The Ultimate Guide to Customer Segmentation
Learn about the importance of customer segmentation and how the process can help you boost conversions and effectively reach your audience members.
Think about the groups of people in your life — family, friends, coworkers, educators, coaches, and more.
Chances are you don’t communicate with each of these groups the same way. For example, you most likely chat with your family in a different way than you do with your coworkers. You probably have different expectations of and methods of interacting with each of these groups, too.
The same goes for your customers. Within your business’s base of customers, there are inevitably various groups of people. The people who make up these groups are from a variety of places and have unique needs, traits, pain points, and expectations for your business in terms of things like communication, support, and more.
The key to creating and maintaining successful relationships with your business’s different customer groups is understanding their preferred styles of communication and unique needs. This helps you effectively and efficiently meet (and, hopefully, exceed) their expectations.
- What Is Customer Segmentat-ion?
- Customer Segmentat-ion Models
- Customer Segmentat-ion Strategy
- Customer Segmentat-ion Software
The best way to do this is through customer segmentation.
What is customer segmentation?
Customer segmentation is the process of separating your customers into groups based on what certain traits (e.g. personality, interests, habits) and factors (e.g. demographics, industry, income) they share.
Segmentation offers a simple way of organizing and managing your company’s relationships with your customers. This process also makes it easy to tailor and personalize your marketing, service, and sales efforts to the needs of specific groups. This helps boost customer loyalty and conversions.
Why segment customers?
There are a number of other reasons why customer segmentation is so important. Here are some of the things this process can help your business accomplish:
- Learning about your customers on a deeper level so you can tailor your content to their unique needs and challenges
- Creating targeted campaigns and ads to resonate with and convert segments of customers
- Improving your customer service and customer support efforts by understanding and preparing for challenges different groups are likely to experience
- Increasing customer loyalty with customized content and interactions
- Understanding who your most valuable customers are and why
- Communicating with segments of customers via preferred channel or platform.
- Meeting specific groups of customers where they are
- Identifying new opportunities for products, support, and service efficiently
Now that you understand what customer segmentation is and why it’s a process worth investing time in, let’s cover the most common models and types of segmentation.
Customer Segmentation Models
Although the following list doesn’t cover every type of customer segmentation, it provides you with a starting point for organizing your customers. Along with each model is an associated list of ways to segment your customers.
|SEGMENTATION MODEL||HOW TO SEGMENT CUSTOMERS|
|Demographic Segmentation||Age, gender, income, education, and marital status|
|Geographic Segmentation||Country, state, city, and town|
|Psychographic Segmentation||Personality, attitude, values, and interests|
|Technographic Segmentation||Mobile-use, desktop-use, apps, and software|
|Behavioral Segmentation||Tendencies and frequent actions, feature or product use, and habits|
|Needs-Based Segmentation||Product/ service must-haves and needs of specific customer groups|
|Value-Based Segmentation||Economic value of specific customer groups on the business|
Next, let’s take a look at how to segment customers in just four steps.
Customer Segmentation Strategy
- Determine your customer segmentation goals.
- Segment your customers into groups of your choice.
- Target and reach your customer segments.
- Analyze your customer segments and make adjustments as needed.
When determining how to segment your customers, start by working through the following strategy.
1. Determine your customer segmentation goals.
Think about why you’re creating a customer segmentation strategy — ask yourself why you are spending time on segmentation and what you hope to derive from the process.
To do this, refer to the list of common reasons businesses choose to segment customers we reviewed above. Determine which outcomes that you’re looking to achieve so you can develop the rest of your strategy in a way that will help you accomplish them.
Something to note when developing your customer segmentation goals is that they’re going to be unique to your business — segmenting customers isn’t a one-size-fits-all process.
For example, your number of goals will be unique to you based on your business’s size, type, and industry as well as who your customers are. Additionally, your goals may be relevant cross-team (e.g. marketing, sales, service) or for one department specifically. So, when determining your customer segmentation goals, use your company’s specific traits and business needs as a launching pad.
2. Segment your customers into groups of your choice.
Once you have an idea of what you’re looking to get out of the customer segmentation process, decide how you’ll segment your customers. Refer back to the customer segmentation models and types to determine how you’ll do this. There’s no right or wrong answer here — it’s dependent on your specific business, customers, and the goals you set in the previous step.
For example, if you want to share targeted ads with your audience members and customers on the West Coast in hopes of boosting conversions in that region, you can geographically segment your customers.
3. Target and reach your customer segments.
Once you’ve segmented your customers, it’s time to determine how you’ll target them across your organization. By ensuring all departments (e.g. marketing, sales, and service) understand how your customers are segmented, members of those departments will be able to effectively target your customers through their work.
For example, think back to our example above about targeting ads to your West Coast customers:
- Marketing can tailor and customize content to attract, teach, and meet the needs of your West Coast audience members to boost leads and brand awareness.
- Sales can identify common traits shared by your most-qualified West Coast customers — as well as best ways to reach out to and communicate with them — to increase conversions.
- Service can use your customer segments to prepare materials and resources for them based on challenges West Coast customers are most likely to experience.
4. Analyze your customer segments and make adjustments as needed.
Analyzing your segmentation efforts will provide insight into the way you’ve organized your customers — this way, you can make updates and changes if needed.
Check in with your marketing, sales, and service teams (as often as you want) to get their opinions on any necessary segmentation adjustments. You can also experiment with new ways of grouping your customers together to decide what makes the most sense.
You can also gather feedback from your customers to more effectively segment them into appropriate groups. For example, you could conduct surveys to improve your behavioral segmentation by asking customers about their feature use and product-use habits/ tendencies. This will allow you to more accurately organize customers based on their specific behaviors.
Lastly, review the way your customers are segmented whenever you update your product or service, re-brand, or revise your buyer personas — these changes may call for reorganizing some or all of your customer segments.
Now, what about a tool or resource to support you while you work through the strategy steps we just covered?
Customer Segmentation Software
There are a number of options when it comes to customer segmentation software — here are five of the most popular to help you get started.
The software also offers an option for event-based segmentation. For example, if your company is holding a day-long workshop in Boston, you could use event-based segmentation to help you identify and inform your customers in the area, who have previously expressed interest in the information that your team will share, at the workshop.
Then, once the workshop is complete, you can use the details obtained from those who ended up attending (and showing interest in) your workshop to segment your customers for your future events.
These customer segmentation features, among others, are automatically included in HubSpot’s (free) CRM, CMS, Marketing Hub, Sales Hub, and Service Hub (the specific segmentation features within each of these tools are listed here).
Experian’s customer segmentation software has multiple functions so you can build, view, and manage your segments in a way that meets your business needs.
Focus on lifestyle segmentation to hone in on the habits and preferences of your customers or identify your most economically-valuable groups so you can add those details to your profitable-customer/ contact portfolio.
Sprout Social allows you to reach specific segments when creating and sharing messages on both Facebook and LinkedIn through Audience Targeting — it’s a marketing-centric customer segmentation tool.
On Facebook, the tool allows you to segment and target customers by interests, gender, age, location, relationship status, education, and age; and on Linkedin, you can segment and target customers by business size, industry, location, and seniority.
Qualtrics is a customer segmentation software that provides segmentation tools for your customers and products.
You can build studies, organize groups of customers, analyze the way you segment your customers, and determine the right type of communication different segments want all in the tool. Qualtrics also has machine learning and artificial intelligence (AI) capabilities to help you identify new ways to segment your customers.
Mailchimp’s marketing and email automation service includes a customer segmentation tool. Organize and manage segmented email marketing campaigns to target groups of your contacts and customers with messaging that’s customized and tailored to their needs. You can filter between one and five criteria to communicate with your specific group(s) of choice.
Segment Customers to Grow Better
Customer segmentation helps you boost conversions, reach your audience through cross-team (marketing, sales, service, product, etc.) efforts, and communicate more effectively with customers to meet their specific needs. So, begin working on your customer segmentation strategy and use our recommended tools for support along the way.