How Customer Segmentation Can Skyrocket Your Business

How to segment customers

What is customer segmentation?

Customer segmentation, also called client or consumer segmentation, is a marketing process that involves separating your customer base into groups of individuals with similar behaviors or characteristics. Common customer segments include age, interests, gender, and spending habits.

Customer segmentation is essential to creating a more personalized user experience. Companies that use customer segmentation know that every customer is different and their marketing efforts will have a higher return on investment if they target smaller groups of specific people with messages relevant to them.

In this article, we’ll explore the benefits of customer segmentation, along with the differences between it and marketing segmentation, and seven types you can use to ensure you are delivering the right message to the right person at the right time. We’ll also examine how to properly segment your customers. 

Benefits of customer segmentation

Customer segmentation allows businesses to target specific groups of customers to more effectively allocate marketing resources. It also helps to maximize cross-selling and upselling opportunities. It furthers the development of personalization in marketing because it’s easier for a company to meet the consumer’s individual needs.

Beyond marketing campaigns, customer segmentation also helps to improve customer service, which facilitates customer loyalty and customer retention. Because the marketing messages are more personalized, the customer who receives them tends to find them more valuable compared to brand messaging that doesn’t acknowledge any kind of previous customer relationship or purchase history. 

How Customer Segmentation Can Skyrocket Your Business

Differences between customer segmentation and marketing segmentation

Customer segmentation and marketing segmentation are both important to businesses. The main difference between the two is that customer segmentation provides more detail when you’re creating your buyer persona. A market segment, on the other hand, provides a much broader definition of your ideal customer.

With market segmentation, you’re dividing your target market into smaller and more easily defined categories. A market segment is a group of customers that share similar characteristics. On the surface, it may seem like the two are the same thing. 

Because market segmentation is a general overview of your target audience, the overall market, and your business’s place in said market, it isn’t an effective way to develop a buyer persona. Use customer segmentation when you need a more detailed view of your ideal customer and market segmentation when you want an overview of potential customers.

The key to both is solid data.

7 types of customer segmentation

Before you can begin to segment your customers according to your business’s needs, you must first determine the data that will be collected and how you will collect it. Then you need to collect and integrate your data from various sources. Only then will you be able to analyze the data and break your customers down into relevant segments for your industry, products, and services.

That’s where different types of customer segmentation models come into play. Depending on the available data you have, the analysis resources available, and your goals, some types may not be worth pursuing.

1. Demographic segmentation

One of the most common methods of customer segmentation, demographic segmentation segments customers based on demographic data. These include factors such as:

  • Age
  • Gender
  • Income level
  • Marital status
  • Familial status
  • Education

For instance, if you’re marketing baby products, you don’t want to target people who aren’t parents or expecting to become parents. However, you may market to married couples as much as single parents. If you’re marketing a high-end product, you won’t focus efforts on people with little to no disposable income.

2. Geographic segmentation

Geographic segmentation groups customers based on where they are located. You can segment by country, state, city, and town. Geographic segmentation is important for businesses targeting customers internationally as well as local businesses looking to expand their reach into other markets.

Consumers’ needs can vary widely from one city to another, especially in places like the United States where there are economically diverse regions. Understanding geographic segmentation is crucial to help define nuances in consumer demand as well as discovering cultural characteristics that may impact targeting strategy.

If the majority of people in your target market live in an isolated area, you will need a different marketing strategy than if they lived in a large city like Los Angeles or New York.

3. Psychographic segmentation

Psychographic segmentation looks at things like interests, personality, attitude, and values. These factors can be taken into account for your marketing strategy so that you can hone in on a particular audience that matches your ideal customer.

By taking these factors into consideration, you can foresee what it is that your ideal customer truly desires and present the specific products and services that meet those needs.

4. Technographic segmentation

Technographic segmentation groups customers based on the technology they use. It looks at things like the apps and software they use, mobile device usage, desktop device usage, and more.

For instance, if you’re marketing a product or service specifically for senior citizens, you may find that the majority of your audience is still desktop users. This doesn’t mean you should completely forgo mobile marketing, but your mobile efforts shouldn’t be as concentrated as they would be if your primary audience was Millennial or Gen Z.

5. Behavioral segmentation

Behavioral segmentation examines the tendencies and frequent actions of your consumers. It looks at the features of your product that they use, as well as how they use it. It also examines usage habits.

Streaming services make use of behavioral segmentation quite often. When you get recommendations based on what you’ve watched in the past, the algorithm is analyzing the movies and TV shows you watched in the past. They are also using data like how long you watched a particular show and your ratings to further personalize your recommendations.

Have you ever wondered how Netflix gets such granular category suggestions like “Action & Adventure based on a book from the 1960s”? They used customer data to reverse engineer Hollywood with 76,897 micro-genres. As they’ve grown, they continue to refine offerings and genres to improve the customer experience.

6. Needs-based segmentation

Customer needs should be at the forefront of any new products. Needs-based segmentation examines the product/service must-haves and needs of specific groups. It’s particularly useful at the product development stage.

Automobile manufacturers, for instance, know that today’s consumers are more concerned about safety on the road. 

They also want their vehicles to operate as efficiently as possible and integrate with the technology they’re using at home. That’s why we are seeing backup cameras as a standard feature on any vehicle 2018 or newer. We’re also seeing infotainment systems across most makes. 

7. Value-based segmentation

Value-based segmentation examines the economic value of specific customer groups on the business. The customers with the highest lifetime value are placed in different groups than the low-value customers or those at risk for churn. The most profitable customers, whether loyal or not, may be placed into another group, especially if they have different needs.

Establishing clear methods of data analysis

How to segment customers

Before you can start to segment customers as part of a customer segmentation strategy, it’s crucial to determine your goals. Start by thinking about why you’re creating a customer segmentation strategy. Why do you want to spend time on this and what are you hoping to get from it?

There is no one-size-fits-all approach when it comes to the segmentation process. Your goals will vary based on your industry, type of business, the size of your business, and who your customers are. Your business goals may be relevant to multiple teams or departments, or they could be department-specific. B2B companies will have a different approach than B2C companies. Ecommerce companies will examine different metrics than brick-and-mortar.

Determine data collection procedures and integration.

You must determine the data you want to collect and analyze to find patterns to develop your different segments. What metrics will you use?

Today, it’s easier than ever to gather the information you need. You can use face-to-face interactions, telephone interviews, surveys, focus groups, and even general industry market research.

Many of the tools you’re already using, such as your live chat software, and website analytics, are a great source of data for customer segmentation purposes. With ChatSupport, you can send surveys to learn more about your customers and why they reached out for support. 

Establishing clear methods of data analysis.

Having multiple sources of data about your customers is great, but the data alone won’t tell you much. You need clear methods of data analysis to gain insights about segments. To make the most of your efforts and resources, you should develop a plan for how you will proceed with the gathered data.

There are multiple tools you can use to analyze the data after you’ve collected it. By clearly defining how you’ll analyze the data and what you’ll do with it after the fact, you’ll avoid skewing the results.

Ensure strong communication across relevant departments regarding segmentation.

Your customer information is vital to every department, for one reason or another. Depending on what your goals are, you may need multiple departments involved. If, for instance, you want to improve your customer retention rates, you need your marketing department and customer service department to work closely together. 

Working from same customer segment data makes it easier to spot trends, develop strategies to simultaneously reach multiple goals, and more. If there’s no cooperation, the data may become muddy, which makes it harder to put to use.

Utilizing proper applications to manage data.

Data is everywhere these days. To manually collect and maintain all of it is an impossible undertaking, especially for small businesses. Thanks to automation, you can collect and analyze data with relative ease, as long as you’ve got the right tools.

Customer relationship management (CRM) software can help you categorize customers based on any number of criteria. Monitoring your ChatSupport usage and chat logs can help you spot loyal customers as well as those on the verge of churn. Social media tools, like Facebook Insights, can help you see more data about your current followers, and leverage the Lookalike Audience to target people similar to your current fanbase.

Simplify customer data collection for segmentation using ChatSupport

Segmenting your customers isn’t a one-and-done process. To get the most out of the practice, continually analyze your marketing efforts and adjust your messaging as you learn more about each of your core segments.

ChatSupport has many features that make it easy to collect data for segmentation. It’s not just for the end of the funnel—you can use it throughout the customer journey! Sign up today to get started for free.

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