A detailed guide to customer segmentation

Marketers are always on the lookout for new markets to break into. Before you look into a completely new market, take a closer look at your existing audience, and you’ll find groups of customers you haven’t catered your product to. These groups are called Customer Segments, and it’ is the most effective and efficient way to maximize your ROI from marketing campaigns. 

Here’s a comprehensive guide to understand what is customer segmentation and how you can segment your audience.

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What is customer segmentation? 

Customer segmentation is identifying and organizing your customer groups using specific variables and characteristics they have in common. These variables could be personality traits, demographics, geography, or even their income. Segmentation provides in-depth consumer data that helps marketers tailor their products and services to customers’ needs. This personalization gives you a competitive advantage and a better chance at customer conversion and brand loyalty.

How does customer segmentation work exactly? 

To gain the most from your marketing campaigns, conducting thorough customer segmentation research is crucial. To effectively subdivide your target market into segments, you need to gather customer data, categorize them based on standard variables, analyze each segment’s potential, develop strategies to break into the segment, personalize your offerings, and finally, measure the performance of your campaigns. In short, if you’re looking to increase your profit margins, make sure you have a solid customer segmentation strategy in place.

Difference between market and customer segmentation

They might sound similar, but there are a lot of differences between marketing segmentation and customer segmentation.

MARKET SEGMENTATION

Market segmentation broadly classifies the entire market into your ideal persona. This includes everyone - prospects, partners, etc. To find the right market fit, you categorize the general audience based on geographic locations, industries, demographics, lifestyle, etc.

CUSTOMER SEGMENTATION

Customer segmentation categorizes your customers to personalize your campaigns and create better experiences. This helps you gain a deeper understanding of your customers in terms of their personality, behavior, past purchases, etc.

Why should you segment your customers?

We’ve all heard the phrase: Customer is King. Your product is made for your customer, and they are all that matter. 

To create a need for your product or service, you have to know whom you are selling to. By understanding your customers’ needs, you can tailor the product to suit them better, create targeted campaigns, and perfect your marketing messages that help in conversion. Segmentation is a great way to build long-lasting relationships with customers because it shows that you’re listening to their needs and experiences. Customers love companies that listen to them and make them feel valued, and customer segmentation helps you create that experience.

Different types of customer segmentation

Now that we’ve talked about customer segmentation and why it’s important, let’s look at some of the basic types of segmentations.

Demographic Segmentation

One of the most common ways to segment customers is by using demographic data. Some parameters to consider would be age, gender, marital status, education, employment, and even income. Most marketers opt for demographic segmentation because it is easier to gather and analyze this data, rather than trying to segment customers on intangible variables like beliefs and attitudes.

Behavioral Segmentation

Behavioral segmentation is the process of analyzing and segmenting customers based on behavioral patterns -  how your customers interact with your brand. Some common variables are clicks on your webpages, lifecycle stage, past purchases, product usage, emails opened, etc. Studying customers’ behavioral tendencies can help you market your product in unique ways that’ll get the most traction. For example: if a customer has abandoned products in their cart, you can establish communication with them through personalized emails offering discounts to re-engage them.

Geographical Segmentation

Geographic segmentation involves segmenting customers based on their location. By tweaking your messages and products to suit local culture, there’s a better chance you’ll pique your customers’ interest messages and products to suit local culture, there’s a better chance you’ll pique the interest of your customers. Take clothing brands, for example - the products offered change through the year depending on the season. Clothes collections also keep changing based on the country they are operating in, the culture, and the climate. You cannot aim to sell rain boots in Mexico in March. Understanding the geographic segmentation of your customers is a logical way to market your product better.

Benefit based Segmentation

Categorizing customers based on the value or advantage they receive from your product is another way to group your customers. Appealing your customers with offers, benefits, and upgrades can give you the leverage you need to convert them. To give them the final push to buy the product, you must first understand their journey with your brand. By understanding their decision-making process and incentivizing the purchase, you encourage them to buy your product.

How to create a customer segmentation strategy? 

While you are up-to-date with what customer segmentation is, and the different kinds of segments you can create, we can jump into planning your customer segmentation. The steps outlined below will help you come up with a stellar customer segmentation strategy:

Set customer segmentation goals

The process of customer segmentation is unique to each brand, and the first and most important step is to establish your goals clearly. What do you aim to achieve from this process? List out your reasons and chalk out a desirable outcome. This will set the foundation of your strategy and help you accomplish them.
By establishing your guiding principles, you can start gathering data about your customers while keeping your end goal in mind. You can do this by analyzing your website traffic, listening to what customers are saying about you online, seeing how they respond to your personalized emails, and the most effective method, by watching how they interact with your product. This information will help you refine your goals.

Segment your customers

Now that you have a clear set of goals and customer data, you can decide how you want to segment your customers. We’ve already discussed the different types of customer segmentations that exist and the corresponding variables to look at. If you want answers to why you have a higher percentage of abandoned carts, you should consider behavioral segmentation. If you want a more profound penetration for a new product, consider benefit-based segmentation. How you choose to segment your customers is completely dependent on what you want to achieve. 

Target and reach your customer segments

By segmenting your customers with the data you have on them, you can now determine an effective and efficient way to reach them. Ensure you have a tailored product for the targeted segment and modify your message for them as well. For instance, if your customer segment consists of young college students, then based on your data, you might find that the best way to reach them is through social media. You need to understand their behavior and how they interact with your brand and speak to them in their language. This is a powerful way to engage with your segment and drive home your message. But before you do that, it’s important to ensure every business team is on the same page, and your targeted campaigns are aligned to the same group with a common business objective. This will amplify your efforts in reaching the customers.

Analyze your results

After you’ve reached your customers, monitor how they take in the messaging and products. Has the way they interact with your brand and products changed? Have you addressed and resolved their pain points, thereby increasing sales? Analyzing the efforts of your customer segmentation campaign will give you further insight into your customers and help update your efforts. But the best way to analyze your progress is by directly talking to the customers and getting their feedback on what has or hasn’t worked for them. 

Benefits of customer segmentation

The process of customer segmentation has a range of benefits that positively impact your brand’s image and revenue:

Drive-up retention rates

One of the most critical aspects of marketing is to ensure your customers remember you. With customer segmentation, you can deliver personalized campaigns, and the chances of them remembering your brand increases significantly. Being seen and heard are powerful factors that ensure retention.

Increase visibility

Segmenting your customers enables you to connect and engage with them directly. By knowing where to find your customers, you can create different strategies to reach them. This will establish increased visibility for your brand and a personal connection with the customers as well.

Drive sales with well-timed discounts

Customers love a good discount, and if you time it around the holiday seasons, it’s the perfect opportunity to boost your sales.

Bring old customers back

Customer segmentation is all about staying relevant to your groups. It is important to continue meeting the needs of your customers if you want them to stay brand loyal. If you find your presence in a segment shrinking, find out why and meet their needs.

Deliver a more personalized experience

The main aim of customer segmentation is to tailor your products to meet the needs of your customers. This personalized experience will help build a long-lasting relationship with your customers and increase your brand’s goodwill.

Beat the competition

By listening to your customers and coming up with new products or variations of them you deliver more than your competition. With the personalization you offer, your customers will remember you better and will convert faster.

Conclusion

The process of customer segmentation ensures that your brand is customer-centric and helps you serve them better. It boosts conversions, brings your marketing efforts to fruition, and also helps build everlasting customer relationships. The strategies discussed here will help you organize your segments, but after you have them in place, continue to monitor and make sure your product is still valuable to the groups. The key to successful customer segmentation is the constant research it entails to ensure your brand and product stay relevant and indispensable.