Customers aren’t robots—they have unique needs, priorities, and values that shift as they interact with your brand. A rigid, one-size-fits-all approach to understanding them simply doesn’t cut it anymore. Customers have individual needs, and they prioritize them in different ways. Moreover, these priorities evolve over time.
So, how can you keep up? Focus on customer segmentation.
In this blog, we provide a comprehensive guide on customer segmentation and how does it help you understand what matters to your customers at each stage of their journey. This blog also explores how you can not only meet their expectations but exceed them.
What is customer segmentation?
Customer segmentation is the process in which your customers are grouped together according to various traits and characteristics. It is an initiative that is important for optimizing the ROI on your marketing and sales efforts.
There are 4 ways to segment a customer:
- Demographic segmentation – This is where you segment your customers based on demographic factors like age, gender, profession, and income.
- Behavioral segmentation – This involves dividing customers based on their behaviors like purchasing patterns, engagement with marketing posts and emails, website visits, etc.
- Psychographic segmentation – This type of segmentation is the most valuable one as it gives you insights into your customers’ attitudes, interests, lifestyles, and values.
- Geographic segmentation – Here, you categorize customers according to their geographic location, which helps in understanding the culture and ethnicity your customers come from.
Before getting into considering customer segmentation, it is important to understand the benefits of customer segmentation first.
Why should you do customer segmentation?
As a business owner, you might be asking yourself: “Why is customer segmentation important for my business?”
Customer segmentation is a make-or-break for your business’s opportunities for growth. An effective customer segmentation in your marketing and sales efforts helps you:
- Boost your revenue and conversions – Customer segmentation enables you to better target your core audience. It helps you personalize your customer acquisition efforts and gives the impression to your customers that you care about them. When done successfully, you’ll find it easier to convert them into paying customers.
- Reduce customer acquisition costs – Without customer segmentation, you may end up spending money on people who are either not interested in your business or are not ready to buy from you. Knowing this in tandem with key demographical information helps you reduce overhead costs on acquiring customers.
- Identify new markets to expand your reach – By identifying peoples’ backgrounds, wants and needs, and purchasing patterns, segmentation helps you identify new groups of customers you may not be targeting. Identifying these new market opportunities will help you boost your competitiveness.
- Stay updated on customer needs – Customer behaviors and needs don’t stay the same. A customer segment that worked one season might not work the next. Developing a cadence that can incorporate new information and categorize data is key. Understanding the why behind your ideal customers’ choices will help you to weather external storms and reach new segments more effectively.
How do you segment customers?
Once you decide that you need customer segmentation in your strategic decision-making process, going in without a plan can be detrimental to your success. Properly segmenting your customers based on their desires, pain points, and demographics gives you a clear picture of which audience group(s) must be targeted to yield higher revenue.
Take the following steps to ensure your customer segmentation process is done the right way:
- Spend time reviewing industry data and conducting market analysis
Reviewing data on the industry you’re serving isn’t a one-time thing. Change is inevitable and new trends and consumer behaviors are always emerging. Having a cadence that gives you consistent, updated data on your industry’s market trends ensures you’re aware of your customers want.
To make the most out of your research and market data analyses, ask yourself questions like “what new trends are emerging?”, “how is my industry catering to these new trends?”, “how are my competitors segmenting their customers?”, and “what can I implement today from all the data I have gathered to improve my segmentation efforts?”
2. Take time out to examine your current customer base and collect more data
Taking time out to carefully evaluate your leads and current customer base helps you strengthen your observation skills and get a deeper understanding of the aforementioned.
While looking at your customer data, identify key details like geographical location, age, income, etc. If your customers are from the B2B space, these details can be revenue, industry, technologies, and key products and services they provide.
While you’re analyzing on one side, collect more data. Focus on getting data that can help you understand how customers respond – intellectually, behaviorally, and emotionally – to your business. Whether it’s through surveys, polls, focus groups, or interviews, keep collecting more data.
3. Use steps 1 and 2 to fuel your customer segmentation
After completing steps 1 and 2, use the data you have collected to divide your customers. Start by reviewing both qualitative and quantitative insights to identify key trends. These might include reasons for purchases, an uptick in abandoned carts, or social media content that drives high engagement.
Next, consider these trends alongside factors like geography, psychographics, and technographics to create distinct customer segments that you can effectively target.
4. While doing step 3, use your data to refine your existing customer segments
Your customer segments are not timeless. They might work one season, and may not work in another. Use your data to keep refining your customer segments. Incorporate rising trends and desires so that you can serve your customers effectively, grow your business, improve the quality of your products and services, and increase your brand equity.
Some of your data that will help you here include the feedback you receive from your customers, your market research and an analysis of industry trends, and new innovations being introduced in your industry.
5. Make everything easier by investing in a CRM
A customer relationship management (CRM) system helps you centralize all your customer data, monitor insights and analytics, automate workflows, and allow businesses to deliver personalized customer experiences with its segmentation features.
Here are 4 CRMs you can consider today:
- Salesforce CRM tools bring together sales, marketing, IT, and service teams with comprehensive customer data, enabling you to optimize each stage of the customer journey.
- HubSpot CRM helps you organize customer data, track website and email activity, schedule meetings with prospects, integrate Facebook Messenger, and more.
- Mailchimp combines CRM and email marketing features, offering customizable segmentation, behavioral targeting, and detailed reports on growth, revenue, and engagement.
6. Bonus tip: Leverage a customer segmentation model
A customer segmentation model helps you divide your customer base into groups based on shared characteristics. By having a customized model that leverages AI to analyze and predict customer segments based on their behaviors, you can personalize your marketing and sales efforts without restraining yourself by limitations that off-the-shelf solutions may provide.
Here are some examples of how a customer segmentation model can be applied industry-wise:
- Demographic Model: A car manufacturer can use such a model to segment customers into married or single buyers, tailoring messaging to each group.
- Technographic Model: An e-commerce company could segment customers based on browser usage (e.g., Chrome vs. Safari), optimizing sales pages for each.
- Needs-based Model: A software company can use this model to accurately segment customers into tech-savvy and novice users, customizing the Help Desk experience and support materials.
The Bottom Line
A one-size-fits-all approach to your marketing and sales efforts can only take you so far as a business owner. Through customer segmentation, you gain the insights needed to personalize your strategy and tailor each interaction based on your customers’ unique needs, behaviors, and preferences. As these needs evolve, so too should your approach. By continuously adapting your segmentation efforts, you’ll build stronger, more meaningful relationships with your customers, and drive greater satisfaction, loyalty, and long-term success.