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What is Customer Segmentation?

Customer Segmentation

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What is Customer Segmentation?

Customer segmentation is the action of breaking your customer base into groups depending on demographic, psychographic, etc. Segmentation is mostly used for marketing, but there are other reasons to segment your customer base. Using customer segmentation in marketing means that you can target the right people with the right messaging about your products. This will increase the success of your marketing campaigns. 

What are Customer Segments?

Customer segments include age, gender, buying behavior, job title, or political affiliation. These customer segments show that customer bases can be divided in many different ways. The list of customers in each segment would look completely different also. Depending on the type of business model and data at your disposal, you can utilize differing segmentation. 

Customer Segmentation Strategy

There are many customer segmentation strategies that your business can follow depending on what you are looking to achieve. For example, a company selling software to businesses will have a different goal than a small company selling jewelry to individuals. Their customer segment needs will look nothing alike. A few customer segmentation types include:

  1. Demographic Customer Segmentation Strategy – Basing your segmentation on demographics allows you to target customers by age, location, gender, income level, and so much more. This is the most popular way to segment customers. 
  2. Psychographic Customer Segmentation Strategy – For social media advertising you can leverage psychographic data to segment your customers by their opinions, behaviors, and attitudes. As this information is a bit harder to discover there are very few places that you can glean this information from.
  3. User Engagement Customer Segmentation Strategy – Segmenting your customer by how they interact with your website or marketing material can be a great way to increase conversions through sales and marketing. Customers who repeatedly buy from you could fall into the loyal customer segment and receive discounts on purchases.
  4. Goal Customer Segmentation Strategy – Your company could offer many things online, like a webinar, a free trial, and an email subscription. Not all visitors to your website will want all these things. That is why it is a good idea to segment customers based on their intent on your website. You may know that webinar sign-ups are more likely to convert into customers than those who don’t attend the webinar. Realistically you should be presenting different information to these two groups.

Customer Segmentation Analysis

Customer segmentation analysis is looking at information that you have at your disposal and analyzing it for customer segment trends. For instance, you may want to target customers based on their income. For this, you need to look at the distribution of income throughout your customers to identify the best way to segment them. Or you may think that age is a good demographic factor to segment your audience on. After analyzing your information, you may discover that you don’t have a good distribution of age among customers for you to do this. 

Benefits of Customer Segmentation

Customer segmentation is great for many different types of businesses who are looking to get smart about how they do marketing and sales activities. Some of these benefits include:

  • Ability to Personalize Communication: Personalizing marketing communication for customers leads to a better relationship between the customer and the business. This can greatly improve customer loyalty. Acknowledging your customer as more than another member of your email database can go a long way for your brand equity
  • Upselling / Cross-selling Opportunities: Knowing your customer’s buying behavior or income level can help identify customer segments who can buy further products. Alternatively providing special offers to those who have just bought from you can increase sales of related products also.
  • Higher ROI and CRO: Sending out targeted campaigns to customers gets better ROI as they have already shown interest in buying from you. When you send out generic campaigns customers are less likely to engage with the content. This is because it is not relevant to them, or not of interest to them. Taking the time to segment your customers will greatly improve your CRO.

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