What is Customer Segmentation?
As a SaaS company grows, customer segmentation becomes an important tool not just for the CS team but also for the entire company. Customer Segmentation is grouping customers into different segments based on shared traits. The concerned segment will have customers that share common qualities and behave similarly.
An appropriate segmentation is a key to:
*Driving product adoption and increasing revenue from each customer
*Taking key decisions about the growth of the business by backing it up with solid, actionable data.
In this day and age, it has now become crucial to provide a holistic customer experience. If you’re a CS leader from a large enterprise, then you would know that NOT all customers are equal. Scaling a CS team without customer segmentation will lead to hitting roadblocks.
Segmenting your customers in different buckets. This helps you set up the right processes & analyze the performance of the specific bucket. Hence, it becomes important to segment your customers.
Types of segmentation
Okay, you understood that it’s vital to segment. But how would you do that? There are many ways of doing it. Usually, it depends on the nature of your business and industry. You can use your CS software to segment customers based on certain requirements.
The common methods of segmentation in B2B SaaS are as follows:
ARR (Annual Recurring Revenue) or MRR (Monthly Recurring Revenue) is the most common method of getting customers segmented. They are grouped into different segments depending on how much the customers are paying.
It could be Tier-1, tier-2, Tier-3, etc. as well. The customers who pay more generally expect a better customer experience, and so on. This makes you understand which customers require more handholding, etc.
Another way to segment your customers is based on pricing plans. If your product is priced differently based on the features, the number of licenses, etc., you can use segment this way. Customers belonging to the same group will be having similar requirements. Expectations from each segment will be the same for the product. A CSM can easily manage multiple accounts in the same segment.
Location plays a great role in segmenting customers. A company with clients all over the world can place clients from Europe in one segment, clients from Asia in another segment, etc. SaaS firms belonging to a particular location have a similar working style, generally. Hence, CSMs who understand the culture are more suited to manage that segment.
A unique way in which segmentation is always recommended is- based on use-case. To serve the use-case is why they’ve purchased your technology. As a product can be bought for various use-cases, you can segment customers based on it. You can study the behavior to get the best practices which can also be useful for generating cross-selling opportunities.
How does Segmentation drive Customer Value?
“Customer value is the customer’s perception of the benefits and experience that s/he receives from a product. The worth of the product always compares to its possible alternatives.” – CustomerSuccessBox
The perceived value of a product is critical to your business. Customers’ perception of value can seriously impact the success of your SaaS business. Hence as a CSM, your ultimate goal is to provide maximum value to your customers.
Let’s look at how does segmentation drives value for your business.
Maximizes Customer Retention
Customer Retention is the lifeblood of any SaaS business. If you have got a leaky bucket, there’s no way your business will remain afloat. Acquiring new customers is way costlier than retaining existing ones. Segmentation helps you by simply keeping your customers happy.
Since you know which segment needs which type of customer experience, it’s easy to provide exactly that. You can develop customized retention strategies for each segment. You need to:
Have a clear idea of who your customers should be in the first place.
Listen to customers in each segment specifically for their pain points.
Ask- what sort of customer experience do they prefer?
Understand the needs of different segments. Your product can evolve to better fit those needs.
Drives Product Adoption
Yes, that’s true! When you understand what customers in a specific segment need it becomes easier to tailor your product accordingly. Product usage is a point of concern for many SaaS businesses. If a customer doesn’t use product features as intended, it can be flagged as a ‘churn’ risk.
On the flip side, usage of product diligently is a good sign. But to get that done, segmenting customers is vital. The pattern of usage, the no of days needed to achieve a milestone, etc. is different for each customer. Segmenting them on similar characteristics helps drive product adoption and increase revenue from each customer.
Helps in taking key decisions
Solid actionable data is key to making important decisions about the growth of the business. Customer segmentation plays a pivotal role in the same. Since complete customer data is captured in your CS software, this could be used for knowing them deeper. It is important because relying on incomplete or broken data will lead to an irreversible impact on business.
Hence, upselling/cross-selling or expansion opportunities can be utilized only if you’ve reliable data. Segmentation solves much of this issue.
Segmentation gives you a competitive advantage. For example, you have both high touch and tech touch clients. If you’ve created separate buckets for the two, your strategies will, obviously, differ. You’ll be able to personalize experiences for the different segments.
Amazing customer experiences have the power to make your customers stay with you for a long period of time. Customers won’t go for alternatives if they find value in your offering. Hence, the value created by customer segmentation can help win more customers than your most fierce competitors.
Enhances Brand Value
As mentioned in the above point, customer segmentation drives customer value. If customers find value, they’ll undoubtedly give social proof about your brand. Testimonials, reviews, and referrals help in making your brand stand out from the crowd.
Brand value, thus created and marketed, gives you a unique positioning advantage. Ultimately, it translates into more customers and more revenue. Providing a great customer experience exponentially increases the value of your brand.
Final thoughts on segmentation driving customer value
Segment your customers in a way that suits your business, but most importantly, provides value to them. Customer Segmentation is the first step to defining your CS strategies. They also become the basis for defining SaaS metrics. This is why segmenting customers the right way is crucial to your success.
Also, this helps you maximize your revenue and earn more from existing customers. Done correctly, segmentation will create satisfied customers who in turn become brand advocates for your business!