What is customer segmentation for Marketing?

Customer segmentation is the process of dividing customers into groups based on common characteristics so that companies can market to each group effectively.  

Think about the groups of people in your life; family, friends, co-workers and strangers. You come across different people every day. And every day you adapt how you engage with these individual people. You have different expectations for all the interactions you engage with and what you need from them. The same applies to your customers. The key to creating and maintaining successful relationships with your customers is to gain an understanding of what they need to receive, at what time, and in what place to enhance their experience with you.  

To achieve this, you need to understand your customers inside and out, what motivates them, what pain points they have and what needs and requirements your company can fulfil. Most customer segments and profiles we see, are based on demographic data; age, gender, location. Demographic data doesn’t help you achieve effective customer profiles, instead, creating segments based on customer behaviour, will allow you to personalise your marketing outreach and customer experience. 

Why should I segment my customers? 

Segmenting your customers not only serves to improve their experience and the services you offer them, it’s also beneficial to your business. Here are our top five benefits of segmenting your customers: 

Improved marketing focus – different customers often have different interests, values and tastes, meaning they need to be communicated to in a different way in-order for them to want to engage with your products or services. Learning more about what makes each of your customers unique will help you to fine-tune your marketing to meet their needs, meaning you are able to surface the correct messaging and content at each stage of their journey during; awareness, consideration, purchase, retention and advocacy, this helps to effectively move customers through your pipeline.  

An accurate sales pipeline – when you differentiate your customers you can quickly identify average purchase times for individual segments based on their behavioural requirements. This allows you to form an understanding and an accuracy for your own sales pipeline to help with internal resource and inventory management. 

Products and service improvements – behavioural customer segmentation will help you identify which of your products and services solve the needs of certain types of customer segment. This gives you a unique opportunity to tailor communication around feedback to identify what’s good, bad and ugly about your products and services. It means you can adapt the way you communicate about them to different customer segments to ensure their expectations are accurately met.  

Predict future purchase patterns – knowing that certain customer types are more likely to purchase other products based on past purchases helps with planning and marketing. Amazon is the king of this. Their ‘recommended for you’ list is based on previous products that their customers have bought. It intelligently taps into subconscious mechanisms that impact the countless choices that humans make every day. It essentially makes life easy, so we don’t have to think, we humans tend to like that! When marketers have the data to effectively tap into this subconscious, the results can become hugely impactful.  

Build loyal relationships – providing a product and service that’s easy to access and engage with that fully meets your customers’ expectations helps build customer loyalty. Many companies stop collecting valuable customer data once individuals have bought a product or service from them – this is a mistake, for more than one reason.  

Firstly, it is much easier and cheaper to retain customers than it is to find new ones. If you can start to collect data at all touch points, it allows you to offer incentives and updates on new products or services you have. Supermarkets are a prime example of effective loyalty schemes. If you use a Clubcard, they send you vouchers for products they know you regularly purchase – providing you with money off vouchers that often ensure your custom.  

The second, your customer personas should be constantly reviewed, having additional data at your fingertips allows you to further segment and personalise your customers experiences with you.  

How to start customer segmentation

Once of the easiest ways of gathering data is to ask your existing customer questions. Creating a survey and then taking learnings from that is a great way to start a 2 way conversation with your customers.

Alongside using purchasing history and Google Analytics data, it’s important to find all the pockets of data that can be pieced together to get a bigger picture of who your customers are.

And this doesn’t just mean who you think your customers are! Your data could show that the people actually visiting your website, engaging across social media and purchasing your products might be very different to who you think.

There are different ways you can put your customers into different categories – each with their own pros and cons. A quick introduction into the 4 main groups are as follows:

Demographic: This groups people by age, gender, income, education or marital status.

Geographic: Grouping by Country, County, Postcode

Behavioural: Grouping by behaviours, frequent actions, product use and habits

Psychographic: Using personality traits, values and attitudes as a grouping criteria.

Read more on Segmentation Groups on our blog 

Once you know who your actual customers are, you need to then determine who to go after and for what.

Not all customers are equal but all are important. Each segment will drive different value into your business and you will need know what you want from each of them.

For example:

Group 1 – Very active and supportive on Social Media, however they never purchase. 

Group 2 – Never engage in any content but put a single order in that is significant

Group 3 – Regularly subscribe/buy every 1-3 months

Knowing purchasing history will help assign objectives and nurture these segments

Every segment does different things and needs different approaches to get the most from them. 

Unfortunately, a one size fits all marketing campaign or emailed newsletter isn’t going to cut it. With 71% of customers expecting personalisation according to McKinsey in 2023, creating campaigns that speak to group needs will build trust and drive greater revenue.

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