Everything You Need To Know About Customer Segmentation

What Is Customer Segmentation?

Customer segmentation is all about categorising a company’s customer base into distinct groups based on critical parameters. While creating customer segments, a SaaS player may only consider primary data or delve deep into tech aspirations, product innovations and business goals.

Typically, SaaS providers will start with basic information such as business type and size, industry/sector, locations and markets, revenue and technology solutions in use. However, they will move on to more granular analysis to tailor their products and services, communications, and sales and marketing strategies to resonate better with each customer group and profile.

This is no easy task, as SaaS players need to enhance customer engagement at pre- and post-sales levels based on the data insights revealed by these groups. More importantly, routine data crunching may not be adequate for this purpose, leading to many pitfalls and a subsequent loss of business. In simple terms, a holistic blend of data, creativity, business perception and knowledge of market trends is needed to create these segments and meet their unique needs and preferences.

Whether SaaS companies are leveraging customer segmentation to drive growth in existing markets or using the datavantage to explore new geographies, this exercise is essential for maximising revenue and delivering personalised customer experiences. Ultimately, it ensures that resources are allocated efficiently, customer satisfaction is optimised and companies can thrive in competitive markets.

How SaaS Companies Segment B2B Customers

Source: Secondary Sources

Four Key Challenges Of Customer Segmentation

• Access to adequate and good quality data: Amassing,analysing and updating a vast quantity of relevant and reliable data can be extremely challenging at times. To effectively manage data, SaaS providers should determine their requirements, implement data management systems, integrate data capture through customer feedback and other tools and use AI/ML for data insights. Unless data is validated/cleaned regularly or synced with ground realities such as changes in market trends, competition or customer preferences, errors will creep in and distort analytics.A significant pitfall here could be adherence to data privacy regulations. SaaS companies need to opt for permissible data usage, ensure transparent data collection and implement data security measures if they want to leverage customer data for business growth.
• Getting the segmentation criteria right: Developing an effective strategy for customer segmentation can take time and effort, given there are too many criteria to consider, from demographics, requirements, spending and tech usage to value creation, retention and more. Overall, it will be a complex manoeuvre involving qualitative research and in-depth statistical analysis. To choose the most suitable criteria, SaaS companies should focus on the right datasets aligning with their business objectives. For instance, if a company wants to push its revenue at the earliest, it will focus on onboarding a large number of customers with immediate requirements and explore datasets to identify that segment. However, the company may not be able to retain so many customers in the long run. On the other hand, companies targeting customer retention or high-value enterprise deals for long-term growth will take their time and tap into areas for maximising customer satisfaction or creating innovative, value-added products. Eventually, customer segmentation will be a dynamic procedure wherein different criteria and methodologies will be compared and tested to make sure that they work for specific business goals.
• Getting the segment size and the segment number right: Determining the right number of segments and right-sizing each is crucial for optimum growth. If there are too many segments or too many businesses in those groups, customising one’s offerings becomes difficult. Again, going too granular may lead to faulty resource allocation and a rise in costs and operational complexities without adding any real value. To achieve optimal segmentation, one should balance breadth and depth, consider capabilities and measure outcomes via critical metrics like customer acquisition, retention, revenue and profitability.
• Effective communication and collaboration: Until a SaaS company thoroughly understands its customer segments, goals and expectations, it is difficult to become partners in growth. In contrast, one can easily customise communication and collaboration strategies when customer segmentation aligns well with customers’ needs, values and vision. Staying attuned at every step is the way to achieve desired outcomes.

Five Ways To Boost SaaS Growth With Customer Segmentation

• Better efficacy of products and services:With a suitable model in place, SaaS companies get a better understanding of each segment as entities are broadly based on similarities. Consequently, they can improve the products and services required by each group.
• Increased revenue potential:Customer segmentation allows SaaS companies to target high-value businesses/enterprises and increase revenue through innovative products and services, upgrades and cross-selling.
• Better price matching:Market knowledge and customer data help strategise sustainable pricing for different customer segments.
• Enhanced customer service:Again, a good understanding of customer profiles and segments improves customer service by providing personalised experiences along each touchpoint and promptly resolving unique grievances. This further boosts profits and customer retention.
• R&D boost:Finally, segmentation drives R&D, enabling research teams to focus on each segment for the most suitable solutions. This approach simplifies identifying pain points and innovating new products. Understanding user requirements from the get-go further increases the chances of product success.