Using Customer Segmentation to Your Advantage
Customer segmentation is a fantasy for startups struggling to gain customers. If your company hasn’t reached the product-market-fit stage, it’s hard to justify spending time segmenting your small client base.
But once your startup begins to grow at a strong pace, it’s no longer responsible for your startup to continue grabbing at any potential clients without a clear understanding of how it potentially impacts your business. Customer segmentation applies mostly objective differentiation around your varying client types and helps you build a strategy to scale each. Additionally, understanding the value of scaling each will drive decisions to dedicate resources and future planning.
Your investors aren’t going to be encouraged by your company’s direction if you’re not employing customer segmentation. “At the expansion stage, executing a marketing strategy without any knowledge of how your target market is segmented is akin to firing shots at a target 100 feet away — while blindfolded,” Tien Anh Nguyen writes for Openview. Bottom line: you might be wasting your time aiming for customers that aren’t worth the effort, while more valuable fish swim away.
To get started on segmenting, Openview has developed a helpful guide for best practices for B2B companies. In this guide, Nguyen also outlines the three different types of segmenting strategies that are usually employed.
A priori segmentation – In this type of segmenting, classify potential customers based on publicly available information –like company or industry size. The biggest issue in this approach will surface when you find companies of a similar size or industry that have very different needs. Nevertheless, a priori segmentation can be one of the quickest and easiest ways to objectively differentiate customers if you’re just begin to use customer segmentation in your business.
Needs-based segmentation – What are the different needs your company serves? This segment separates out the different clients with different needs. You can verify these needs through primary market research. The needs approach is one of the most popular forms of segmenting, hitting on the “jobs to be done” mentality that can prevent customer segmentation from being too rigid or narrowly focused.
Value-based segmentation – This type of segmentation separates potential customers by their economic value to your business. Not all clients are going to be able to offer the same initial contract value nor will all clients be able to make your customer service efforts as worthwhile as others.
Depending on your company’s needs and product, your segmenting efforts might stray from the traditional forms of differentiation. By focusing one (or many) of the above strategies first, you’ll likely get into the pattern of recognizing the value of customer segmentation, which can help as you begin to make your model more custom.
Part of growing up as a company is focusing in on the customers that offer the most value—no longer feeling around for the right fit, but knowing your target client that is mostly likely to convert. Here’s how segmentation can help each area of your business focus:
How it improves marketing
One aspect that customer segmentation improves is the focus of your marketing message. By understanding the needs of your most valuable customers, you can tailor your communication strategy to address these pain points and offer solutions. Segmenting also identifies the value of creating different messages for different segments. If your customers are segmented by industry or company size, they may be more active on different platforms as well—providing yet another layer of marketing specificity that can improve messaging performance.
How it improves sales
Customer segmentation can focus a sales team quickly. If the segmentation process properly identifies the traits that make a potential client less valuable, your SDRs can avoid scheduling meetings and your AEs won’t have to worry about conducting demos or drawing up paper work. Instead, they’ll be digging in deeper to find out how to close the clients that really count and make more meaningful progress towards the quarterly goal. Then, the new information gleaned from the successes and failures can be poured back into the segmentation process to further parse out customer traits.
How it improves customer success
Understanding how each segment engages with your product and renews will also help you determine the cost of serving these clients. You might be able to identify how likely you are to upsell a client based on their current needs and the success of upselling similar customers in the past. On the other end, you’ll be able to better predict which customers might cancel quickly and add to your churn rate if the needs your servicing aren’t leading to renewals or if the company size tends to be in a low performing segment. While initial revenue might entice your sales team for the potential value of a customer, renewal segmenting might help you better identify the lifetime value of the customer you’re going after.
How it improves product
Trying to develop and improve a product that appeals to an unnecessarily large customer population can be overwhelming. By segmenting your potential client base, you can zero in on the specific needs that require attention first. As later iterations of your product are release, your priority structure and product road map could largely be dependent on how your customers are segmented.
So much of your success as a SaaS startup relies on execution. Share your updated customer segmentation profile with investors to help increase confidence that your company is taking additional steps to make the necessary improvements to scale.