Customer Segmentation the Key for Small Businesses This Holiday Season

As the holiday season draws closer, small business owners are collectively trying to figure out how to compete with the big boys like Amazon.com and Wal-Mart. And while competing with these mega retailers may seem daunting, the good news is that you have a secret sauce at your disposal: customer segmentation.

The key for your small business to see big gains this holiday season is to focus on ensuring your existing customers come back to you. In order to leverage your existing customer base to the fullest, you must first identify various purchase behaviors, and then create specific customer segments based on those findings. From there, it's all about marketing and messaging, creating uniquely tailored offers for each of those groups.

While this exercise may require a bit of math and data analysis, the payoff will be completely worth your time and effort. Let's walk through each of the steps, shall we?

1. Start segmentation by studying purchase behavior. There are countless ways to slice and dice your customer data, and honestly, you probably already have a decent idea of the key purchase behaviors that will form your segments. One easy avenue to explore is demographics — e.g., age, gender, geographic location. Being able to segment your list by gender can be very helpful, especially if you sell different products for men and women, like apparel or health products.

Next, focus on purchase frequency — i.e., who are your most loyal and frequent customers? Once you have that segment created, look at the opposite and find which customers haven't made a purchase from you in the past six months or year. Another great segmentation approach is to study the types of products that different customers have purchased. For example, if you sell apparel, how many of your customers have bought blouses from you before? What about belts or accessories?

Clearly, each business will have different segments, so think about which data points make the most sense for your company. The key takeaway is that by studying this information, you're better able to take a laser-focused approach to marketing that will greatly increase your chances of boosting sales with existing customers this holiday season.

2. Prioritize your segments. Now that you have your customer segments, it's time to organize them and prioritize which ones to focus your time and budget on. And just like creating the groups themselves, there are tons of ways to approach this task. Get started by looking at the size of each group. The larger lists give you an opportunity to reach a wider audience, while some of the smaller ones can be helpful in terms of audience engagement.

The more strategic approach to prioritizing your customer segments is to assign a potential value to each group. For example, your "loyal customer" segment is of very high value, and should be placed at the top of the priority list. Other high-value segments include those who are known to make high-dollar purchases or buy your most expensive items. On the other hand, some of your lower-value segments might include one-time purchasers or customers who haven't placed an order in 12-plus months.

Keep in mind that each segment has some value and presents an opportunity to generate more holiday sales. The goal of this exercise is to provide a framework for building your internal marketing calendar for the season.

3. Tailor your marketing messages, contact your segments. The final step in making your secret sauce is creating your marketing assets. Remember that since your primary focus is on existing customers, email marketing will be your primary channel here, with social media playing an important second.

Begin at the top of your priority list and craft tailored messages for each segment. For example, you can create an exclusive discount for your most loyal customers and pair that with an email thanking them for their continued business. On the flip side, you could also create a "Come Back and See Us" email to customers who haven't made a purchase in a while, or send an email announcing your latest arrival of blouses for that product-specific segment. Another idea would be to take your list based on gender and send a "Gifts for Him" or "Gifts for Her" message featuring your best gift ideas.

Again, the possibilities are endless here. By taking the extra steps of tailoring your messages to specific audiences, you've personalized the experience and will see impressive gains in your email marketing metrics and, more importantly, sales conversions.

As a small business owner, you now have the recipe for the secret sauce that will ultimately keep your customers away from the mega retailers. Instead of broadcasting the same message to everyone in your database, a segmented approach will highly personalize the experience, which is a proven way to make your cash register jingle all season long.

Matt Winn is the senior marketing communications manager for Volusion, a provider of e-commerce software, website design/development and inbound marketing services.