Introduction
Segmentation is the process of dividing a customer population into groups that share common characteristics.
These segments can be targeted with specific marketing messages, products, and services that meet their needs. Segmenting customers enables you to understand your customer base better, making it easier to identify growth opportunities.
What is customer segmentation?
Customer segmentation is dividing your customers into groups based on specific characteristics.
It helps you to understand how to market to your customers more effectively and allows you to understand which products or services are most popular with different groups of customers.
What is a customer segment?
A sector of customers is a collection of clients who share similar characteristics. These characteristics can be based on demographics, psychographics, geographic location, or even behavior.
Segmentation helps marketers create more effective marketing strategies by identifying and targeting specific groups of people within their business.
Segmentation is the first step in creating a marketing strategy because it allows companies to understand their customers and how best to reach them.
Why segment customers?
Segmentation helps you focus your marketing efforts and enables you to understand your customers better, so you can provide a better experience for them.
Segmentation also improves customer retention and loyalty, which means the lifetime value of each customer increases.
Customer Segmentation Models
Customer segmentation models are the basis for creating a customer-centric marketing strategy. These models help you group customers into distinct segments to target each group with customized messaging and tailored offers.
The first step in customer segmentation is determining which model will work best for your business.
1. Demographic Segmentation
Demographic segmentation is based on age, gender, marital status, income, education, and home ownership. Demographic segmentation can target customers based on their life stage and situation.
2. Geographic Segmentation
Geographic segmentation is based on where your customers are located. This type of segmentation can be suitable for local businesses, but it’s also helpful when reaching a specific target audience.
3. Psychographic Segmentation
Psychographic segmentation aims to identify the consumer’s personality, lifestyle, and values. It’s a more effective way to target consumers than demographics because it considers how your customers think and feels about products…
4. Technographic Segmentation
This technique is based on the customer’s technology usage, such as how much time they spend online or the type of device they use.
You can customize your marketing messages based on this segmentation to appeal to each group.
Technographic segmentation is especially valuable if you have multiple products or services with very different features and price points that appeal to different types of customers.
5. Behavioral Segmentation
Behavioral segmentation is based on the customer’s past behavior. This type of segmentation is most common in industries where a customer’s purchase history is available, such as financial services, e-commerce, and retail.
The most common behavioral segmentation is based on the customer’s purchase history.
6. Needs-based Segmentation
Needs-based segmentation is a way to identify and understand your customers’ different needs.
7. Value-based Segmentation
Value-based segmentation involves identifying customers whose value to your business exceeds the cost of providing their services or products.
This valuation can be based on various factors, such as revenue, profit margin, customer retention, and referrals.
Customer Segmentation Examples
Here are some examples of customer segmentation that you can try out:
- Demographic Segmentation- Age, Gender, Income level
- Geographic Segmentation- City or state where they live or an area they frequently visit on vacation.
- Technographic Segmentation- Type of product the customer buys (i.e., car)
- Behavioral Segmentation:
How customers behave when interacting with a company’s brand and products is essential so marketers can improve their strategies in each case.
Customer Segmentation Strategy
A customer segmentation strategy is a plan for organizing your customers into groups, which you can use to target your products and services.
The benefits of creating such a strategy include the following:
- Knowing who your customers are allowing you to serve them more effectively
- and helps you understand their needs so that you can provide what they want.
- It allows you to tailor marketing content and message toward each group’s interests.
Customer Segmentation Analysis
One of the first steps in customer segmentation is to conduct a thorough analysis. The best strategy is to look at your customer base and divide them into groups based on shared characteristics.
After you have identified these groups, it’s time to begin analyzing what makes each group unique from each other and from other customers who don’t belong to any of these groups.
Benefits of Analyzing Your Customer Segmentation
There are some critical benefits to analyzing your customer segmentation.
- Increase sales: Understanding your audience’s needs, wants, and desires can help you tailor your product or service offerings to meet those needs.
This leads to a more substantial differentiation in the marketplace, meaning consumers choose you over competitors because they view you as the best option for their needs.
- Increase profits: By understanding what makes each group unique, you can design pricing strategies based on those differences.
- Decrease costs: By knowing who your customers are and how much they spend on average per visit, businesses can learn about any waste associated with serving these customers.
How to Do Customer Segmentation Analysis
Customer segmentation, also known as customer classification, divides customers into groups based on similarities in their characteristics.
These groups are then analyzed to determine which ones are most profitable and how best to target them with marketing efforts.
The first step in segmentation analysis is identifying the customer segments within your business—there might be some you didn’t know about before you started this project.
Then you’ll need to analyze each segment’s size and profitability so that your company can rank them effectively for targeting purposes.
In some cases, it makes sense not to segment by one criterion but rather by multiple ones simultaneously.
Customer Segmentation Software
Next, you’ll want to identify and segment your customers based on their behaviors. Three main tools can help with this:
HubSpot (a popular marketing automation solution) has an Audience Builder tool that allows you to create custom email lists based on customer behavior. It also allows you to A/B test subject lines and sends emails at different times of the day.
Experian Marketing Services’ Segmentation Solutions helps marketers segment their data by creating segments based on the information in their CRM system, such as demographics, interests, or behaviors of existing customers.
This helps them target only relevant messages for each group, so they’re saving time sending messages to people who aren’t interested in what they have to offer.
You can also look into other companies like SproutSocialtation or Benchmark Emailer if something else is needed for your business needs.
Segment Customers to Grow Better
Customer segmentation is a way of dividing customers into groups that share common characteristics. It helps you to understand your customers better, identify the most profitable customers, and create tailored marketing campaigns.
The customer segmentation method depends on your industry and how much data you have about each customer. This article will look at two main types: demographic and behavioral segmentation.
Conclusion
Customer segmentation is a great way to get more out of your customer data and help you make better decisions about where to invest your marketing resources.
The first step is to understand how different types of customers are different from one another.
Once you know how they differ, you can use psychographic or behavioral segmentation strategies to identify specific groups of people who will respond well to particular marketing messages or product offers.