Using the right methods of communication for each customer, and combining those methods with the right marketing materials is what makes a marketing campaign successful. But how do companies stay on top of this challenging task? The answer is customer segmentation. By categorizing customers into segments, many benefits may be achieved.
Customer segmentation is not always an exact science, and some learning is required to effectively apply the strategy of customer segmentation. In this article, we will shed some light on what customer segmentation is. We will explain how customer segmentation benefits businesses and their marketing efforts, and provide you with a couple of useful tips for customer segmentation strategies!
What Is Customer Segmentation?
Customer segmentation refers to the technique of grouping customers into segments based on characteristics that are important for marketing, like age, gender, hobbies, spending habits, and many others.
The customer segmentation method also makes it simple to customize and individualize your marketing, customer care, and sales initiatives to the requirements of the particular groups.
It comes as no surprise that customers have different preferences and that these preferences can be related to specific demographics that characterize them. Customer segmentation is a method that makes use of the ability to predict customer preferences based on the customer’s age, sex, employment status, interests, and many other factors.
Luckily for marketers, many customers share certain characteristics, making it possible to place them into segments, which are groups of prospects that are similar in some way.
Key Takeaways
Customer segmentation is a term in marketing and business that refers to the placement of potential consumers into categories, or segments, which enable more effective marketing later on;
The simplest type of customer segmentation is known as “a priori” segmentation, and it categorizes customers into segments based on publicly available data;
Segmentation analysis is a useful way to verify that the prospects truly belong to be on the targeted market. Thus, it helps to avoid wasting resources on marketing to uninterested prospects.
How to Define Customer Segmentation?
Customer segmentation is the process of dividing a target audience into distinct groups within a market. The basis for that segmentation is the similarity in the customers’ defining characteristics.
There are many types of customer segmentation to choose from, but the following three are among the most common segmentation approaches.
“A priori” segmentation
The simplest type of segmentation is “a priori”. It divides a market into various groups of consumers based on criteria that are readily known to the public, like industry and company size. However, it is not always the most accurate type since businesses in similar industries often have very unique requirements.
Needs-based segmentation
This type of segmentation is highly reliant on accurate market research. It utilizes data to identify customer needs, after which customers are redistributed into segments based on those needs instead of factors like company size.
Value-based segmentation
Value-based segmentation categorizes customers based on their economic value to a company. Customers of similar economic standings are placed into the same segments and communicated accordingly.
Why Is Customer Segmentation Important?
Customer segmentation is crucial for several reasons, enhancing marketing efficiency and effectiveness:
1. Relevance of marketing efforts
Customer segmentation makes sure marketing efforts are aimed at groups who are interested in what’s being offered, avoiding those who aren’t. This method keeps potential customers engaged by ensuring they receive only offers and information that matter to them.
2. Increased marketing accuracy
Customer segmentation allows for messages to be sent only to those likely to be interested, keeping marketing precision high. This targeted approach reduces wasted efforts and sharpens the focus of marketing strategies.
3. Resource efficiency
By focusing on specific groups, segmentation prevents wasting money and effort on broad, unfocused marketing. More targeted marketing means more effective use of budgets, leading to better results from the money spent.
What Are the Best Customer Segmentation Strategies?
Customer segmentation strategies are important as they enable businesses to identify their most profitable target audience. Implementing the following tips is an excellent way to improve your current segmentation research.
1. Identify your priorities
Depending on the type of your business, your priorities in segmentation may not be the same as the segmentation methods that have worked for other companies. Start by asking the right questions:
- Which one is more important, profitability or product fit?
- Are these customers prone to making repeat purchases?
- Do they participate in specific internet communities?
For instance, a luxury car dealership might prioritize customer segmentation based on income levels and ownership history rather than broader demographics like age or gender.
2. Leverage customer data
Consider the details you’ll need to gather as you gather your data in order to produce a worthwhile segment. Some good sources of customer data can be surveys, customer website data, or other data sources that are obtained through market research.
For example, a streaming service company might use data from user surveys, viewing habits, and participation in promotional events to segment their audience.
3. Utilize segmentation analysis
It’s not a rare occurrence that customers which should not be in a specific segment find themselves there. Segmentation analysis is important to run periodically to verify that your segment is still relevant to the marketing methods that are being used for it.
For example, a software company might initially segment its market by company size and industry.
However, upon performing segmentation analysis, they may discover that a more effective approach could segment by the users’ technical expertise and usage patterns. Adjusting the segmentation in this way allows the company to provide more targeted and useful product features and support, enhancing customer satisfaction and retention.
4. Behavioral segmentation
This strategy involves dividing your customer base according to their behaviors, such as purchase patterns, product usage, and engagement levels.
For example, an e-commerce store might segment its customers based on their purchase frequency and average spend.
Customers who make frequent purchases or spend above a certain amount might be categorized as VIP customers and receive special offers, early access to new products, or exclusive discounts to encourage continued loyalty.
5. Psychographic segmentation
This approach segments customers based on their lifestyles, values, interests, and attitudes.
For example, a fitness apparel brand might segment their market into categories such as “Fitness Enthusiasts,” who value high-performance gear, and “Casual Gym-goers,” who might prefer more fashion-oriented fitness wear.
Each segment could receive targeted marketing messages that resonate with their specific interests and values, such as product recommendations for high-tech workout gear for the enthusiasts, and stylish, comfortable options for the casual visitors.
Additional Tips & Tricks
- Customer data is the basis of customer segmentation. Use the data to gain important customer insights and adapt your marketing accordingly;
- Even existing customers can benefit from customer segmentation. Organizing your customers according to specific factors can enable you to reward long-term supporters;
- The message you use in your marketing for your most profitable segment may not be as effective in a different customer segment. Difficult segments may require you to improvise or conduct segmentation analysis to verify your segment.
The Bottom Line
Customer segmentation is the process of collecting customer data, analyzing it, and using the findings to place customers into specific segments. After this, the appropriate marketing and sales methods can be used for that particular segment. Customer segmentation also benefits each segment, as the potential customers in it only receive relevant marketing communications.
You’ve learned what customer segmentation is, why it is important, and strategies for customer segmentation and you’ve got a few tips & tricks in your pocket. With all this knowledge and information, you are ready to conduct an appropriate customer segmentation for your company or brand.
Customer Segmentation FAQs
Market segmentation and customer segmentation are similar, but not quite the same. Customer segmentation focuses on putting consumers into groups based on their traits and behaviors, whereas market segmentation concentrates on putting customers into groups based on the goods or services they buy.
The short answer is yes, customer service often benefits from being able to communicate with each segment in a specific way. Personalized customer service always stands out.
There is a great number of methods to create a customer segment. Popular methods include geographic segmentation, demographic segmentation, and behavioral segmentation. Other types include psychographic segmentation, RFM segmentation, and technographic segmentation.
Segmenting customers can provide a myriad of benefits. Segmentation can improve marketing and sales efficacy, which results in greater customer loyalty, a better customer experience, and an overall smoother customer journey.
