A high-level guide to customer segmentation, a powerful marketing activity that involves dividing your customers into groups.
There are plenty of tools, tricks, and techniques to improve your organization's marketing performance, but effective marketing almost always comes down to knowing and understanding your customers. The process of breaking your existing customer base down into profiled groups, known as customer segmentation, can be an essential part of this if you want to continue targeting the same audience. In this short guide, we'll introduce you to the basics of customer segmentation, including what it is, what types of segmentation there are, and what benefits you'll be able to reap.
What Is Customer Segmentation?
Customer segmentation is a marketing activity that involves breaking down your customers into a number of groups. There are a variety of ways to dive up your customer base (four types of customer segmentation are explained below), but the end goal is the same: to better understand your customer.
Market Segmentation Types
There is an endless number of ways to segment your customer base. How you choose to do so may depend on the nature or industry of your business, but it's likely that it will fall into one of four types of segmentation: geographic, demographic, behavioral, or psychographic. Together, these four categories, also known as bases or pillars, cover almost all aspects of customer segmentation.
Geographic segmentation
Geographic segmentation is exactly what the name would suggest: segmenting customers by their geographical location. This type of segmentation is especially important for international businesses, who might find themselves unable to offer some products or services in certain jurisdictions. For example, a new financial institution may find itself unable to target American customers with their latest product, in which case geographic segmentation would be essential.
Of course, geographic customer segmentation can also apply at a more local level. A small services business may choose to only target nearby customers — this is also geographic segmentation.
Demographic segmentation
The next type of customer segmentation is demographic. Demographic data tells you about the specific characteristics of individuals within a group. Examples of demographic traits include age, gender, income and education.
Demographic segmentation is an extremely powerful tool. Many businesses choose to create customer profiles or avatars for their products, and these often relate to demographic characteristics. For instance, menopause products are usually targeted at women over the age of 40. Demographic segmentation allows a business to filter their existing customer base with this or other similar customer profiles.
As an aside, one benefit of using a demographic approach to customer segmentation is that this data is usually quite accessible on online tools. Online analytics almost always show the geographical location of users, but some demographic statistics are often available too, such as age or gender. Traits related to other types of customer segmentation, like the two mentioned below, can be harder to identify.
Behavioral segmentation
Behavioral segmentation is the next type of customer segmentation. As you'd expect, this relates to the behavior of the individual or individuals in question. Examples of behavioral customer traits include the benefits they seek to gain from a product or service, or how they intend to use a product or service.
As mentioned above, implementing behavioral segmentation can be trickier than geographic or demographic segmentation, since this information is rarely provided by analytics tools and hard to assess. Accurately evaluating behavioral traits often requires the use of customer surveys or reviewing customer behavior on a case-by-case basis.
Psychographic segmentation
According to HubSpot, psychographics are similar to demographics but relate to more psychological characteristics like buying habits, hobbies, and values. Once again, these traits can provide invaluable information when it comes to targeting a product or service to an individual.
However, psychographic traits are also hard to identify using traditional analytics.
As a result, psychographic segmentation is much less accessible than other types of customer segmentation.
Benefits of Customer Segmentation
There are numerous benefits to dividing up your customer base into individual segments. Let's look at two of the major benefits in depth.
First, segmenting your customer base enables you to better communicate with your customers. This is especially true if your business services a wide range of customers since you'll be able to create a relevant message for each group of customers. If your business only targets a single group of customers, segmentation is less effective.
Second, customer segmentation can aid you in identifying new business opportunities. By better understanding who your existing customers are, you'll be able to find new problems to solve — in other words, new products and services to offer — while leveraging your existing customer audience.
Customer segmentation has many benefits, most of which stem from the ability to better understand your audience. The two benefits explained above — communicating with your audience and finding new business opportunities — really just come down to understanding your audience.
How to Do Customer Segmentation
Like with other business processes, there's no single way to do customer segmentation. However, there are a few individual steps, which are almost always included in the process.
To start with, conducting customer segmentation necessitates knowing your customers. If you really want to get to know your customers on a behavioral and psychographic level, you might need to employ surveys. Learning about your customers on a geographic or demographic level, on the other hand, can be as simple as looking at your online analytics.
Once you have access to the data, all you need to do is look for patterns in your customer base. For example, you might see that the majority of customers will fall into one of two broad categories. It's up to you to look at the data and see what broad segments you can identify, but there are tools and/οr consulting companies that can help with this.
Final Thoughts
This article has been a high-level guide to customer segmentation, a powerful marketing activity that involves dividing your customers into groups. Customer segmentation can rely on geographic, demographic, behavioral, or psychographic typing, and offers a wide range of benefits by allowing you to better understand your audience.
