How is Marketing Segmentation Used in Customer Retention?
A successful customer retention strategy starts with effective communication – the right message to the right audience at the right time.
While people prefer a personalized experience, catering to their individual preferences isn’t always possible or effective.
Marketing segmentation comes in handy here.
Segmenting customers into groups based on similar traits, allows you to still market highly relevant content to keep them engaged, and do so efficiently.
In this article, we cover:
- How is marketing segmentation used in customer retention?
- Why is retention important in SaaS?
- Most common types of customer segmentation.
- Strategies you can use to lean on marketing segmentation for higher retention rates.
Let’s get started.
- Customer segmentation involves creating groups of customers that share common characteristics. It lets you easily personalize a customer’s experience.
- Customer retention in SaaS means keeping a customer over the long term. It’s important for sustainable growth since it keeps cash flow coming in. It’s also 5-7x cheaper to retain a customer than acquire a new one.
- There are four common customer segmentation models: demographic segmentation, psychographic segmentation, geographical segmentation, and behavioral segmentation.
- The first strategy you can use is to tailor the onboarding process for each user persona. Segment new customers based on their jobs to be done, then trigger an onboarding flow that walks them through relevant actions.
- Localize your product for a better user experience – automatically translate content into different languages or localize your pricing page for different currencies.
- Offer custom educational resources based on user behavior – for example, if a user hasn’t tried an important feature, encourage them to watch a webinar explaining its value.
- Product education shouldn’t end after onboarding – keep sending out relevant in-app messages that encourage users to try out new features.
- Personalize the self-service experience by offering a knowledge base full of content, but hide and show content that’s relevant for each segment.
- To boost customer retention, recognize who your at-risk customers are by looking at customer data. Then, segment them and send out helpful content to re-engage them.
- Reward customer loyalty with small gifts, like discounts or gift cards. To do this, segment your power users and then send out a modal prompting them to claim their gift.
- When you have your power users grouped together, you can also send out requests for testimonials or encourage them to upgrade to a higher plan.
- Collect detailed feedback from your target audience with segmentation – you can send out surveys to specific customer segments for more accurate data.
What is customer segmentation?
Customer segmentation involves separating customers into different groups based on their commonalities.
Segmentation allows companies to personalize customer experiences and tailor products to suit the needs of specific customer groups.
What is retention and why is it important for SaaS?
Customer retention refers to the company’s ability to maintain its existing customers.
Landing new customers isn’t enough for a subscription-based business – it’s also important to retain them. That’s the only way money will keep flowing.
Also, marketing efforts to attract new customers are around 5-7 times more expensive than engaging with your existing customers.
Those two reasons alone make customer retention a worthwhile priority for SaaS.
How does market segmentation help customer retention?
At the heart of customer retention is personalization.
In order to keep doing business with you, customers need constant reassurance that you understand their unique needs and help them achieve their goals.
So ultimately, customer retention is about understanding and delivering relevant experiences that add value for the user.
Segmentation allows you to manage retention campaigns more easily. By grouping customers with the same interests and goals together, you can deliver personalized content at scale.
Most common types of customer segmentation
Here are the four most common ways to segment customers:
Demographic segmentation involves grouping customers according to factors like their job role, age, gender, income, etc.
Psychographic segmentation involves grouping customers based on goals, challenges or interests.
The only way to collect this level of information from your customers is to survey them. For example, you can ask customers when they first sign up for your product what they hope to achieve with it. Then, you can group your customers into segments based on their responses.
Geographical segmentation is exactly how it sounds – grouping users based on where they’re based. For example, with geographic segmentation, you can group together all customers who live in North America.
Behavioral segmentation involves dividing customers according to behavior patterns as they interact with your product.
You might segment customers based on their:
- buying stage
- historical purchase history
- purchase frequency
- response to previous marketing campaigns
How is marketing segmentation used in customer retention?
Here are 11 ways you can use marketing segmentation to retain customers:
Tailor the onboarding process for each user persona
Onboarding is a critical time in the user journey – it’s where a first-time user decides if your product is worth pursuing further. It all comes down to the perceived value they get.
Personalizing the onboarding flow is an excellent way to make sure new users are getting value in a way that’s important to them.
First, define your target user personas and research and understand their jobs to be done. Then, personalize the onboarding flow to showcase features necessary to complete their goals.
Localize the product for a better user experience
Localization is the practice of adapting the product to meet the needs of a particular language or culture.
This is where geographic segmentation can be helpful in your localization strategy. You can localize in-app experiences for user segments of your choice.
For example, using software like Userpilot, you can auto-translate a tooltip for your German-speaking customers.
You can also optimize your pricing and show your plans in local currencies. Localization enhances the user experience, which in turn helps with customer retention.
Offer customized educational resources
Product education is an essential part of customer retention marketing. Happy customers are getting consistent value from your product. That all starts with knowing how to use your product to its fullest potential.
Start by educating users with webinars customized to their needs. For instance, segment and invite users who interacted with but didn’t adopt a new feature to watch a webinar.
Guide users to continuous value with relevant in-app prompts
Product guidance shouldn’t end when onboarding’s done.
The customers who’ve completed onboarding and moved to the next stage of the user journey still need to repeatedly experience value if your goal is to retain them.
So how can marketing segmentation help here?
You need to perform behavioral segmentation. Filter out users who frequently use the primary features for their use case, then determine which feature they need to adopt next.
Then launch interactive walkthroughs and tooltips to draw these users’ attention to the relevant features.
Personalize the self-service experience
Most customers don’t want to wait around for your customer support team to get back to them when they have a question or issue. It slows them down and hurts the customer experience.
To keep customers happy, offer self-service options they can turn to 24/7. Many SaaS companies offer self-service through a knowledge base that lives on their website or app. It enables customers to quickly find answers while reducing friction.
But you can go one step further and personalize the knowledge base content to avoid overloading users with irrelevant information. You can hide and show modules based on user attributes, so they only see the most valuable content for them.
Proactively identify at-risk customers and retain them
At-risk customers are those who have been inactive for a while or haven’t performed a value-driven action. They’re more likely to churn in the near future, so it’s important to be proactive to retain them.
You can identify at-risk by tracking product usage.
Then, you can segment them and bring them back with a customer retention marketing campaign.
Use email marketing to remind these customers why they were drawn to you in the first place so you can win them back.
Prompt contextual upsells and cross-sells
Customer segmentation helps with boosting upsells and cross-sells (and retention rates). You can create groups of your most valuable customers based on who reached activation or adopted secondary features. These are the customers who are most ripe for upsells.
Then send a personalized in-app message to them describing the value of upgrading with a call-to-action.
Reward your most loyal customers
Show appreciation to your power users by rewarding them for their loyalty.
With segmentation, you can quickly identify loyal customers at scale. You can consider those who have renewed their subscriptions or those who gave you an NPS score of 8 or more as loyal.
Then you can trigger a personalized modal for this segment, with a thank you note and a link to a small gift such as a discount or gift card.
Collect targeted and detailed feedback
Customer segmentation allows you to collect feedback from the right audience.
For example, you can filter out only your dissatisfied customers and collect detailed feedback to understand how you can improve. Just segment those who previously gave you a low NPS score and trigger a slideout to invite them to an interview or survey.
Gather testimonials you can use in future marketing efforts
Positive reviews and testimonials are powerful ways to gain customers. The more, the merrier.
Create customer segments that include your repeat buyers, frequent buyers, and most active customers. Then, send out a modal asking them to leave you a review on a 3rd party site, like G2 or Capterra.
Customers don’t often go out of their way to leave a review unless requested. This is the best way to scale up the number of positive reviews you have coming in.
Identify the highest-value segments and improve your ROI
With segmentation, you can better identify who your highest-value segments are, based on CLV (customer lifetime value).
Spending more resources on acquiring more of these types of customers will produce a better ROI. On top of that, you can push the rest of your customer base to be more like your power users by encouraging them to take similar actions.
Marketing segmentation is a powerful tool for improving retention. Not only that, it boosts customer loyalty and can land you more customers.
Want to get started with using marketing segmentation to increase retention? Get a Userpilot Demo and see how you can segment users and build personalized in-app experiences, code-free.