What Is Loyalty Segmentation? How to Use It to Boost Retention

You may not be aware of it but by creating a loyalty program, you’re already doing a kind of segmentation. You’re creating a segment of loyal followers. You’re doing loyalty segmentation.

In other words, segmentation and loyalty go hand-in-hand.

Using customer segmentation in your loyalty program helps you create unique and personalized customer experiences and engage customers.

But what is loyalty segmentation? How do you build customer loyalty? And what are examples of loyalty segments that you can create in your rewards program?

Read on to get your questions answered!

What is loyalty marketing?

Loyalty marketing, or loyalty-based marketing, is the process of marketing your products and services while building a loyalty-based relationship with your customers.

The buy-and-sell relationship becomes a kind-of mutual-benefit relationship. Your customers need you just as much as you need them.

But to do this gracefully, you use loyalty marketing tactics. You engage customers and turn them from faceless people walking into your store, physically or virtually, into repeat and loyal customers and brand ambassadors.

Building customer loyalty is a process involving several methods. One essential and highly effective method is using customer segmentation. Or specifically, creating loyalty segments.

What is customer segmentation?

Whenever you mention customer segmentation the main 4 types of segmentation come to mind. They are:

• Demographic segmentation, which focuses on demographics like age, race, gender, ethnicity, religion,…etc.
• Geographical segmentation, which segments customers based on their location such as city, town, country, region,…etc.
• Psychographic segmentation relies on attributes like values, attitudes, beliefs, desires, goals, and lifestyle choices.
• Behavioral segmentation segments customers based on information such as interests, actions, behaviors. It’s a type of segmentation that looks at what customers do.

Grouping your customers using these segmentation methods is great. You get better results by combining them. But you can get even better results by creating your own segments.

What are loyalty segments?

Customer segmentation is the process of dividing customers into groups based on common interests, behaviors, among other factors.

There are many ways to segment your customers. You can use the main 4 types of segmentation, namely: demographic, geographic, behavioral, and psychographic segmentation.

Or you can dive even further and group customers based on spending habits, spending categories, the types of products they buy, among other methods.

Segmenting customers allows you to tailor your message to people with more elements in common than trying to talk to everyone at the same time and end up marketing in a vacuum.

So, what are loyalty segments?

Loyalty segments are segments of your loyal customers, those who like you, your brand, and your products. They are segments of people who are willing to help you improve and become better.

Keep reading to find out how to create loyalty segments.

How to build customer loyalty

In its essence, customer segmentation helps you build customer loyalty because you’re segmenting customers and accordingly tailoring contents, ads, and even rewards for those customers.

Depending on the type of loyalty program you’re using, segmentation helps you offer customers value. You can tailor this value based on your customers’ level of loyalty.

With loyalty segments you have a better and bigger chance of retaining your customers.

And who doesn’t want customers to keep coming back?

Data by Bain & Company and the Harvard Business Review shows that the cost of acquiring a new customer is 5x more expensive than retaining one. Meanwhile, a 5% increase in customer retention can boost your profits by 25% to 95%!

Before we look at examples of loyalty segments, let’s look at ways to build customer loyalty for your e-commerce business.

-       Offer great customer service 

One of the top tactics in creating loyalty is offering good – or better yet great – customer support.

Your customer support team, whether via phone or chat, are your first responders when customers contact you. It’s their job to handle complaints, returns, problems. In other words, they handle all the different types of customers that come into your store and their problems.

It’s your customer support team that adds to and creates your customers’ experience.

-       Use customer satisfaction surveys 

Customer satisfaction is an essential part of customer loyalty. Happy and satisfied customers can become loyal customers.

Creating a customer satisfaction survey doesn’t have to be a daunting task. It doesn’t need to be a survey in the sense of 10 multiple choice questions.

It can be as simple as a single question asking how the customer felt about their latest experience in your online store. Their answer can be in the form of a scale of 1 (bad) to 10 (great) or a number of smiley faces indicating their experience.

-       Create a customer retention strategy 

Building a customer retention strategy means listing several methods to retain customers and build loyalty. It also means experimenting with retention methods and measuring the success of your efforts.

-       Create personalized experiences 

Customers today expect online businesses to provide them with personalized experiences. Accordingly, there are many examples of personalization in e-commerce and more keep emerging.

Personalizing experiences for your customers is now a way to both entice and retain those customers.

Data by KIBO, Monetate, and Certona found that 70% of businesses that used “advanced personalization” witnessed a 200% surge in ROI.  

Meanwhile, Accenture found that 91% of consumers are “more likely to shop with brands who recognize, remember, and provide them with relevant offers and recommendations.”

-       Use a loyalty and rewards program 

Customer loyalty programs aren’t new. They’ve been around for decades. But they have evolved significantly over the years, incorporating various rewards, personalization, among other benefits.

They’re also great in helping businesses increase their average order value, sales, revenues, and profits.

A loyalty program can be an element within your customer retention strategy. However, it’s important to measure the success of your loyalty program.

There are many ways to reward customers. Reward ideas can include instant rewards, loyalty points, cashback rewards, coupons and vouchers, free shipping, among other ideas.

Successful loyalty programs today offer customers birthday rewards. Similarly, some tiered loyalty programs offer customers annual or anniversary rewards. These are rewards offered once a year to customers who buy from a brand over the course of that year.

Birthday rewards are quite common among beauty loyalty programs and fashion rewards programs.

If you’re using Gameball as your loyalty program software provider, you can also use segmentation to reward your most active or highest-spending customers.

-       Ask for reviews

As a business, it’s important to know what your customers think of your products. Ask customers to review the products they buy from you.

On one hand, positive reviews create social proof and help you sell more. On the other, customers will let you know if a product is of poor quality or not what they were expecting so that you can either improve it or find a better supplier for it (if you get it from one).

You can also blend this review option with your rewards program. You can reward customers with points for every review or number of reviews they leave on your website.

How to create and use loyalty segmentation – with examples

We’ve covered what customer segmentation is and how to build loyalty. Now, it’s time to see how you can combine customer segmentation and loyalty to increase engagement and create personalization for your e-commerce business.

We’ll also look at what good examples of loyalty segmentation or loyalty segments look like.

Before you can create segments, you need to create a list of criteria that indicates who your loyal customers are. Usually this list includes:

• Customers who buy from you once or more per month
• Customers who spend over [figure let’s say $100] per month
• Customers who buy from you once per week
• Customers who have successfully referred you to at least 5 people

You can add other criteria such as:

• Customers who have [number] of points. Ex: Customers who have over 1000 points.
• Customers who reached or passed a certain level in your loyalty program.
• Customers in a certain tier, if you’re using loyalty tiers.

Of course, you can combine one or more of these segments together. In fact, we highly recommend this.

However, be sure you’re not asking for too much by adding too many criteria – or rules – when segmenting customers.

If you’re using Gameball, you can add criteria such as:

• Customers who completed at least 1 Christmas challenge (or just 1 challenge)
• Customers who made purchases between certain dates or during certain events like Black Friday, Halloween, Valentine’s Day…etc.
• Customers who completed 10 or more referrals

That’s in addition to the segments using the 4 types of segmentation and their combinations:

• Customers who live in [state/country/city]
• Customers above 25 years
• Customers above 25 years living in California/Germany/France…etc.

And so on.

Combining segments allows you to be extra specific about your customers, giving you the chance to increase engagement and create unique e-commerce customer experiences.

Wrapping it up

Customer segmentation builds and increases customer loyalty. It’s a step that shows your loyal customers how you’re setting them apart from the crowd and offering them special rewards and benefits for being loyal.

While you could always segment customers based on demographics, location, alongside some interests, segmentation takes a whole new form and level in Gameball.

Using customer segmentation in your loyalty program allows you to truly tailor and customize experiences for your customers.

With loyalty segmentation, you have unlimited options and segments to make your rewards program stand out from the crowd.

Want to see these loyalty-based segments in action? Add Gameball to your online store today! On Shopify? Add Gameball from the Shopify app store.