What is customer segmentation software?

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Customer Segmentation Matrix

What is a customer segmentation matrix

Everybody shops. From teenagers to the elderly, living in the countryside or the big city, everyone has stores they like and products they want and need. For larger retailers, their customer bases may extend across many demographics and their regular shoppers may have a variety of different reasons for shopping with them.

At a certain point, this diversity can begin to pose challenges. How can a single store cater to the needs of so many different groups and still maintain a cohesive brand and manageable inventory? How can companies keep everyone happy at once? The solution is something called customer segmentation—dividing up your customer base into discrete categories with shared preferences and characteristics.

As with many other marketing challenges, customer segmentation has long been a concern of major retailers. In the past, the best way of figuring out the kinds of people who shopped with you was to keep a keen eye on the sales floor and circulate physical surveys. Like many of these past problems, too, this one has also found its solution in data software—in this case, through use of a customer segmentation matrix.

A segmentation matrix is a digital map of everyone who shops with you. Using data gathered from different locations in your business model, the matrix can take in personal data about each individual customer and then sort everyone into groups according to different criteria. These can be age, gender, product preferences, economic background, location, and just about anything else you can think of.  

Uses for a customer segmentation matrix include loyalty tracking, price adjustment, competition monitoring, ad placement, monitoring expansion/contraction, and much more. Knowing exactly who shops with you can enable you to perfectly tailor your business model to make sure everyone achieves maximum satisfaction and you achieve maximum returns.

Segmentation matrices can be used in any sector of the market by businesses of all sizes. Large companies with diverse consumer bases may need them the most, but everyone can benefit from knowing their customers better, and these kinds of tools are rapidly becoming commonplace in all areas of the market.

Customer segmentation models

The primary function of this type of software is to create customer segmentation models. These are detailed maps of your company’s consumer base which can reveal key insights about how your business operates and can be improved.

There are practically infinite types of customer segments because there are limitless ways of dividing up large groups of people. As a result, segmentation software often creates many different models useful at different times and for different purposes. Which models a company uses most frequently will depend heavily on the kinds of products they sell, where they’re located, and what time of year it is. As mentioned above, the most important and common segments and demographics to look at are age group, gender, economic background, and location. Others which can sometimes come into play include online vs. offline shopping preference, customer loyalty/tenure, purchase size, purchase frequency, and even social media usage.

Customer bases are always shifting, and so a customer segmentation framework must constantly monitor and adapt to new changes taking place on the ground. It isn’t enough to take a snapshot of your customers at one point in time; businesses need to be constantly tracking movement, churn, and any other fluctuations which might affect sales and competitiveness. Segmentation matrices are continuously watched by management so they’re ready to take necessary action in case of sudden changes. Segmentation software now even employs AI and machine learning technology to predict how these models will change over time, letting companies prepare for future challenges and opportunities and adjust to new trends before they even emerge.

Knowing who your customers are and how they behave allows businesses to put measures in place to keep them happy and loyal. Without reliable info about your customers, creating effective ads, promotions, and inventories becomes guesswork.

Retail customer segmentation examples

Because there are so many types of customer segmentation possible, the applications of demographic segmentation are equally varied. To get a better idea of how this software is actually used in the real world, it may be helpful to outline some retail customer segmentation examples.

A company uses its segmentation matrix to determine the majority of its customers are aged 18-25 and prefer to shop online as opposed to visiting a brick-and-mortar store. The company does research on the websites and social media platforms most used by this age demographic and begins placing more ads targeted towards young people on these sites. A large proportion of the company’s customers are now regularly presented with product promotions and ads, and sales rise significantly.

Another company learns from its models that its elderly customers also tend to be the biggest spenders but also shop infrequently. Management decides to establish a senior discount day every Tuesday with 15% off all items for those aged 55 and up. Soon, this group starts shopping more frequently and spending more than enough to offset the discounted prices.

A third company uses its software to look at changes in its demographics over time. Management finds that in the past two years, an increasingly large proportion of its customer base is adult males from wealthy income brackets. Management determines this has been caused by the introduction of a number of luxury men’s clothing brands in recent years. Management sees this change has successfully pushed their brand up market and decides to continue bringing in similar lines. The new male segment continues to grow and revenue increases.

These customer segmentation examples and behavioral segmentation examples are just a taste of what is possible with a full, clear picture of your customer base. With the right software, data is easily leveraged and sales improve in proportion to customer satisfaction.

Customer segmentation tools

Customer segmentation tools are any applications that can help categorize customers into different groups relevant to their shopping habits. Generally, they come in three major types.

Data gathering tools are the first step of the segmentation process. In order to learn unique traits and behaviors of each customer, information must be collected about how they interact with your business. These tools can be installed either in your POS system, on your webstore, or anywhere else shoppers make contact with you.

Once all the data is collected, it is fed into the customer data platform (CDP). This is a huge database containing a special profile for each individual customer. Each new piece of data gathered is automatically paired with the shopper who produced it, and the end result is a comprehensive map of everything a company knows about each consumer.

This CDP database is then subjected to various analytics programs. These can perform any number of special analyses but generally search for patterns and trends about demographics and behaviors. The resulting customer segmentation models machine learning can improve even further, predicting the ways in which segments will behave, grow, and/or shrink in the future.

All these data and insights are then presented to upper management and business leaders who decide what to do to take advantage of this information. They might bring in new product lines, introduce memberships, devise new ad campaigns, or even attempt to shift the company’s brand image altogether.

Market segmentation matrix template

So far, we’ve been talking about customer segmentation. Readers who have done further research into this, however, may also have come across the phrase market segmentation. Market segmentation concerns the demographics and populations of the market as a whole, including both those who do business with you and those who don’t.

Market segmentation is, understandably, much less precise than customer segmentation. Companies can use data enrichment to get a better picture of the market landscape, but an intimate understanding of the entire consumer population is nearly impossible.

Nonetheless, market segmentation is extremely important for businesses of all kinds. Companies often use a market segmentation matrix template or a b2b market segmentation template to build approximate models of the market which are good enough to base certain assumptions and conclusions on. Understanding the wants and needs of those who don’t shop with you is the best way of turning them into future customers. It’s also an effective means of monitoring the competition and indispensable in predicting future shifts and trends.

Finally, with market segmentation, businesses have a better idea of how much potential there is for expansion in different areas. Knowing market demographics can help companies decide where to open new stores, where to focus ad campaigns, and where to expect the most sales. As with all areas of data, knowing more is always better.

Customer segmentation strategy

It’s easy to get lost in all the data and software and models and statistics, but all businesses which use this technology, in the end, have the same goal. Collecting the data, building the models, and studying them is really only a means of providing a better customer experience. If businesses know what customers want, they can give it to them. Happier customers means better sales as well, so everyone wins.

To get there, though, every business is going to have its own customer segmentation strategy. Each company has its own unique shoppers, and will require different tools and resources to study them. There are hundreds of companies out there producing specialized applications for every possible retail data use case, and knowing which tools will work best for you can be difficult. Lexer provides a unique solution by offering an all-in-one software suite covering everything from data collection to analytics and visualization. Lexer offers an easy entry into the world of data and segmentation and can also revamp any extant system. Lexer’s single solution saves the time and resources required to seek out and rig together dozens of different pieces of software, but still offers enough customization to fit any application or sector.

Click here to learn the top 15 reasons customers choose Lexer as their preferred CDP partner and vendor.

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