Segmentation Supercharged: Empowering Your Acquisition and Product Strategy

We've all felt the sting of inflation in the last few years. Whether that be at the pump, the grocery store, or when you get your bill at the restaurant, we're all feeling the pressure of rising prices. It's enough to make you want to start hoarding your pocket change under your mattress.

If you’re running a business, you’re feeling the pinch, too. Businesses are facing new challenges when it comes to acquiring and retaining customers. In a world where every penny counts, customers are looking for the best value for their money, and businesses are finding it increasingly difficult to compete.

So what's the solution to this problem? We’ve been working with some of our customers recently on something that I’m really excited to share - using data-powered customer segmentation to inform all sorts of company strategy.

If you’ve ever worked with or talked to a consumer insights team, you’re already an expert. They’re the masters of using data to make tweaks across acquisition, customer experience, product development, and so much more! But what happens if there is no consumer insights team for you to lean on?

We think that there are three “quick win” areas where you can leverage data segmentation to improve aspects of strategy. We’ll start by looking at how data can help you optimize customer acquisition by identifying which products are most likely to lead to repeat purchases. Next, we'll dive into how leveraging data on customer behavior can lead to product decisions that keep your customers engaged and loyal. Finally, we'll discuss how data can help you decide on pricing and promotions that strike the right balance between short-term revenue and long-term profitability.

‍

Tailoring your acquisition strategy based on customer segmentation

‍

‍

‍

One of the first things that we do is identify which customer segments are the highest value - these tend to be the most likely to repurchase, and double clicking on them helps us understand which strategies are most likely to work well.

We often find that there are “halo products” of a brand that are incredible at driving repeat purchases - a super simple strategy for a company is to narrow down on these products and ensure that they’re marketed as far and as wide as possible. Because they’re already incredibly popular, they end up creating an “alpha” of brand value for the company.

Glossier is a great example of a brand that has a "halo" product that has helped establish its reputation. One of their products that performs incredibly well is their “Boy Brow” pomade, which has become a cult favorite for its ability to thicken and define eyebrows. Because the product is likely to be re-purchased, it’s a really great introduction to the brand. This product's popularity creates an opportunity for Glossier to leverage customer insights and upsell customers on its other offerings.

‍

Creating new products that you know your existing customers will love

Look, we’re a startup, and we seem to have found a niche that works for now. But in the early days, we were constantly trying new ideas, and basing those ideas off of what our customers were already interacting with. The goal is to eventually get to a stage where every subsequent pivot is a smaller left turn than the one that came before it. No company, however, should stop innovating:

"Innovation is the lifeblood of any company. If you're not innovating, you're not growing, and if you're not growing, you're dying." - Steve Jobs

How can we innovate in a smart way? A good idea is to ensure that you’re creating products that your existing customer base will go nuts for.

For example: I am probably the world’s biggest Oreo fan. I’ve tried most of the common flavors that you can find, and I go out of my way to make sure that I try the weird ones (I’m still trying to find some Swedish fish Oreos). My partner, however, has a gluten allergy and cannot have Oreos.

‍

‍

Imagine my happiness when I found that Oreo had come out with a gluten free offering, even with double stuf! My average Oreo AOV has at least doubled, because I now buy twice the number of Oreo packages in a visit - one for me and one for Sara.

Companies do this all the time, by looking at their most heavy repeat customers and optimizing new product offerings: Netflix used a decision-making process like this to decide whether to invest billions in creating “House of Cards”, and my last employer, Peloton, looked at what different segments of users were engaging with to decide what content to produce next.

Optimizing Pricing to encourage growing AOV

The last fun tidbit here is thinking about pricing, which we touched on just a smidge here. We’ve been working on dynamic pricing strategies, and one of the things we’ve been trying is setting up dynamic pricing for each customer. If you can calculate each customer’s order value, you can actually set up really easy targets that you can use to increase a customer’s AOV.

An easy way to think about this is in tiers. If 50% of your customers spend (on average) between $75-$100, 30% spend between $100 and $125, and the last 20% spend between $125 and $150, you can offer incentives to get them to spend more. Let’s say that for every customer that fell in each of the three buckets, you send them an offer for free shipping for spending more than their bucket.

If you have a million customers, and you convinced everyone in the first category to spend above $100, you’d make an average of $12.50 more per customer - that’s an additional $6.25M in revenue! The beauty here is - they’re probably mentally spending that much on average anyway, so all you’re doing is adding a little bit of urgency to the mix.

We’re in an incredibly competitive market - we all need to constantly innovate and adapt to stay ahead of the curve. With smart use of order and purchase data, you can tailor your company’s strategy to optimize acquisition, product development, customer success, and pricing to improve customer retention and drive revenue growth. By identifying high-value customer segments, creating products that resonate with existing customers, and offering discounts and promotions to encourage larger purchases, you’re able to increase customer loyalty and lifetime value. The key is to always test new strategies to stay ahead of the competition. Companies that embrace data-driven strategies and continue to innovate are the ones that will thrive in the long-run.

‍