What Is Customer Segmentation? Definition and Guide

  • 📅 April 15, 2023 📝 Last updated on May 18th, 2023 🕒 6 minutes Read time

Ever wondered how you keep coming across the same show advertisement on your multiple social media accounts? Does it tempt you to give in and buy those pairs of cute boots or sneakers? Well, that’s the idea!

We live in a world of personalized marketing, thanks to data science and analytics. Today, we will discuss how to get started with it for your business using customer segmentation.

What Is Customer Segmentation?

Segmenting clients entails categorizing them into subsets with similar needs and wants. With this method, it’s simple to target specific demographics with your advertising, customer service, and product offerings. The end result has the potential to increase customer retention and purchases.

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Why Is There a Need to Segment?

Personalization is impossible without segmentation. Differentiation based on customer segment data is a powerful tool for improving marketing, sales, product development, and customer service operations.

  • Marketing: A targeted message is dynamic. It caters only to the target audience while not spending resources on large scale marketing.
  • Growth of a product: The product development team can focus on perfecting a specific function and scaling the market.
  • Consumer loyalty: Customers that experience the luxury of personalized service don’t jump ships.
  • Identifying untapped markets: Segmentation study outcomes may be surprising. A new customer base could redirect the company’s efforts.
  • Experimentation: While it’s rare for a complete redesign to be successful in every area, incremental progress in several areas might add up to significant gains in productivity.
  • Reliable forecasting: Data segmentation helps use the right data set in the forecasting model.

The message here is that targeting client segments helps set your company apart. Salespeople can more effectively pursue hot leads with the help of segments, while customer service representatives can learn how to better foster brand loyalty and communicate that message to a narrower audience.

How to Segment Customers

Segmenting customers is a strategic approach that involves dividing a customer base into distinct groups based on specific characteristics or behaviors. Here are some steps to segment customers effectively:

  1. Identify relevant segmentation criteria: Determine the criteria that will be used to divide customers into segments. These criteria can include demographics, psychographics, purchasing behavior, geographic location, or any other relevant factors.
  2. Collect and analyze data: Gather data about your customers through surveys, interviews, or analyzing existing customer information. This data should align with the chosen segmentation criteria.
  3. Group customers into segments: Using the collected data, group customers into segments based on similar characteristics or behaviors. Each segment should be distinct from one another and have enough members to make it viable for targeted marketing efforts.
  4. Develop customer profiles: Create detailed profiles for each customer segment, outlining their characteristics, preferences, needs, and motivations. This helps in understanding their specific requirements and tailoring marketing strategies accordingly.
  5. Customize marketing strategies: Design marketing campaigns and strategies tailored to each customer segment. By understanding the unique needs and preferences of each segment, you can create targeted messaging, promotions, and experiences that resonate with them.
  6. Measure and refine: Continuously monitor the performance of your marketing efforts for each customer segment. Collect feedback and analyze results to identify areas for improvement and refine your segmentation approach.

Remember, effective customer segmentation allows you to better understand and engage with your customers, ultimately driving customer satisfaction, loyalty, and business growth.

Customer Segmentation Models

A cookie-cutter strategy will not cut it when it comes to consumer segmentation. Many frameworks can be investigated:

  1. Demographic Segmentation
  2. Behavioral Segmentation
  3. Psychographic Segmentation
  4. Geographic Segmentation
  5. Technographic Segmentation
  6. Firmographic Segmentation
  7. Value-Based Segmentation
  8. Market Division by Values

No matter which client segmentation model a business chooses to implement, the initial step in the process is always the same: separating customers into subsets. As a result, most marketing departments use multi-tiered systems for their various segmentation models. To further refine their target audience, marketers should combine model-specific tiers into multivariate models.

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How to Using Customer Segments

After settling on the categories and attributes you’ll use to divide your customers into distinct groups, you’ll need to decide how you’ll go about doing so. Customers are often categorized using one of two methods: rule-based or cluster-based.

In rule-based segmentation, thresholds are used to classify customers into appropriate groups. The method divides clients into groups according to predetermined criteria. Although the rule-based segmentation method makes it easy to classify clients into different groups, it does need you to choose the criteria to use to classify customers on a case-by-case basis. Looking at the number of clients in each category helps you keep an eye on trends. Using the rule-based segmentation strategy needs a lot of work to keep segments updated if consumers’ actions change because it is tough to add new qualities.

Cluster-based segmentation finds the optimal approach to separate customers into groups with the most similar characteristics without using thresholds. This graphical representation of data allows for easier classification of customers into distinct groups. These categories are generated by the K-means algorithm used in cluster-based segmentation.

You can discover previously unknown insights in your data using the cluster-based segmentation method. Additionally, it can use a wide variety of characteristics to divide up clients into distinct groups. Nevertheless, setting up cluster-based segmentation without the help of a skilled data scientist is challenging, despite the fact that it offers more segmentation possibilities with less upkeep.

Final Thoughts

Customer segmentation examples, models, and methods will guide you toward business profits. Before long, you too will have scaled up your operations and pointed them in the right direction. However, we understand that this may require funds. In such a case, EBoost Partners are here to help you boost your business not only with funding aid but also with segmentation guidance. So pick up your phone today, and call (646) 846-8743.

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Customer Segmentation: FAQs

Customer segmentation refers to the process of dividing a larger customer base into distinct groups or segments based on specific characteristics, such as demographics, behaviors, needs, or preferences. The purpose of customer segmentation is to better understand and target different customer groups with tailored marketing strategies, products, or services. By segmenting customers, businesses can effectively customize their approach and enhance overall customer satisfaction and profitability.

The four types of customer segmentation are:

  1. Demographic segmentation: Dividing customers based on demographic factors such as age, gender, income, education, and occupation.
  2. Psychographic segmentation: Categorizing customers based on their lifestyle, values, interests, attitudes, and behaviors.
  3. Geographic segmentation: Segmenting customers based on their geographic location, such as country, region, city, or climate.
  4. Behavioral segmentation: Segmenting customers based on their purchasing behavior, usage patterns, brand loyalty, and engagement with products or services.

To define customer segments, you can follow these steps:

  1. Conduct market research to gather data about your customer base.
  2. Analyze demographic, psychographic, and behavioral characteristics of your customers.
  3. Identify common needs, preferences, and buying behaviors within your customer base.
  4. Group customers into distinct segments based on similarities and differences.
  5. Assign clear and descriptive labels to each segment.
  6. Validate and refine your segments through testing and feedback.
  7. Use customer segmentation to tailor your marketing strategies and offerings to each segment’s needs.

To conduct customer segmentation, follow these steps:

  • Define segmentation objectives.
  • Gather relevant data.
  • Analyze and identify patterns.
  • Create customer segments.
  • Develop targeted strategies for each segment.
  • Implement and evaluate the effectiveness of your segmentation approach.

Eduardo Mora - Eboost Partners
Eduardo Mora
As a director of marketing, my main function is to oversee and implement the organization's marketing strategies and plans. This helps the organization reach its target audience, increase brand awareness, and ultimately achieve its business goals.