One of the best ways to make your marketing efforts count is effective customer segmentation. Because understanding your customers is key. By grouping them based on age, interests, and behaviour, You can create tailored marketing campaigns, improve products, and offer better experiences overall. This leads to happier customers and increased sales. Read about its importance and the different types below.
No two customers ever have the same needs or expectations from a business. For each, the customer journey will be different.
But there are some underlying characteristics (and factors) that can be found common to a specific group of customers.
By knowing such matching characteristics, marketers can divide and communicate with a specific group in an apt and effective manner. This process is known as customer segmentation, and it is a crucial element to make your marketing efforts work.
Have a look at the table of contents below to explore customer segmentation in detail.
Table of Contents
- Customer segmentation definition
- Importance of customer segmentation
- Types of customer segmentation
- How to segment customers?
Customer Segmentation Definition
Customer segmentation is the process of grouping individuals who share common characteristics and separating from those who don’t.
Age, gender, geographical location, online behaviour, income, and industry are examples of such common traits. All these help in the practice of dividing customers into groups/segments.
Importance of Customer Segmentation
Here are some benefits of customer segmentation.
Through customer segmentation, you can improve communication with a specific customer base that responds positively to marketing efforts. You are able to identify trends for each group and tailor your messages accordingly.
If you don’t focus on grouping customers, their marketing strategy becomes too broad and loses relevance. That means you can end up wasting money and time on crafting marketing messages that do not help the customer get what they want.
Creates Better Customer Experience
Customer segmentation helps in nurturing relationships with a specific audience. For example, if you are creating a customer journey map and utilising inbound marketing tactics, you are going to get better results as you know whom to communicate with, based on their traits.
You can say that the process makes the customer experience better. It also strengthens the relationship between brand and customer and creates brand loyalty.
Improves Product or Service Offerings and Customer Service
Different customer segments can provide varying feedback on their expectations from a product or service. This helps in understanding the pain points so that businesses can work on product development. The same logic also applies to offering amazing customer service.
Types of Customer Segmentation
Now let’s explore the popular types of customer segmentation, of which, some are qualifiable and others, quantifiable.
It covers data points such as age, gender, income, marital status, type of job, etc. Factors like age are typically divided according to generation.
Gen Z, millennials, etc, are some examples where marketers can focus on specific social media channels or buying habits.
Consider this, TikTok is to be the third-largest social media network after Facebook and Instagram (Tech Crunch). 60% of TikTok users in the US are the Gen Z population. Instagram is mostly used by millennials, and it ranks third in terms of popularity among teenagers, after Snapchat and TikTok (Statista).
Data points for this type of segmentation include country, state, city or locality. By doing so, marketers can know where and how to market to customers from certain areas.
This kind of segmentation also looks into the language spoken by the target audience, where they work, and how they commute.
This can be perfect for placing your Google Ads that run on a specific location.
This type of segmentation is the practice of looking into how the target audience behaves or interacts with the brand online.
For example, it could be their engagement with social media posts of the brand, previous buying patterns, etc.
Traits such as personality, cultural background, interests and similar fall under this customer segmentation model. Such information can be found when they are active on social media, forums, etc., especially when they discuss movies, music genres, etc.
As you guessed it, these traits define what software, hardware and/or devices the target audience use. This segmentation model can be used for both B2B and B2C organisations.
Let’s take an example of a B2B organisation leveraging technographic data. A business you are targeting as your future client may use one popular software for marketing automation. Now, that company using the software also indicates that it is tech-forward and why they are using that platform.
This model evaluates customers who buy from you and stay loyal, and how far you should go to maintain relationships with them. It gives you a clear picture of those customers who are least and most profitable. Based on that, you can tailor your messages to those who actually help in bringing revenue.
You can use metrics such as CSAT (Customer satisfaction) score to measure how satisfied the potential or existing customer is with any interaction with your brand. This metric is valuable for sales teams too.
This model divides customers based on what they need and can benefit from a product or service to make a purchase. It looks into how the business can resolve the pain points of the customer. It is not just about the product or service, but delivery, customer service, etc are additional factors to consider.
How to Segment Customers?
To segment customers, you will need to evaluate three factors –
- Who is your audience?
- What do they do?
- What are they interested in?
To collect such information, you can take these steps.
- Take interviews online through emails or face-to-face
- Send surveys
- Find publicly available information to research on local markets
You can also use customer segmentation tools such as MailChimp, Google Analytics, HubSpot CRM, etc.
Example of Customer Segmentation
Here's an example illustrating how a hypothetical boutique clothing store might segment its customers.
Segmenting Customers for a Boutique Clothing Store:
The boutique targets fashion-conscious individuals aged between 25 and 40, both male and female, living in urban areas. They are professionals or young adults interested in trendy and unique clothing styles.
What They Do
The audience often attends social events, frequents upscale restaurants, and is active on social media platforms like Instagram and Pinterest. They engage with fashion-related content, follow influencers, and actively seek out the latest fashion trends.
What They Are Interested In
Their interests include sustainable fashion, designer collaborations, exclusive collections, and clothing made from ethically sourced materials. They also show an interest in limited edition releases and personalised shopping experiences.
The boutique collects this information through various means.
- Online Interviews and Surveys: Sending out email surveys to existing customers or conducting online interviews through social media to gather preferences and feedback.
- Publicly Available Information: Researching local markets to understand the demographics and preferences of the urban population where the store is located
Utilising Customer Segmentation Tools
The boutique employs tools like Instagram Insights, Google Analytics for website traffic analysis, and a CRM like HubSpot to track customer interactions and preferences. Additionally, they use MailChimp for targeted email marketing campaigns based on segmented customer data.
By evaluating these factors and using the information collected, the boutique clothing store can segment its customers effectively. This segmentation helps tailor marketing campaigns, product offerings, and customer experiences to cater specifically to the identified audience's preferences and behaviours.
Customer segmentation is necessary not just for creating an efficient marketing strategy, but also for your future marketing campaigns. As technologies are improving and more people use the internet, modern marketers leverage machine learning algorithms such as K-means clustering to uncover unexplored customer patterns.
Why is customer segmentation important for businesses?
Customer segmentation is crucial as it helps businesses understand their diverse customer base better. By grouping customers based on shared characteristics, companies can tailor their marketing strategies, refine communication efforts, improve customer experiences, and ultimately boost sales. It allows businesses to focus their resources effectively and cater to the specific needs of different customer groups, fostering stronger relationships and loyalty.
How can small businesses implement customer segmentation effectively?
Small businesses can start by analyzing their customer data and identifying key demographics or behavioural patterns. Utilising simple tools like customer relationship management (CRM) software or conducting surveys can provide valuable insights. Small businesses should focus on personalised communication, targeted advertising, and leveraging social media platforms to engage with specific customer segments.
Are there risks associated with customer segmentation?
While customer segmentation offers numerous benefits, there are potential risks if not executed carefully. Over-reliance on segmentation may lead to oversimplification, overlooking individual preferences, or stereotyping customers based on limited data. Additionally, if the segmentation criteria are outdated or inaccurately defined, it may result in misdirected marketing efforts or alienating certain customer segments.
What role does data privacy play in customer segmentation?
Data privacy is a critical consideration in customer segmentation. Businesses must handle customer data ethically and in compliance with relevant data protection laws. Collecting, storing, and utilising customer information must prioritise consent, transparency, and security. Respecting customers' privacy preferences builds trust and maintains the integrity of the segmentation process.
How can businesses continuously improve customer segmentation strategies?
Businesses should regularly review and update their segmentation strategies to adapt to evolving customer preferences and market trends. This involves ongoing data analysis, incorporating customer feedback, and embracing emerging technologies. Employing advanced analytics tools, conducting A/B testing, and seeking customer input through feedback mechanisms ensure segmentation strategies remain relevant and effective over time.