Is your SaaS operating with the mindset that all your customers have the same needs, backgrounds, and challenges your product solves? Then it's time you debunk this naive assumption, realize the power of segmentation, and leverage it to communicate with your customers effectively.
Not all your customers use your product the same way or have the same worth for your business. And data segmentation empowers you to identify the unique characteristics of your customers and address their pain points in a manner that's the most receptive for them.
In this article, you'll learn about data segmentation, its importance for SaaS, its types, and how you can gear it with business analytics to improve your business.
What is data segmentation?
Data segmentation is the process of dividing a larger dataset, such as a customer database, website analytics, sales & revenue data, and more, into smaller and manageable subsets called segments based on specific criteria or shared characteristics.
Data segmentation aims to develop a deeper understanding of the given dataset by processing and analyzing smaller chunks of data to extract valuable and focused insights from them. SaaS businesses use data segmentation to draw insights related to user behavior, customer profile, preferences, or usage patterns and to deliver targeted features, services, or communications to different segments of their user base.
Depending on your objectives and context, you can perform data segmentation based on various factors such as demographics, behavior, psychographics, geography, specific time period, and more.
Why is data segmentation important?
Data segmentation offers the following benefits:
- Improved Understanding - Data segmentation allows businesses to better understand their customer base by uncovering patterns, behaviors, preferences, and characteristics that are usually not obvious when analyzing real, reliable data.
- Personalization and Customization - Data segmentation empowers SaaS companies to personalize their interactions, offerings, and experiences for different customer segments. By tailoring marketing messages, product recommendations, or user interfaces to specific segments, organizations can provide more relevant and customized experiences, leading to higher customer satisfaction and engagement.
- Targeted Marketing and Communication - You can craft targeted marketing campaigns and communication strategies with data segmentation and segmentation strategy. It allows you to address better different customer segments' needs, interests, and pain points, improving marketing efforts' effectiveness and increasing conversion. Lastly, it can also help you develop a relevant buyer persona.
- Decision-making and Strategy Formulation - SaaS companies can identify growth opportunities, target new markets, refine their product offerings, and optimize pricing and distribution strategies by analyzing and tracking the performance and characteristics of different segments. You can also optimize resource allocation and maximize return on investment.
- Loyalty and Customer Retention - You can enhance product analytics market customer retention and loyalty. Organizations can proactively address customer concerns, offer personalized support, and develop loyalty programs that resonate with each segment.
Types of data segmentation for SaaS
Data segmentation can happen in multiple ways. The choice of segmentation depends on the specific goals and target audience of the SaaS platform. Below are some of the most common data segmentation techniques used in the SaaS industry:
1. Segmentation based on customer traits
Building customer personas is essential to understanding why your customer would need your product. You can reach your target audience once you develop detailed customer personas highlighting your ideal customer traits and characteristics. You can divide customers into segments based on their specific characteristics, traits, or attributes. These traits can provide insights into customers' needs, preferences, behaviors, or demographics, which can help tailor marketing strategies, product offerings, and customer experiences.
2. Segmentation based on customer lifecycle
Not all of your customers similarly engage with your product. Some are only prospects, others might convert recently, and some are long-term users. Thus, you can't address their needs and pain points in a one-size-fits-all approach. Your marketing and conversion efforts shall engage each customer right where they are in their customer journey.
Segmentation based on customer lifecycle divides customers into different segments based on their stage in the customer lifecycle journey. So, businesses can adjust their strategies and activities by grouping customers based on the various customer lifecycle stages, including acquisition, onboarding, engagement, retention, and advocacy.
3. Segmentation based on customer value
Another type of data segmentation involves dividing customers into segments based on their value or profitability to the SaaS business. Research states that 80% of a business's income comes from 20% of its customers. The customers that provide the most value to your business share certain characteristics.
By identifying those similar traits, you can find the most revenue-generating section of your customer base. It empowers you to prioritize your efforts, strategically allocate resources, and tailor your strategies to maximize revenue, customer retention, and profitability. This approach delivers superior experiences that drive long-term growth and success.
Data Segmentation using Usermaven
Data segmentation tools like Usermaven enable SaaS businesses to extract valuable insights from their data, streamline the segmentation process, and make informed decisions based on data-driven insights. With Usermaven, you can easily group users and companies based on similar traits and apply segmentation to the generated reports.
You can learn in detail about Usermaven's Segment feature here.
- You can use AND / OR filters to create adaptable and refined segments.
- You can create segments based on the user role, such as administrators, managers, and end-users, to understand each role's specific needs, permissions, and usage patterns.
- Another powerful feature is Refine which allows you to segment data based on an event performed a specific number of times within a specific period.
- You can create segments based on trial users, paying customers (all & by different plans), incomplete onboarding, power users (by different features), slipping away users, and more.
- You can manage your segments by editing as per your needs and deleting them once you no longer need them. Note: Deleting a Segment will not delete the users in it.
How to do data segmentation analysis?
Several steps are involved in performing the data segmentation process. Let's briefly look at the general process:
- You start by clearly defining the objectives of your segmentation analysis. Start with your choice of specific criteria or variables to apply to the available dataset to achieve your goal.
- Collect the relevant data, which may come from various sources such as customer databases, CRM systems, surveys, website analytics, marketing, sales, or other data sources. Clean your data from any inconsistencies, errors, or missing values that could affect the analysis.
- Choose the suitable segmentation method depending on your goals and dataset characteristics, such as demographic, behavioral, psychographic, clustering algorithms, statistical modeling, etc.
- Apply your chosen segmentation method by assigning each customer to their respective segment. And identify patterns and similarities using data segmentation tools like Usermaven.
- Once the data is segmented and categorized, analyze each segment individually to understand its characteristics, preferences, or value. Calculate relevant metrics for each segment, such as average revenue, conversion rates, customer lifetime value, or retention rates. Compare the segments to identify significant differences or trends that can guide decision-making.
- Assess the performance of each segment against your predefined objectives. Determine which segments align with your business goals, show the highest growth potential, or provide the most value to your business, and what segments are underperforming.
- Based on the gained insights, modify your strategies, and create segment-specific campaigns or initiatives that resonate with the characteristics of the respective segments.
- Monitor the segment performance and refine your strategy with continuous tracking and evaluation.
Data segmentation is an iterative process that ensures your business remains responsive to your customer segments' evolving needs and preferences. Using a tool like Usermaven that combines your data analytics and segmentation can be a transformative approach that enables you to drive customer acquisition, retention, and satisfaction, fuel innovation, optimize pricing, and make informed decisions that ultimately lead to growth and success in the competitive SaaS market.
- What are the four main types of segmentation?
Companies can implement various types of segmentation depending on their goals and objectives. However, the four main types of segmentation include the following:
- Demographic Segmentation - This segmentation uses basic demographic factors such as age, gender, income, education, occupation, marital status, ethnicity, family size, and location to divide the user data into segments.
- Psychographic Segmentation - This segmentation focuses on dividing a market on the basis of psychographic factors such as values, beliefs, attitudes, interests, opinions, lifestyles, and personality traits.
- Behavioral Segmentation - This segmentation categorizes customers based on their behaviors, actions, and usage patterns. It considers factors including purchasing behavior, product usage, brand loyalty, occasion-based buying, level of engagement, and response to marketing stimuli.
- Geographic Segmentation - This segmentation categorizes data based on geographic factors such as location, climate, population density, cultural preferences, and regional characteristics. Businesses with a geographically diverse customer base use this segmentation to target specific regions.
2. What is the best way to segment data?
The best way to segment data depends on various factors, such as the data's nature, the segmentation's objectives, and the problem's specific context. There is no one-size-fits-all method, as different ways may suit different scenarios. However, here are some tips to determine the most effective data segmentation technique:
- Clearly define your objectives and the specific insights or actions you want to derive through data segmentation.
- Develop a thorough understanding of the dataset by exploring the data's variables, attributes, and characteristics.
- Validate the segmentation before applying it by assessing its usefulness and impact.
3. How is data segmentation relevant to business analytics?
Data segmentation is highly relevant to business analytics as it provides a framework for analyzing and interpreting data in a more meaningful and actionable way. Business analytics must divide the data into manageable subsets and examine them separately. By leveraging segmentation techniques, businesses can unlock valuable insights and make data-driven decisions to optimize their various business functions, including marketing, finance, operations, supply chain management, human resources, and customer service.
4. What does data segmentation do?
Data segmentation divides a dataset into smaller, more specific subsets or segments based on certain criteria or characteristics. The purpose of data segmentation is to group similar data points to gain deeper insights, make more targeted decisions, and customize strategies or actions based on the specific characteristics of each segment.