A detailed guide to customer segmentation in a beauty salon

Customer segmentation in any business, not only in a beauty salon, makes it possible to rationally use advertising resources and increases the efficiency of your interactions with the customer data.

In this guide, we'll explain why segment your customer data, how to do it in multiple ways, and why this approach to customer service improves your business performance.

Content:

1. What is segmentation and what is it for?
   1.1. Segmentation categories
   1.2. How to collect customer data and what data is needed for analysis?
2. How to build a customer segmentation strategy?
3. Customer segmentation methods
   3.1. RFM analysis
   3.2. ABC / XYZ analysis
   3.3. Demographic analysis
   3.4. Segmentation based on LTV analysis

What is segmentation and what is it for?

Segmentation is relevant for all markets, and its techniques have evolved along with the markets themselves. In all countries and on any continent, different segments of the population were served in different ways: the master or shop owner always communicated with an important buyer himself, and trusted apprentices or sellers to work with others. For very important persons, closed show ups were arranged in the "back rooms", and goods were sold from the back door for the poor ones, so as not to scare off the nobles who entered the front doors with their appearance.

Mass segmentation as a marketing tool began to be used at the beginning of the 20th century, when the industrial revolution took place, there were a lot of industrial goods, competition between manufacturers increased and the creation of additional value for consumers was required. Now the principles of segmentation are used in all areas of business and are considered a classic marketing tool.

Segmentation of the customer data is the division of one large group of customers (the entire data) into several smaller groups, the members of which have similar characteristics. Segmenting allows you to:

• assess the composition of your customer data (the percentage of customer groups to each other and to the entire data as a whole);
• personalize communication (push notifications, SMS, text messaging campaigns);
• create advertising campaigns targeted to a specific segment of customers;
• reduce customer fall out by controlling the customer segment “on the brink of loss” and much more.

In a global sense, audience segmentation helps to do “separate marketing” for each customer, because the main indicator of successful segmentation is the ability to form its own marketing mix.

The classic marketing mix includes 4Ps for product markets:

• Product
• Price
• Place
• Promotion

Beauty Salon Marketing expands the classic marketing mix to 7P by adding the following categories:

• People
• Process
• Physical evidence

Segmentation allows modification of the marketing mix in accordance with the customer's values.  

For example:

• Product: unique characteristics of the service, the required level of quality;
• Price: pricing according to the segment (discount policy or premium segment);
• Location: the location of the salon or clinic;
• Promotion: an advertising campaign focused on the needs of a specific segment;
• People: corporate culture, customer service standards;
• Process: creating the most comfortable process for receiving a service;
• Physical environment: salon / clinic environment, emotional content.

The offered product in the field of beauty and aesthetics is not the service itself, but the whole range of activities included in the process of its provision. Understanding the existing segments will allow us to modify the product so that each segment has its own special offer, as well as to offer new demanded services. For example, if the salon is focused on the premium segment, it is important not only the quality of the direct service, but also the accompanying service: the ability to make an appointment with the master online, confirm the appointment or postpone the dates, convenient location and parking, fast service, comfort while waiting ( comfortable furniture, tea / coffee), high quality materials, etc.

Segmentation also allows you to clearly identify the segments with which the business plans to work, and the segments that should be abandoned, since the effort will not be sufficiently rewarded.

Segmentation categories

While the table below does not cover all types of customer segmentation, it gives you a starting point for organizing 

this process. For each type of segmentation, we gave an example of the most commonly used criteria. 

How to collect customer data and what data is needed for analysis?

As a rule, for segmentation of customers in a beauty salon, information such as the frequency of purchases, the average bill, the total amount of purchases, the date of the last visit, etc. is primarily used.

In addition, the customer's personal data, such as name, surname, phone number, email, etc., are required directly for further communication with already segmented customers.

Relevant, correct and up-to-date data is the key to the success of any customer segmentation method, as each analysis is based on a specific amount of data. With incorrect or incomplete data, of course, it is possible to analyze and segment the customer data, but you should not expect high results.

Therefore, if you are just thinking about customer segmentation, check if the data in your CRM system is in order - its completeness, relevance, correctness, etc. In general, you should keep customer data accurate - this facilitates many things in your work, not only analytics and segmentation.

How to build a customer segmentation strategy

Step 1. Determine what you need it for

Decide why you need to segment your customer data. To do so, get back to the list of why a proper customer segmentation is important for a business (in the section above).

When thinking through the goals of customer segmentation, it is worth remembering that they are unique for each business - there is no one-size-fits-all solution.

For example, the number of targets for segmentation will be unique to you depending on the size of the business, the number of customers, the pricing of the salon, etc.

In addition, your goals may be relevant for different employees (both for the administrator and for the masters), or specific for each employee. So, when setting your goals for customer segmentation, use your company specifics and your business needs as a starting point.

Step 2. Divide customers into groups

Once you have an idea of ​​what you want out of your customer segmentation process, decide how you will segment your customers. We will talk about specific segmentation methods in this article below. There is no right or wrong answer here - it all depends on your specific business, customers, and the goals that you outlined for yourself in the previous step.

For example, if the goal of segmentation is to identify the target audience for displaying ads, you should use demographic and geographic criteria for segmenting your customers.

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Step 3. Working with the salon customer data and segments

Once you've segmented your customers, it's time to decide how you will work with them. By making sure that all employees understand how customers in one segment differ from another, they will be able to personalize and work effectively with each of them.

For example, if you divided customers by the number of visits and the amount of their purchases, the master should be more sensitive to all comments from economically "weaker" customers. In case of an unsuccessful procedure, the risk of losing such a customer is much higher than that of the "champion" customer. 

Step 4. Analyze the resulting segments

Analyzing customer segmentation will provide insight into how you have organized your customers so you can make adjustments.

Get feedback from your employees on the new way to segment customers. It often happens that segments compiled according to all the rules and criteria simply do not work. As we wrote above, there is no one-size-fits-all solution for everyone, so listen to your employees, because they interact directly with your customers.

You can also collect feedback from your customers to more effectively divide them into relevant groups. For example, you can conduct surveys to improve your behavioral segmentation by asking customers if they like the service they provide. This will allow you to more accurately organize customers based on their specific behavior.

Finally, rearrange the way you segment your customers whenever you update your product or service, rebrand, or redefine customer portraits - these changes can push you to adjust your segments.

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Customer segmentation methods in a beauty salon

If you google the segmentation of customers in a beauty salon, you can find a lot of different ways to do this. But in essence, they all rely on RFM analysis or ABC XYZ analysis.

RFM analysis

RFM analysis is a universal marketing tool that has been used in various companies around the world for several decades.

The meaning is that you divide your customer data into segments based on the recency of purchases of your customers (R), the frequency of their purchases (F) and the total amount spent by the customer over the entire time of interaction with your brand (M).

For each criteria, a score from 1 to 3 is given (higher is better). As a result, each customer gets 3 marks , for example, 223 or 122. All customers with the same set of numbers can be attributed to the same segment, since their consumption habits are similar. In total, you should have 27 different segments. For a more detailed analysis, you can make a scale from 1 to 4, then you will get a larger number of smaller segments.

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It is not very difficult to carry out such an analysis, but if done manually it will take a lot of time.

Passteam will automatically segment your customer data with RFM analysis. Segmentation starts right after the first connection and the platform regularly moves customers between segments. In addition, you can manually adjust the thresholds for each segment for a more personalized analysis for your specific business.

We recommend using RFM analysis to segment customers in a beauty salon, as it provides the most valuable insights about your customer data :) Moreover, RFM is available in Passteam even at a free plan.

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ABC / XYZ analysis

This method is a bit similar to the previous one, but instead of numeric indicators, alphabets are used here, and such an analysis can be carried out in the format of a graph with two axes.

ABC analysis is based on the Paretto principle: a relatively small number of reasons are responsible for the majority of possible results.

 There are two types of ABC XYZ analysis - classic and modern.

In the classic form, the categories of customers by purchase volume will be the following:

Category A: customers with the highest purchases, 80% of total sales;

Category B: customers with average purchase volumes; 15% of total sales;

Category C: customers with small purchase volumes; 5% of total sales.

Sometimes an additional D-segment is added to ABC - for sleeping and fallen off customers. They practically do not buy, and it is correct to remove them from the analysis.

If a customer has left you for a competitor, resume working with him as a new customer in half a year or a year.

• Customers of category A bring you 80% of income: revenue, gross income or turnover. Ideally, such customers should be about 20% of the total number of customers.
• Customers in category B are average customers, they bring 15% of income, such customers should be about 16% of the total number.
• Customers of category C are small customers that bring 5% of income and their number is 64% of the total.

The ideal ratio in terms of shares in ABC customer categories in terms of sales and the number of customers from the total number in the data will be the following:

It is a balanced and manageable sales proportion. Any deviation will show you which direction you need to work in order to develop your customer data. 

If the share of customers differs from the standard, this indicates violations in the work with the customer data. Your masters or administrator may not work with the customer and not develop the full potential.

If the share of a category is higher than the standard, it means that customers of this category can move to a higher category. If the share of a category is below the standard, it means that the company is not getting customers of this particular category. 

XYZ analysis determines the regularity and predictability of sales and contains the following categories:

• Category X: customers with stable visits, for these customers accurate forecasting of sales is possible;
• Category Y: customers with occasional visits;
• Category Z: customers with single visits.

ABC XYZ analysis solves the following tasks:

• Will clearly show your flaws with customers;
• Determine the strategy for the development of the customer data in order to transfer customers between categories;
• Determine the marketing strategy for attracting new customers.

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Demographic analysis

This method allows you to conduct a demographic analysis of your customer data, i.e. find out how many and what percentage of your customers belong to a particular demographic group.

Within the beauty industry, demographic analysis is most often based on the following indicators:

• sex
• age
• marital status
• children

If you analyze the customer data for these indicators, you can understand which segment is the largest (%)

Based on the largest segment, you can build a portrait of your customer, and already use it to set up ads based on demographic indicators, for example, in Facebook Ads Manager.

Based on single metrics, you can create segments for targeting advertising campaigns.

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Segment Action based on LTV analysis

LTV (lifetime value) or CLV (customer lifetime value) indicates the regularity of a customer's purchases: some customers made an order only once, others are regular customers. In the segment of regular customers, one can distinguish those who buy rarely and for small amounts, as well as those who regularly make big purchases.

To calculate LTV, you can take into account different data: advertising costs, duration of cooperation with a company, number of purchases over a certain period of time, average purchase price, profit from purchases.

Segmentation of the customer data by LTV helps to determine the value of each segment and the priority of working with them. In addition, different types of customers require different approaches. For example, customers who have made a purchase only once may become loyal customers in the long term, but they need a separate tactic to engage them in repeat purchases.

Bottom line

Today, customer segmentation is a prerequisite for successful sales in the beauty business. CRM for a beauty salon is the best tool for maintaining customer data and its segmentation. It eliminates not only time-consuming work, but also eliminates errors that are inevitable in tables and notebooks (forgetting or not having time to enter data, delete some information, confuse cells, etc.).

Passteam is a great customer segmentation solution that you can use even on a free plan. In addition, Passteam makes it possible to upgrade your loyalty program with Apple Wallet and Google Pay cards, as well as free push-notifications.