What is Behavioral Segmentation?
Behavioral segmentation of data is a marketing practice that reveals detailed insight into how customers and prospects interact with an organization’s products or services. How often do people buy these products and services, and where?
By identifying the varying buckets that customers and prospects naturally fall into, marketers can then position campaigns and communications differently depending on which segment or bucket they are addressing. This allows organizations to develop more targeted approaches that ultimately drive more people to take action.
Behavioral segmentation can also inform product development. By dividing the total pool of customer/prospect data into smaller homogenous groups based on buying behavior, organizations can begin to measure which aspects of their products and services are being well received, and which are not necessarily hitting the mark with their customers or prospects.
Behavioral segmentation is performed by considering customers’ buying patterns such as usage frequency, how loyal they are to the brand, and benefits they are seeking from a product or service. The ultimate goal of the process is to highlight the most important needs and desires of customers based on the behavior that they show.
The Importance of Behavioral Segmentation
The primary goal of behavioral segmentation is to group people together that are reliably showing similar buying behaviors, so that the group can then be targeted and driven to take action. Accordingly, this allows organizations, and marketing teams in particular, to streamline their efforts and allocate resources efficiently due to the fact that defined groups of prospects have been identified based on their distinct needs.
Behavioral segmentation and the insights that are yielded from the process can also effectively drive product development. By routinely drilling into the wants and needs of customers and prospects that are displayed most often, this information can then inform organizations on where they should be investing resources.
For example, if after administering a survey to customers about their preferences of features within the software that an organization is selling, the natural next step is for the organization to focus their efforts and resources on developing and promoting the feature that was deemed most desired by the group of customers that were surveyed.
Defining Parameters for Behavioral Segmentation
While evaluating the behavior of prospects and customers, there are four potential parameters that should be considered while grouping them.
1. Occasion: People that view an organization’s products or services from an occasion-oriented perspective are the people that recognize that the product or service is used for a particular occasion only. These occasions can either be regularly occurring such as the celebration of an annual holiday, or they can occur once in a lifetime such as the celebration of someone’s 21st birthday.
2. Usage: This group is determined by considering how often a product or service is being used by the customer. A toothbrush will be used multiple times per day, while a tax filing software application will be used annually.
3. Loyalty: Customer loyalty is defined as how committed a customer is to continuing to purchase products or services from a particular brand. This is measured by retention rate, which in today’s business landscape can be a challenge to maintain due to the sheer amount of choice in the marketplace. An organization with high customer retention rate will need to allocate fewer resources to acquiring new customers, while an organization with low retention rates will need to focus considerable effort on bringing their products and services to the attention of new prospects.
4. Benefits: People do not purchase products or services frivolously -- there needs to be a clear benefit for them. While prices, availability, and other factors may vary, customers will always select the products and services that most align to their needs and desires by providing significant benefits to them.
The Advantages of Performing Behavioral Segmentation
There are many benefits of segmenting on the basis of customer behavior.
First and foremost, behavioral segmentation identifies and defines buckets of customers and prospects that can then be precisely targeted with marketing campaigns and messaging. These tailored marketing touches are more likely to convert prospects than an uninformed ‘spray and pray’ approach, in which organizations utilize a ‘one size fits all’ approach to marketing.
Secondly, the process of behavioral segmentation allows organizations to maintain a much tighter grasp on the variances among their customer base. After segmenting customers based on behavior, it’s easier to recognize patterns. Those patterns then expose groups of customers that have consistent behaviors, and groups of customers whose behavior is harder to categorize.
Last but not least, performing behavioral segmentation efforts consistently over time can create a loyal customer base because your product and service is consistently fitting and meeting their needs. By identifying the customers that show affinity and loyalty to an organization, their products, or their services, the organization is then able to drill into the feedback provided by these customers so that they can then motivate others to join this group of loyal customers.
The Shortcomings of Behavioral Segmentation
While behavioral segmentation can be a powerful tool for identifying the groups that comprise an organization’s customer base, it’s also important to acknowledge that this practice has its shortcomings.
No matter what organizations do to retain their customer base, customer behavior is ultimately somewhat fickle, and will change based on time, location, occasion, and other factors. These changes cannot always be predicted with complete confidence, and behavioral segmentation can only provide a framework for how behavioral traits and variables are affecting purchasing behavior.
Behavioral segmentation must be performed using primarily qualitative data. While inquiring about someone’s behavioral characteristics and tendencies, organizations do inherently run the risk of receiving feedback that can be difficult to interpret, or in some cases, may be outside of the realm of truth.
No matter how well an organization performs behavioral segmentation, the results should never be viewed as a definitive answer to the question, “Who are my customers?” The results from behavioral segmentation will never provide the entire picture or potential variables that exist among your customer base due to the fact that the process does not account for demographic categories. Also, the organization performing the segmentation can only infer about the attitudes that are affecting and influencing the actual behavior.
Behavioral segmentation strategies vary from business to business.
For example, if an organization sells footwear, demographic segments such as kids, teens, and adults probably have differing preferences. Furthermore, geographical segmentation could reveal that people who live somewhere where it snows all the time have different needs from their footwear than people who live by the beach.
Do you have questions about behavioral segmentation, or has the practice impacted your organization? Drop us a line in the comments below!