What is behavioral segmentation in marketing?
Segmentation is the process of dividing your audience into smaller groups based on their behaviors and habits. There are two types of segmentation, descriptive and behavioral.
Descriptive segmentation markets based on the characteristics of your consumers. This includes features such as geographic location and demographic traits such as age, gender and career. It’s helpful to understand each feature in more detail.
- Demographic segmentation: this refers to the statistics about a group of people such as their age, gender and location or more specifically in a business sense, so their job title or job function.
Example: something that might appeal to a 50-year-old accountant or mother of three might vary wildly from that of a university student. The traits and characteristics that define these groups makes it easier to deliver more tailored and relevant campaigns and products.
- Geographic segmentation: this relates more to the specific postcode, city, country and radius of the individual which enables organizations to tailor their campaigns and messaging based on what is known about that specific country and area.
Example: an example of this could be an annual celebration, such as Thanksgiving, which is celebrated in America and therefore any possible promotions around it can be targeted to people living in this country.
Depending on the nature of your business, descriptive marketing techniques can provide great results; however, behavioral marketing is also a very powerful tool when you can implement it effectively. Especially when used together.
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What is behavioral segmentation in marketing and why is it important?
Behavioral segmentation refers to the customers purchasing and spending habits. It requires the organization to understand the actions of their customers. Some common nuances in behavioral segmentation come down to winning customers (acquisition) and monitoring how often they might use your product or service (engagement) and then finally how long they actually stay loyal to your product, service or brand (retention).
It’s important to look at the purchase and usage behavior. An example of this could be grouping audiences based on their repeat purchase patterns. A customer who buys coffee from the same place daily is likely to be targeted by their local coffee shop for their usage behavior and perhaps offered a reward for their repeat service via a loyalty program.
Also, occasion purchasing – something like an annual holiday, such as Christmas or event, where the consumers intent to make a purchase could be much higher than usual. Understanding this helps marketers to group their audiences based on historical annual behavior patterns by reviewing their regular personal or universal occasions, like Christmas.
Your customers and users will all seek a different type of experience and benefit from choosing your product or service. It’s about understanding exactly what they want to ensure they get the best option available to them and help tailor your product or service to each segment of customers. If we use a beverage as an example and what the consumer is looking for when they purchase the product, it could be for the refreshment, product uniqueness, how cool the brand might look or its promotional benefits.
Customer loyalty goes hand-in-hand with many other behavioral segments, such as purchasing behavior, usage and timing/occasion. What differentiates it however is that those types of customers are actually in need of the product or service that your offer, whilst loyal customers continually purchase on repeat.
It’s important that you segment these loyal customers because they cost the least to retain and have the highest lifetime value. Segmenting them helps to find customers who are similar. An example of segmenting your loyal customers could be offering a discount on a future purchase.
It’s important to note however that there are certain drawbacks of segmenting the market on the basis of behavior.
Some of them are:
- Customer behavior changes with time, location, occasion, requirement and it cannot always be predicted correctly. Behavioral segmentation can only give a framework on personality traits and behavior.
- Mostly, behavioral segmentation would be done on the basis of qualitative data and not completely quantitative data. Hence, making forecasts, budgets, expenses would all depend on certain assumptions
Relevant article: The Digital Customer Journey (2019 Report)
But why is behavioral segmentation so important?
Behavioral segmentation is vital in marketing because once a customer is identified by one of the segmentations discussed, marketers can begin to personalize customer journeys, monitor performance more effectively and predict future behavioral trends.
Once you have your users identified based on their behaviors it means that you can focus more on:
- Budget allocation
So how do you include behavioral segmentation in your strategy? We’ve talked about how it can drastically improve your marketing effectiveness by using insights to create a personalized experience, but what can you do to include it?
- Research your audience: Perform an audience analysis to get to know your prospect customers and current customers. To do this you could conduct interviews and surveys, look further into your data and research their interests to identify trends in their behavior.
- Create buyer personas: This is a detailed description of your customer. It includes their goals, pain points and things like demographic information. When you use what you have learnt in your audience analysis to create 3-5 buyer personas, it will help describe your typical customer that you want to attract.
- Mapping out the buyer journey: Now you know who your customers are, it’s time to map out the journey that they take with you. It is important that you create a buyer journey for each individual persona and show what that customer does at each phase of the purchase funnel.
- Create behavioral marketing campaigns: Group your audiences into categories that present marketing opportunities. For example, segmenting them based on their purchasing habits and create different campaigns depending on their habits. It’s also important to look at the actions that they take and use content mapping to create content that helps customer in each step of the process.
- Retargeting: use past behavior to forecast future needs. For example, suggest recommendations on areas of your website based on previous usage.
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The RFM Model
RFM is the strategy for analyzing and estimating the value of a customer based on three data points:
- Recency: how recently did the customer make a purchase
- Frequency: how often do they purchase
- Monetary Value: how much do they spend?
This is an important model to consider in behavioral segmentation marketing. It can help us in predicting how likely or unlikely it is that a customer will repeatedly purchase from a company. To work this out, you’ll need to create an RFM analysis which ranks customers in numerical order for each of the three categories with the most ideal customer earning the highest score in each of the three.
For example. When evaluating your customer’s recency, you might rate them a 10 out of 10 if they made a purchase in the last month, but a 1 if it was over a year ago. It’s up to each company to decide their scale for each of the categories. Once you add the scores together you can work out which companies are most likely to buy again, and then prioritize who you reach out to firstly and create value for those high-value customers.
An RFM analysis is a simple strategy that gives you a good indicator of how much of your revenue comes from repeat vs new customers and which areas you can focus on to try and make your customers happier, so they become repeat customers. It helps you find those commonalities and also differences between customers who repeat purchase and those who don’t to help you learn where there are potential gaps in your customer experience.
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When it comes to behavioral segmentation, to summarize, it’s all about using your customers behavior to segment into different audiences and then taking that information to sell to them more effectively. It’s an extremely powerful marketing strategy that allows you to create personalized offers for your customers as well as helping to retain them. Finally, it allows you to understand your audience better so you can better connect with new ones.
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