Learn all about customer segmentation, including what it is, its different types, and how to do it. Discover how customer and market segmentation differ.
Understanding your customers’ unique needs and preferences is paramount to running a successful business. It guides lucrative strategies and fosters meaningful connections. Enter customer segmentation — a powerful tool that dissects and categorizes your audience based on shared characteristics, behaviors, or needs.
In this guide, we’ll discuss customer segmentation, including how to segment your customers, the difference between customer segmentation and market segmentation, and the different types of customer segmentation. We’ll also explore how segmentation can help you improve your business strategy.
What is customer segmentation? 🤔
Customer segmentation is a marketing strategy that sees businesses tag and group their customers based on specific shared characteristics or behaviors, like age, gender, or industry.
By classifying customers into these specific segments, companies can develop targeted marketing campaigns and product offerings that cater directly to each group's needs and preferences. A customer segmentation strategy not only enhances marketing efficiency but also strengthens customer relationships, leading to increased sales and loyalty.
Benefits of customer segmentation 🥳
Peeling back the layers of customer segmentation, we find it's not just a tool for the giants of the industry but a secret weapon for any professional. Here are a few benefits:
- Personalized marketing: By understanding distinct customer groups, you can craft tailored marketing campaigns that resonate with specific audiences, leading to higher engagement rates.
- Enhanced competitive advantage: You can establish a stronger position against competitors by targeting niche markets or underserved segments.
- Increased customer retention: You can foster deeper customer loyalty by addressing each segment’s unique needs and preferences, leading to longer customer lifespans and repeat business.
- Clear feedback channels: You can collect targeted feedback from segmented audiences. This offers clarity on where to pivot or double down in your strategies.
- Improved email nurture campaigns: Segmenting customers enables you to send more relevant and timely email content, nurturing leads more effectively and driving better conversion rates.
- Optimized resource allocation: Segmentation ensures you're channeling your efforts where they'll yield the most gains –– for example, refining your strategy to the segment that brings in most of your revenue.
Types of customer segmentation 📝
Customer segmentation isn't a one-size-fits-all approach. To meet your audience’s specific needs, understanding the diverse ways to segment your audience is essential. Here are a few of the most prevalent types of customer segmentation, each offering its unique lens to view the audience:
- Demographic segmentation: This is based on objective variables like age, gender, income, education, occupation, marital status, family size, etc.
- Geographic segmentation: This is based on location variables such as city, state, country, or region.
- Psychographic segmentation: This examines customers' lifestyles, hobbies, interests, values, and personalities.
- Behavioral segmentation: This type focuses on understanding customers’ behavior, like their purchasing habits, brand interactions, product usage, and loyalty.
- Needs-based segmentation: This approach segments customers based on specific needs or problems they're trying to solve.
- Value-based segmentation: This divides customers based on the value they bring to the business, such as high-spenders or frequent purchasers.
- Technographic segmentation: This involves grouping customers based on the technology they use and their preferences for devices, tech, and software.
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How to segment customers in 5 steps 🪜
Segmenting customers is a pivotal step, and with a systematic approach, it's absolutely achievable. Follow these steps to dive deep into customer segmentation and effectively tailor your strategies:
1. Define your goals and variables 🥅
Start by pinpointing what you hope to achieve with customer segmentation. Are you aiming for better product recommendations, more targeted marketing, or improved customer satisfaction? Once your goals are clear, determine the variables or criteria you'll use to segment your customers (e.g., age, behavior, and location).
2. Gather and arrange your customer data 👂
This is where you collect customer data and analyze it to view patterns or themes. You can gather and analyze relevant information on client interactions, preferences, and behaviors.
Leverage the following methods to accumulate information:
- Face-to-face interviews
- Telephone interviews
- Focus groups
- Customer support conversations
- Customer reviews
- In-person conversations
- Online analytics and metrics
- Purchase history (purchase behavior)
- Information from loyalty programs
- Social listening
3. Segment customers into groups 🕸️
After collecting and analyzing customer data, group your customers and build segments. Use customer segmentation software and tools such as Experian and MailChimp to streamline this step.
4. Develop targeted strategies 🎯
Leverage the segment information to guide what messages, products, or content –– like promotional material and lead generation offers –– would be the most valuable to users. Then, build your strategy to engage with each segment.
5. Conduct regular customer segmentation analysis 🖥️
After setting the customer grouping process in motion, review the performance of each segment. Use customer segmentation tools and metrics to track the success of your efforts, adjusting your approach as necessary.
Customer segmentation examples 💯
Customer segmentation divides the vast ocean of your client base into more understandable streams. To better grasp this concept, let's delve into some practical examples. Each of these showcases how different variables can be applied to create unique segments:
1. Demographic segmentation 💸
- Age: A skincare company might offer products tailored for teens (acne solutions) and another range for mature skin (anti-aging creams).
- Gender: A fashion brand can have separate collections for men, women, and non-binary individuals.
- Income: Luxury brands might target high-income individuals, while budget brands target middle-to-low-income consumers.
2. Geographic segmentation 🌎
- Climate zones: A clothing brand might offer winter coats to customers in colder regions and lightweight jackets for those in warmer areas.
- Urban versus rural: An e-commerce platform could offer faster delivery options in metropolitan areas and extended delivery times in remote areas.
3. Behavioral segmentation 🫂
- Loyalty: A cafe might offer loyalty cards to frequent customers, giving them a free drink after a certain number of purchases.
- Purchase occasion: Retailers might have special offers for back-to-school shopping or holiday season discounts.
4. Psychographic segmentation ⚖️
- Lifestyle: A travel agency could segment its packages based on luxury getaways for the elite, adventurous treks for thrill-seekers, and budget travel for backpackers.
- Values: A cosmetics company might offer a range of vegan, cruelty-free products for customers who prioritize ethical consumption.
5. Benefit segmentation 🥳
- Features: A tech company might offer smartphones with professional-grade cameras for photography enthusiasts and another model focused on battery life for frequent travelers.
Customer segmentation vs. market segmentation: The key differences 🔑
Both customer and market segmentation aim to better target and serve specific groups, but they do so from different angles.
Customer segmentation focuses on your existing customer base and how they currently engage with your business. It identifies groups within your customers based on shared characteristics, behaviors, or needs, helping you cater more closely to them.
Market segmentation, on the other hand, is broader and looks at the entire potential market for your products or services. It identifies opportunities for expansion, potential new products or services, or areas with increasing demand but reduced supply.
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