The way you communicate with people differs, both depending on who it is and the situation you are in. This applies too businesses as well. The way you communicate with your customers should be tailored to their needs. By dividing your customers into segments you can better adjust your methods of communication and marketing efforts to build a better relationship with your customers. In the following sections we will dive deeper into what customer segmentation is, the different types of segmentation models, how to do customer segmentation and analysis, and finish up with two examples of how it can help your business.
What is customer segmentation?
Let’s dive deeper into what customer segmentation really is. Customer segmentation is grouping customers based on common characteristics and factors. This makes it possible to market each customer segment more effectively and appropriately. By doing this you can improve the relationship with the customers and build customer loyalty.
B2B and B2C have different factors that they normally focus on when segmenting customers. In B2B marketing, companies usually focus on factors such as industry, location, number of employees and previous history of purchase. While B2C on the other hand tends to focus on demographics, such as gender, age, location and lifestyle.
What are the benefits of customer segmentation?
Customer segmentation is crucial for all businesses and there are many reasons why it is so important. Here are some of the reasons why customer segmentation is so important:
- You will get a good understanding of who your most valuable customers are and how they interact with your brand.
- By understanding your customer segments you can tailor your marketing efforts to meet their specific needs.
- You will know which channels your customers use and can therefore better communicate and market to them on that/those specific channels.
- Knowing how they interact and what they are looking for gives you the chance to suggest other products/content that are similar to what they normally look for.
- Knowing their pain points and challenges can help you improve customer experience.
- Gaining information about their products/service experience can also help you identify ways to improve your products/service. It can also help you create new products/services that meet your customers expectations and demands.
- It can further help you establish better customer relationships and loyalty.
Customer segmentation models
There are many different customer segmentation models that you can use to organize your customers. We will go through some of the most common models to help you get started.
1. Demographic segmentation
In the demographic segmentation model you look at who your customer is. Common attributes are age, gender, education, material status and income.
2. Geographic segmentation
Here you will focus on where. This can be country, city or town. By knowing where your customers are located you can tailor specific events and messages for local audiences.
3. Psychographic segmentation
Focus on customers´ interests and personalities by asking why. By understanding why, you can speak to your customers on a more personal level. This can be done by looking at personality, values, interests and lifestyles.
4. Behavioral segmentation
Behavioral segmentation concentrates on frequent actions, habits and product use. This will help you get insights into customers motivations and why they would choose one product over another.
5. Technographic segmentation
Divides customers depending on their preference of use. This can be mobile, desktop, apps or tablet etc.
6. Value-Based segmentation
Will help you divide customers based on their economic value.
How to do customer segmentation
Now we have a better understanding of what customer segmentation is, why it is important and how it can help your business and what the most common customer segmentation models are. The question still remains, how to do it?
A good way to do your customer segmentation is to start by defining your customer segmentation goals. These goals should be aligned with the industry you are in and who your customers are. Depending on the goals you have set for your customer segmentation you can start using the models we discussed above to divide your customers into groups based on their common factors or characteristics based on data. Most companies combine several models to make their customer segments. Examples of data that you can use are CRM tools, Google analytics, focus groups, customer surveys etc.
Once you have segmented your customers it is time to spread the information to all other departments in your organization in order to effectively target the customers. For example can your marketing department tailor content and messages to a customer segment that is located in a specific region. After that it is time to test your customer segmentation on your target market.
Analyzing customer segments
After you have done your customer segments it is important to keep reviewing them and making sure that they are effective. This can be done by doing a customer segmentation analysis. In your customer segmentation analysis you should start off by identifying which segments are performing the best and shift your focus to them.
Next up is to remove or improve segments that are not performing well. Taking a closer look at your customer segments can help you see if some groups are doing bad and needs to be removed. Or find new ways to help underperforming segments to improve. Analyzing your customer segments can also help you divide larger segments into smaller in order to tailor your marketing efforts.
The world is constantly changing. Remember that customer behaviors and the way they shop and interact with your brand can change. It is therefore important to continuously do analysis of your customer segments and add additional information abstracted from your customer data in order to stay at the top of the game and give your customers excellent experiences.
Customer segmentation examples
Finally we would like to provide you with 2 examples of customer segmentation to demonstrate how it could look for you.
Example 1: Local tailored events and offers
By segmenting your customers by their location you are able to reach your customers with specific offers and events. Let’s take a look at an ecommerce store selling clothes in both Europe and Australia. Remember when it is summer in Australia it is winter in Europe, so in this case you would not want to give the same offers to Australia and Europe.
Imagining giving winter clothes offers the people in Australia while it is summer and the other way around. By using geographic segmentation based on the region they are staying in you can tailor the offers to fit the seasons and give customers the best experience.
Example 2: Suggesting products based on previous purchases or views
By grouping your customer segment based on their purchase history and product views you can tailor your marketing efforts by suggesting products that are similar to previous purchases or views.
This can either be messages telling them to buy the same product again or giving them options of similar products that they could possibly be interested in. So if you want to stand out and give your customer highly tailored products suggestions focus on behavioral segmentation.
If you are starting out with customer segmentation, choose a small section of segments and analyze them over time to see how they are performing. As time goes on you can add additional segments to your marketing depending on how they are performing or if you notice that a segment can be even better by dividing it into smaller segments. If you have any thoughts you would like to share with us or if you want to discuss customer segmentation for your business more please feel free to leave a comment or get in touch with us!