your high-value segments.
Say, for example, you sell a SaaS project management tool. One of your high-value segments is in-house project managers at venture-backed startup organizations, while another is account managers at creative agencies.
For the in-house project managers, your value proposition might say, “Keep investors happy and deliver projects on time and under budget.” For creative agencies, the value proposition might read, “Manage your client relationships and track your team’s work all in one place.”
By crafting tailored value propositions, you create the space for an immediate drop in customer acquisition costs. When you demonstrate an innate understanding of your prospect’s pain, you don’t need dozens of ads, coupon code offers, endless sales demos, or other tactics. When customers feel seen, they trust you’ll have a thoughtful solution.
Focus on the Right Channel for Your Target Segment
Once you’ve created your targeted value propositions, it’s time to deploy them.
So many marketing budget discussions revolve around allocating marketing spend by channel. How much will we spend on paid search next year? Paid social? Content marketing? While there’s a lot to be said for an all-out, omnichannel marketing strategy, let’s be honest: That’s not always in the budget.
The first piece of information you gleaned from your data-driven customer segmentation is what each segment needs from your product or service. The second piece is to understand where each segment prefers to interact with your brand.
When you know where your customers are interacting with your business, you can direct your marketing spend to those channels. In our client example above, all key segments were power LinkedIn users, so that’s where we deployed our marketing spend. But imagine that one high-value segment wasn’t active on LinkedIn. In that case, the client wouldn’t have wasted precious marketing budget on a tactic that wouldn’t even be seen by their highest-value segment.
Focusing your time and budget on only those channels where you’ll find your highest-value segments is another opportunity to reduce acquisition costs. And remember: Your highest-value segments may not all congregate in the same place. Be willing to split your marketing spend across channels if that makes sense for your audiences.
Creating buyer personas is only the first step of the customer segmentation process. Once you’ve identified your highest-value segments, it’s time to put what you know about them to use to drive down customer acquisition costs. By meeting your high-value segments with the messaging they want in the channels they frequent, you streamline your marketing spend and free up money to be reinvested elsewhere in your business.
About the Sterling Woods Group, LLC
The Sterling Woods Group’s mission is to help clients make sense of their data to predictably grow sales. We apply data science to help you optimize your sales funnel, improve your marketing ROI, launch new products successfully, and enter new markets profitably.
We use a hypothesis-driven, data-supported methodology to discover insights that no one else is paying attention to. Then, we help you assemble the right sales strategies, marketing plans, technologies, and resources to seize this opportunity.
About the Author
Rob Ristagno, founder and CEO of the Sterling Woods Group, previously served as a senior executive at several digital media and e-commerce businesses, including as COO of America’s Test Kitchen. Starting his career at McKinsey, his focus has always been on embracing digital technology and data science to spur strategic growth.
Rob is the author of A Member is Worth a Thousand Visitors and is a regular keynote speaker at conferences around the world. He has been featured on ABC, NBC, CBS, Fox, and Digiday.
He holds degrees from the Harvard Business School and Dartmouth College and has taught at both Harvard and Boston College.
Rob lives outside Boston, MA with his wife, two daughters, and black lab.