How Customer Segmentation Improves Loyalty and Retention

Magnifying Glass on Keyboard

Customer data platforms helps marketers improve customer segmentation by providing a data-driven view of audience needs and preferences.

Many forward-looking companies are delivering customer experience personalization with a customer data platform (CDP) to improve the value proposition for their customers and prospects.

Working hand-in-hand to ensure successful personalization is customer segmentation. Customer segmentation is the process of segmenting individuals into audiences based on common characteristics and attributes. A comprehensive customer segmentation strategy can help ensure long-term success in personalization efforts, as you can now target high-value segments, and deliver superior contextual experiences.

To make this a reality, marketers need the right technology infrastructure to make customer segmentation and personalization work in tandem to deliver real-time experiences at different stages of the customer journey.  

The Value of Customer Segmentation

Customer segmentation is a tried-and-true method for marketers to target valuable customer groups. It allows brands to:

  • Identify behavioral and transactional customer trends
  • Deliver targeted experiences and messages to specific customer segments
  • Acquire new customers, retain customers, and reduce churn
  • Optimize marketing campaigns and operations

A comprehensive customer segmentation strategy will allow your business to do more efficient and effective marketing across all channels. Improving customer segmentation also gives a lift to customer loyalty and customer lifetime value. These are crucial metrics for companies that want to reduce customer acquisition costs and improve retention.

Identifying High-Value Customer Segments

Current economic headwinds, and unpredictable changes in consumer behavior, are forcing marketers to make their current channels more effective at generating ROI, with a focus on building loyalty. Loyal customers are also high-value customers: they spend more money than new customers, are more likely to try new products and are more likely to recommend a brand they like to others.

By focusing on customer loyalty, brands can use personalization to increase revenue, improve retention, and create loyal customers and brand advocates. But consumers want brands to understand them as people, not just buyers. And, they want companies to deliver quality personalized experiences that give value to them. In short, buyers are looking for a mutually-beneficial relationship with the brands they have interactions with.

The numbers don’t lie:

  • 72% of respondents expect the businesses they buy from to recognize them as individuals and know their interests, according to McKinsey
  • 71% of consumers expect companies to deliver personalized interactions
  • 76% of companies that invest in a privacy program see increased loyalty and trust from their customers, according to BCG
  • 90% of consumers are willing to share their personal information for the right value prop

Delivering personalized customer experiences to high-value customers begins with excellent customer segmentation. With a CDP, brands can understand their customers’ unique preferences by aggregating and analyzing customer attributes that range from basic demographics, to complex behavioral and transactional activities.

CDPs ingest and integrate customer data into a unified customer profile that can be used across the enterprise, and have advanced customer segmentation engines that allow you to more accurately target individuals and groups more effectively.

Read More: How to Elevate Customer Loyalty and Retention with a CDP

How to Improve Customer Segmentation with a CDP

The types of customer segments you define are dependent on your business, customers, and industry-oriented goals.

By using a CDP to segment your audiences, you can:

  • Identify which customers have reached conversion and group them into a separate audience segment for lead nurturing.
  • Avoid targeting loyal high-value customers with irrelevant messaging or experiences.
  • Analyze customer purchase history to find more opportunities for cross-selling and upselling to those high-value customers
  • Offer next-best action recommendations for highly relevant recommendations and offers
  • Respond to high-value loyal customers who engage in positive behavior with reward points and exclusive discounts

Don’t forget to routinely analyze your customer segments to look for new customer behavioral patterns, which will give you further insights on how to target them across multiple channels.

Using Customer Segmentation to Drive Business Value

CDPs can help companies increase customer lifetime value, build quality long-term relationships with high-value customers, and develop new leads through recommendations. With a CDP, marketers can manage customer segmentation more independently without the ongoing assistance of IT, giving them access to actionable insights at their fingertips. 

Read More: How to Improve Customer Lifetime Value with a CDP

Brian Carlson
Brian Carlson
Brian Carlson is the Founder and CEO of RoC Consulting, a digital consultancy that helps brands establish the optimal balance of content, technology and marketing to achieve their goals.