A Guide to Customer Segmentation

A Guide to Customer Segmentation

The shift in consumer expectations has led marketers to think about personalization. If there’s one thing customers dislike in both B2B and B2C space, it’s being treated as a common, generalized group. Even if they are browsing the same products, their intentions are different; they face different challenges, and have different needs. 

You must understand these characteristics and honor each customer’s individuality.

Within your customer base, there are inevitably different groups of people- people with different expectations from your company, in terms of communication, customer service, content, and more.    

The key to scaling your business is to understand each customer segment, their preferred mode of communication, and their needs. This segmentation helps you create a marketing strategy that caters to every group in your customer base.

What is Customer Segmentation?     

Customer segmentation is the process of separating customers into discrete groups based on certain characteristics and factors. The traits may include age, gender, geographical destination, buying power, or spending habits. Customer segmentation is also known as target market segmentation.

Customer segmentation enables businesses to understand their customers and what matters to them in different buying stages.

It offers an easy way for businesses to manage customer expectations, tailor strategies, and boost customer loyalty and conversions. 

Importance of Customer Segmentation

You might already know why customer segmentation is necessary, now let’s dig a little deeper and understand the wide range of benefits.

  • Targeted Marketing Campaign:
    Customer segmentation allows you to create specific marketing campaigns leveraging an individual’s specific interest. You can develop multiple marketing campaigns to target different groups within your large customer base. This not only gives you better results but also enables you to allocate strategic budgets.     
  • Effective Marketing Communication:

Today, even the B2B space is cluttered with too many marketing platforms. Not every platform is suitable for your business. Also, different platforms play different roles in the buyer’s journey. Customer segmentation allows you to drill down which platforms work best for you and create an effective communication strategy. One segment may prefer email communication, other social media. Segmentation allows you to handle this distinction.

  • Improved Product Feedback:

The crux of customer segmentation lies in dividing the audience based on their interests and pain points. The segmentation gives a direct view of the challenges customers face while dealing with your business. Enabling you to optimize solutions and existing offers to solve the challenges. Specific feedback from a specific customer segment helps you improve your product better than feedback from a generalized audience.   

  • Build String Customer Relationship:

By addressing specific customer problems, you make them seen, feel, and heard. This goes a long way in building a loyal customer base. Segmentation allows you to personalize every aspect of your marketing strategy, which becomes the building block of long-lasting relationships.

  • Provide Good Customer Service:

Segmentation enhances the customer experience by providing them accurate information about the problems they face in various buying stages. It gives context to problems that your customer reps resolve daily. It also enables agents to anticipate customer’s needs, which sets them apart to proactively resolve issues and provide more informed support.

  • Opportunities to Grow Revenue:

Segmentation allows your customer service reps to upsell and cross-sell your products and services. Since they have a good idea of what each customer segment wants, the sales process gets easier. They can offer targeted products based on customer profile, purchase history, buying power, and personal preferences.  
     

Types of Customer Segmentation Models

1. Pre-determined Segmentation:

Customers are grouped based on pre-determined, traditional assumptions rather than empirical data.

2. Needs-based Segmentation:

Customers are grouped based on specific products and service needs

3. Value-based Segmentation:

Segmentation based on the economic value of customers

4. Demographic Segmentation:

Customers are segmented based on shared characteristics like age, gender, identity, and income.

5. Geographic Segmentation:

Customers are divided based on which region they live in. It can vary from town, city to even countries.

6. Technographic Segmentation:

Segmentation based on their technological preference – Mobile, desktop, tablets, or which apps they like.

7. Behavioral Segmentation:

Customers are segmented based on their behavioral patterns, such as their product usage, spending habits, or how they interact with your website.

8. Psychographic Segmentation:

Segmentation based on motivations, attitudes, beliefs, and priorities.

9. Customer Journey Segmentation:

Customers are segmented based on their buying stages, such as awareness stage, consideration stage, or decision-making stage. 

Steps to Successful Customer Segmentation

Let’s take a look at how we can segment customers in 4 simple steps.

1) Determine your Segmentation Goals 

Customer segmentation is unique to your business. Your goals can depend on business size, type, industry, and who your customer base is. Hence it’s important to ask yourself, why am I spending time in customer segmentation? What goals are we trying to accomplish?

Determine which specific outcomes you are looking for. Then create a  strategy that helps you achieve them.

2) Segment Customers Based on Segmentation Models

Once you have an idea of why you are trying customer segmentation, decide how you’ll go about it. Refer to customer segmentation models and decide which segmentation suits your campaign. There is no right or wrong answer to this. The model you choose depends on what KPI’s matter to you the most.

For example, if you want to target an email campaign to B2B buyers, you can segment the audience based on the buying power of their organization.

3) Reach Out to Your Customer Segments

Once you’ve segmented your audience, the next thing you decide is how you’ll target them. You need to ensure all departments working on the project understand how your customers are segmented. 

For example, your marketing team can study customer segmentation and create content to meet their needs.

The sales team can identify common traits among the segmented audience and decide the best approach to communicate with them and boost conversions.

4) Analyze the Results and Optimize

Analyzing your segmentation will provide insights into how your customer segment is reacting to your efforts. This way you can optimize the strategy.

Check in with your teams to get their opinion on segmentation adjustments. You can even experiment with different groups and content and decide which approach makes more sense.  

Conclusion

Customer segmentation helps you boost conversions by speaking directly to customer’s needs. It divides your efforts into subsections and managing customer expectations becomes easy.

Customer segmentation is an iterative process and hence feedback from all the teams is necessary on a regular basis.   

Additionally, you can segment customers based on their lifetime value and the marketing channels that bring in that value. 

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