Market Segmentation and Driving Loyalty.
In our article last month, there was a focus on how 20% of customers can equal 80% of the result. Reference the Pareto Principle and the 80/20 rule.
This month we look at how learning about and believing these statistics often leads to business owners launching a market segmentation project. The motivation being to acquire more higher value customers in the 20% segment.
However, before starting a project it is important to note that it is difficult to separate market segmentation and driving loyalty. These two factors are highly dependent on each other. Doing one without the other would probably be a waste of time and money.
The Segmentation and Loyalty Connection.
A company that segments its market and builds loyalty could make this statement.
“I segment the consumers with whom I like to do business. When I understand these segments, it is easy for me to drive loyalty from them to my businessbecause they know from my values, behaviour and attitude towards them, that they are valued and respected. This is evidenced by high levels of customer retention and the number of repeat purchases I get from them. I also see many people buying from us because we have been recommended to them by satisfied customers. We often ask our existing customers for these referrals.
All of this means I invest quality time and only a small justifiable amount of money keeping my existing customers happy. I spend very little time worrying about why customers are not buying or cancelling their business with me without any apparent reason.
I see my customer base, revenue and profit growing consistently year over year and know if the current patterns and trends continue, I will be able to expand and grow my business”.
Being able to make that statement is directly related to market segmentation and driving loyalty.
Market segmentation begins with identifying the most common characteristics of all existing customers. Characteristics will include their interests, hobbies, career, address and needs. These are then segmented into specific segment categories. When accurate segments have been created, they should enable cost effective, prioritised, targeted marketing strategies.
The objective? Winning new customers in the segment or segments most likely to buy, retain and then buy more services and products in the future. Successful segmentation generates higher revenue and greater profits. So why is every company not segmenting every day and only targeting the 20% of customers who will deliver the best business result?
To Segment or Not To Segment.
There are some obvious, and not so obvious, reasons as to why not. These can include: don’t have enough time, too expensive, nobody knows how to do it, everything is okay, don’t believe in it or a one “size fits all” approach to finding new customers works well enough. Any one, or a combination of, these reasons are reasonable whenever loyalty is not connected to segmentation.
There is also the thinking that if customers only buying one product, never visiting again or cancelling what they bought is at an acceptable level, why bother with segmentation! Or, maybe the only loyalty measurements to worry about are the number of purchases and visits a customer makes. When they’re gone, they’re gone. More new customers will be found.
Loyalty Added Value.
However, this approach does not take into consideration the fact that measuring loyalty after a customer cancels or stops visiting is a reactive lag indicator. It adds little or no value to the future of the business. It also misses out on the fact that customer loyalty increases customer retention and improves profitability.
Some statistics to support this are listed below.
Drivers of Loyalty.
Drivers of Loyalty understand these metrics and drive loyalty from their customers. They know loyalty is not measured by their customer’s visits and purchases. It is measured by how their customer’s look at and see them. Drivers invest time in their customers. They may not always get a response, but customers know when they are active and that they care about them. Above all, drivers of loyalty make sure their customers are loyal to them.
The Loyalty Drive.
Driving customer loyalty to a business is part of culture building. It does not happen in a leadership vacuum. It is not left to one or two people who are excellent with customers. Customers won’t be lucky enough to get to talk to the people who are excellent people every time.
Building Loyalty on the Customer Journey.
By including products or services with technology this Steve Jobs statement fits most companies.
There are five steps on most customer journey maps. The image below is a high level view of the steps and the journey. Some companies may have a map for the first three steps and closing the sale. However, without steps four and five customer loyalty will not be achieved.
A key business point worth noting is that if existing customers orreferrals always start their buying journey at step number three this is a competitive edge and a win. Closing rates and sales will always be higher whenever trust, respect and loyalty is already earned.
Market Segmentation and Driving Loyalty Summary
Some key questions to help with the thinking and planning of segmentation and loyalty.
- Who in your company owns customer loyalty?
- Compare money spent on recovering lost customers instead of building loyalty?
- What is the profile of your ideal customer segment?
- How many parts of step four are happening at the moment?
Long after your customers have forgotten what you first said and did to attract them to your company, they will remember how you are making them feel.