Effective customer segmentation to increase CLV

Table of contents

For many businesses, one of the most important challenges they face is increasing their CLV (customer lifetime value). Also referred to as LTV, this crucial metric refers to the lifetime value that a customer brings to the company — from their first purchase to their most recent purchase as a customer.

There are several approaches that brands can take to improve their CLV, ranging from offering more lines of products and services to enhancing customer loyalty and retention. 

One such method that you can use to improve your CLV is customer segmentation.

But what is customer segmentation? And how can it help improve your CLV? 

We’ll discuss that and see how to use it to your advantage in your business. Let’s dive right in.

Why is knowing your CLV important?

Knowing your CLV is important to determine the return on investment in your marketing and sales efforts. Brands face a lot of costs including tools, salaries, rent, supplier costs, and so much more. If your customers aren’t bringing enough value to outweigh these costs, it can spell trouble for your business. That’s why many businesses make it a priority to increase CLV.

What is customer segmentation?

Customer segmentation refers to the process of segmenting customers into groups or cohorts, based on shared commonalities and behavioral patterns. 

There are a range of segmentation types. While some may focus on factors such as geographic area (where your customers live or do business), others might focus on behavioral commonalities (such as customers who use certain online platforms or buy certain products). 

You can segment your customers to achieve a range of goals, and it’s often an important part of marketing to do A/B testing with different marketing campaigns. Segmenting can help enhance the CLV, which is what we’ll be focusing on in this article.

Types of customer segmentation

There are several ways to segment customers into cohorts:

  • Geographic segmentation: based on the regions in which customers live, do business, or log in online.
  • Behavioral segmentation: based on the behavior of customers — such as which products they buy, which platforms they use, or even how they interact online.
  • Demographic segmentation: based on factors such as age, gender, education level, or nationality.
  • Technographic segmentation: based on the devices and technologies they use.

How segmentation improves CLV

There are several ways how customer segmentation helps improve your CLV metrics:

1. Creating more personalized marketing strategies

By segmenting your customers into cohorts based on factors such as their buying preferences, you can tailor your outreach to suit a particular customer segment. This informs your marketing strategy as well as your customer support strategy.

Assume that a notable segment of your customers make additional purchases shortly after their first purchase. By segmenting customers into groups based on how often they make the second purchase, you can target cross-selling and upselling marketing materials to them. For instance, send a push notification a few days after purchase, encouraging them to look at your selection of related products.

Take another example, in which you’ve noticed that many of your customers from a certain geographic region are much more likely to buy certain types or variants of products. You can use this data to send marketing messages to this cohort. 

Or like how Palette of Threads Boutique does, you can send a push notification to customers who are in the vicinity of your physical store asking them to come visit your store (geographic segmentation).

2. Understanding your customers better

Segmentation can also give you deeper insights into your customers. By segmenting customers, you can identify trends among certain target groups and use this data to plan your marketing, sales, and operational strategies. Once you understand your customers at this granular level, you can enhance conversions, engagement, and customer service, thereby increasing your CLV.

3. Allocating resources to specific segments

Another important way in which customer segmentation can improve your CLV is by helping you with effective resource allocation. For example, if you can identify certain customer cohorts that are more likely to spend money and provide higher revenue, you can target relevant marketing materials at them.

Segmentation can help you identify market segments that represent higher acquisition costs. It can also help you identify those that provide lower lifetime values. 

4. Forecasting and proactive problem-solving

Segmentation helps predict customer behaviors and identify trends associated with certain cohorts. You can also predict the success of a future product among a certain cohort.

Analyzing your customer segments can also help you spot important problems and address them. For instance, if you’ve identified a customer segment with a high churn rate, you may be able to investigate why this might be and tailor your strategies to increase customer satisfaction and prevent churn.

How to decide which segment type to use

Here are some tips to determine how to segment your customers:

Identify challenges

First, what challenges do you face in customer success? Marketing? Sales? An important first step can be outlining the issues that you want to address. These can better inform your goals in segmentation.

Identify goals

Let’s suppose that the challenge you face is low sales — but you have no problem garnering clicks and engagement online. If the challenge is low sales, yet you have plenty of engagement online, then your goal might be increasing conversion rates. 

Collect preliminary data

Once you’ve identified your goals, it’s important to collect preliminary data. This might include any customer data you have — ages, locations, behavior, and anything else upon which you can segment a cohort. 

Consider this scenario - a key challenge you want to address is low conversion rates. But when you look at geographic data, you realize that you have a conversion problem in a particular region. This indicates that you could benefit from geographic customer segmentation.

Select your segmentation criteria

Next, you can select your criteria for segmentation based on your challenges, goals, and preliminary data. Are you going with geographic segmentation or behavioral? Demographic or technographic?

Ensure that the segment you choose is large enough to warrant segmentation, has key criteria, and is actionable.

Understand your customers better and increase CLV with Vajro

To increase CLV, it’s often important to allocate resources, understand your target customers, optimize customer experiences, and adopt effective sales and marketing strategies. Customer segmentation is an important part of the process. It can enable you to analyze customer data based on key criteria, such as their geographical location or their online shopping trends.

If you’re ready to take the next step, don’t hesitate to check out Vajro, an app builder for mobile loyalty on Shopify. Through advanced analytics and integration with Shopify customer segments, you can use Vajro to segment customers based on behavior patterns and create personalized messaging for each segment. Try Vajro for free today or get a demo to see Vajro in action.

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