Customer Segmentation Part 1: What Are The Fundamentals And What Can You Expect To Gain?

In order to split your customers correctly you have to know something about your customers. So in essence good customer segmentation actually comes down to how well you know your customers.

Since good marketing is defined as successfully fulfilling your customers needs and wants it becomes logical that good segmentation leads to better marketing as it helps you to correctly fulfill the needs of each customer segment.

There is however another key advantage of focusing on customers and learning more about them. Being good and really fast at something gives you a competitive edge only for a short-lived time, until someone better or faster out prices you. Being innovative also only works in the short term, especially since larger companies can copy your basic idea and wipe you out easily.

Being customer focused however, gives you a long term strategy. You get to know the customer, an asset which helps give you a long-term sustainable advantage. Large corporations have known this for some time and treat their customer groups differently, but I’m going to show you how even blogs such as yours can use the same concepts to increase reader loyalty and reader spending at the same time.

Where To Start With Customer Segmentation?

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Almost every one has heard of the Pareto principle, or as many of you will know it the href="http://www.entrepreneurs-journey.com/397/80-20-rule-pareto-principle/">80/20 rule. It basically implies that 80% of all effects can be attributed to 20% of the causes, which in plain English means that 80% of your gains can be attributed to 20% of your efforts.

So whenever you have good streak in your business, maybe your blog readership has doubled since last month or you have increased sales since last year, then it was usually due to 20% of your efforts that were the most important.

Yep, that is correct, not all your efforts bring results, and your role as a good entrepreneur is to work out which 20% of your efforts are giving you the 80% of results. Everything else is noise and distracting you from what is important.

Well actually, I believe that theory to be wrong because after having worked as an Executive Consultant with multiple multinational companies, roughly 90% of all profits can be attributed to just 10% of customers.

Do you see what that means? It means that 10% of your customer base are feeding your profits. How? Well simply because they buy from you again and again, they are serial buyers. They are so fixated on either your products, your brand or even your image that they will buy almost anything with your name on it.

This is why it is so vitally important to find out who those 10% of customers are, so that you can treat them well and work on strategies to keep them loyal for as long as you can. They truly are the lifeblood of your profitable business.

This might seem a little alien to you, or even perhaps over your head, but let me show you how well-known Internet Marketers all over the world have started using my formula.

Email Makes Internet Marketers Lazy

It all started a few years ago when I was having a discussion on board the infamous ‘Internet Marketers Cruise’ with a number of well-known individuals, and I challenged some of their consumer relationship management principles.

The cheap costs of email marketing means Internet Marketers tend to treat all their customers the same. They send them the same offers and the same emails, as unlike larger multinational corporations they do not have to think about the enormous costs of printing brochures and mailing them to their best customers.

I suggested this was wrong because different types of customers have different types of motivation to buy. If I could segment their customers for them they would see an instant increase in profits.

You see, people who buy from you less often need much more motivation to buy from you again, and customers who buy every time you send an email, simply need to be shown some appreciation to keep them buying from you at the same astonishing rate.

Almost every marketer gets this wrong and as such is losing profit when it is sitting there for the taking. If you send too many emails to people who do not need it they unsubscribe. If you send too few then you get poor results.

The secret is to segment your customers and treat each group separately.

If you have been on any major Internet Marketers list you will have noticed over last few years that whenever they launch a new product you seem to have to opt into a new mailing list. Then when they launch yet a new product, you have to opt-in again to a different list to view the launch videos. What they are basically doing is segmenting their lists and elevating the quality customers to separate lists.

In simple terms, they move the people who actually read their emails and click the links to a separate list. The people who actually buy the product from this separate list will also be separated again so that the owner now has three lists…

1. People who do not bother clicking any links in their email
2. People who click the link and thus showed some interest in the product
3. Lastly your buyers, the guys that make you money

They segment their lists by value of the customer.

When they launch the next product, even previous buyers are made to opt into a separate list. This helps them separate the occasional buyers and the super buyers (the ones that buy everything you produce and thus the ones you should really be treating the best).

Now you know what the professional Internet Marketers are trying to do and why you seem to have to opt into many different lists from the same marketers. (By the way the reason they produce so many products is that they know their top 10% will buy it for sure, so they keep giving them a reason to spend.)

Coming Up Next

In the next article in this series, I will show you how to use customer segmentation practically on your blog and how you can use it to increase comments and participation rates.

I will show you why many people comment multiple times on blogs, but then disappear altogether, along with a simple formula to stop this ever happening to you. For this to work I need you to do some homework before the next article in this series. I need you to think seriously about two questions. These questions are:

1. Who exactly is your customer? (It is not always somebody who buys something.)
2. How can you divide your customers to identify the 10% that give you the most value?

Try to spend at least 15 minutes thinking about this. Doing this now will help you take maximum benefit from the practical steps in the second and third parts of this series.

Anyone who wants to make more money, either from their own sites, products or their blogs needs to start focusing on the principles of customer segmentation and customer relationship management that I will lay out in this series. Well-known Internet Marketers have started to take this advice seriously and so should you.

Feel free to post any questions below and I will get round to answering them as best as I can.

Dee Kumar

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