How to Use Your CRM For Customer Segmentation
Customer segmentation is the process of categorizing one’s customer base based on common characteristics such as the region, industry, product preference, revenue generation, etc. This serves as a powerful technique to help you better resonate with your customer needs and behaviors while using that information to better market to prospective customers.
Why should you segment your customers?
I'm a big believer in the 80/20 Rule. In statistics, also known as the Pareto Principle, states that for any given event, roughly 80% of an effect comes from only 20% of its cause. In a business context, this means that 20% of your customers tend to contribute to 80% of your total profit. Customer segmentation allows you to identify your best customers so you can put a strong focus on those. Some benefits to customer segmentation include:
Better understanding your customer’s needs and preferences
Targeted Marketing
Increased customer satisfaction and customer retainment
Comprehensive knowledge of your areas of opportunity
Increased up-selling and cross-selling opportunities
Zoho CRM uses an RFM Model of Segmentation. RFM is a segmentation model for measuring the lifetime value of your customers: “Recency”, “Frequency”, and “Monetary value”. These essential metrics are used to determine the behavioral patterns of your customers and segment them into actionable groups.
Recency
This is considered the most important metric of all three. A customer is considered active if they’ve made a purchase recently. The definition of "recently" will vary from business to business and industry to industry; this could be 3-4 months for a clothing store or 12-24 months for a furniture store. Determine what this is for you and your business, get your sales teams input, they know your customer better than you think. Ideally, you have three types of customers:
Potential Customers: you plan to do business with them in the future
Current and Active Customers: who purchased from you recently
Inactive Customers: who purchased once but hasn't since
Understanding your recency allows you to determine the state of each customer. You can ensure the active customers continue ordering and send reminder campaigns to inactive customers to encourage the next purchase and stay top of mind.
Frequency
How often a customer purchases from you is determined by many variables. For example, the typical usage of the product, its price, market trends, and the need for replacement. Frequency also varies for the types of products you're offering. For example, frequency metrics for a business that sells food and groceries will be different from a company that sells furniture.
Monetary
Similar to recency and frequency, the monetary element alone cannot help you find your best customers, but it is definitely a dominant metric of the three. It makes sense to know the monetary value of the customers and take the necessary steps to retain them. At the same time, you need to take into consideration the other metrics to implement the correct marketing strategies.
To get more accurate insights on customer personas from your RFM data, you can combine additional attributes to optimize your analysis. For instance, in a B2B context, customer titles can be a crucial variable to tracking in addition to your RFM analysis. If most of your top-performing customers have the title of CIO, CTO, or project manager, you can market more to that segment.
Geography is another attribute that can reveal productive information. The effectiveness of advertising and the relevance of a product often depend on geographic factors, such as population, cultural preferences, and climate. Knowing specifically where your best customers come from can help you position your marketing pitch and target new customers to address the needs of your existing champion customers. This can be done on a broad basis by sorting your RFM results by region, country, or ZIP code.
How to determine each customers RFM score
Allocate numbers from 1 to 5 for each category in Recency, Frequency, and Monetary Value, where 5 is the highest and 1 is the lowest. If your customer has made a purchase recently you can assign a higher score in the Recency category, adding the scores for all three categories will give you their RFM score.
Here are some standard customer segments:
Once you’ve set the scores for each segment, you can use them to identify the champions, loyal customers, those that need attention, and more. The optimized and extended RFM approach to market segmentation can be of great benefit in understanding your customers and retaining them long-term.
Planning is the most important step, there are a few items you want to plan before you implement such as,
Identify your own time scale based on the pace of your business
For a hotel business, guests who have stayed within the last year or last two years
For an eCommerce company, your loyal customers may be buying once or more every month
For a media company, you may use months, based on your subscription model
Identify the modules in Zoho CRM where your customer and deal details are stored
Identify the fields that will help the system recognize that accurate values for measuring recency, frequency, and monetary value
If using the Deals module, this information could be the closing date, deal amount or number of deals
Decide the set of customers you want to segment
Filter a specific set of customers that you want to segment
Using the fields within your chosen module to filter your customers based on various attributes
For example, if you're an eCommerce fashion company, you could filter based off geography, last order date, preferred sizes and/or color
Plan a score chart with corresponding segmentation labels and proposed action items
The scorecard tells you who your customers are - who are the "Champions", the "Loyal", the "At-Risk", and so-on (see sample chat above)
It can be helpful to create segmentation groups in Zoho CRM. RFM segmentation and analysis can be performed on different clusters of customer data, depending on your use case. There are different clusters where your customers can be grouped, it can be helpful to perform separate RFM analysis on the various product/service divisions of the company. In Zoho CRM, this can be implemented by creating multiple segmentation groups and applying them to the customer database.
After Segmenting your Customers
The main goal of segmenting your customers is to better understand them so you can reach out to them in a more meaningful way, thus creating a stronger relationship. Using this feature in Zoho CRM, you will be able to identify your various types of customers.
You can do this by using a “Segment Label” field that will be available in advanced filters, reports, and list views. Use this information to nurture customers with low scores, by targeting them for special campaigns/discounts, promote repeat purchases, and create loyalty offers.
This is a great method for gaining a deeper understanding of your customer base and developing your buyer personas. What matters more than putting this information together is what you do what that information. Don't just focus on the highest scores but don't just let them cruise either, you're also able to clearly identify the low hanging fruit when you need it the most.