June 15, 2021

How to Stand Out: A Concise Guide to Customer Segmentation

Customer segmentation allows you to better understand your customer base so you can create and implement stronger marketing campaigns. This can enable growth in revenues and support for your business.


Read on to know how you can turn your customer connections into positive results.


RELATED: Go-To-Market Strategy: How To Outsmart Your Competitors 

What Is Customer Segmentation?


Customer segmentation, also known as marketing segmentation, is dividing your customers into clusters according to their similar needs.

These groupings of customers can also be based on their common characteristics. You can separate them according to their gender, ethnicity, family size, behaviors, lifestyle, personality traits, and habits. 

This strategy helps you decide how you can connect with certain groups effectively. You would be able to determine the products and services that would fit and satisfy them. 

customer segmentation

As a result, you can package and market your offerings appropriately, and lead the customers to buy. 

For instance, if you are into the guitar business, you can offer more affordable instruments to aspiring musicians. Meanwhile, you can promote premium guitars to professionals.


Whether you have a small-sized business or a large enterprise, implementing customer segmentation is key to successful marketing. Once you get to know your customers better, you get to understand their preferences as well. 

customer segmentation

What Are the Types of Customer Segmentation?


The common types of segmentation are as follows:


1. Demographic Segmentation


This is one of the most usual customer segmentation models. It pertains to statistical data of specific groups of customers that are factual. It includes:


  • Income
  • Age
  • Family situation
  • Gender
  • Location
  • Education
  • Ethnicity
  • Marital status


These demographics are helpful especially for business-to-consumer or B2C organizations. However, for business-to-business or B2B companies, you may use the following segmentation variables:


  • Occupation or job function
  • Company size
  • Industry
  • Number of employees


For instance, you are a car manufacturer that has a B2C model. If you are selling high-end vehicles, you would aim for customers with a higher income.


Meanwhile, if you are a software company with a B2B model, you would target businesses that are large in size. 

2. Behavioral Segmentation 


The behaviors of your customers can indicate their purchasing activities. In addition, their life events are significant as well in assessing their needs.


For example, if the customer has just moved in, got married, or given birth, this can influence his decisions and actions. 

customer segmentation

The different types of behavioral segmentation variables are as follows:


  • Spending habits
  • Tendencies
  • User status
  • Brand interactions


With the high-end vehicle example earlier, the company, for instance, may tap customers who have already availed of a luxury car before.


Meanwhile, the software company may target businesses that have attended their previous webinars. This customers’ activity shows interest, and the company may take advantage of it. 


3. Psychographic Segmentation 


This type of customer segmentation groups your customers according to their characteristics. It refers to softer measures including:


  • Personality traits
  • Interests
  • Beliefs
  • Attitudes
  • Values
  • Lifestyles
  • Motivations
  • Psychological influences
  • Priorities


Unlike demographics, this type of segmentation may be a bit harder to determine since it is subjective. Additionally, you may need to do some research to discover and better understand your customers.


Going back to the luxury vehicle example, the company may target consumers who value social status. On the other hand, the B2B software company may focus on businesses with management that aim to increase their workers’ productivity.


Tip: You may conduct a survey to identify the perspectives and attitudes of your customers toward your brand. 


4. Geographic Segmentation 


Perhaps the simplest type of segmentation, this model groups customers according to their geographic boundaries such as:

Perhaps the simplest type of segmentation, this model groups customers according to their geographic boundaries such as:


  • Country
  • State
  • City
  • Town
  • ZIP code
  • Type of area

customer segmentation
For instance, with the high-end vehicle example, the cars are not designed for cold climates. In this case, the company may aim for customers living in warm states.


For the B2B software company, they may target urban areas where businesses are most likely located.


RELATED: How Your VA Can Help to Manage Your Social Media Campaigns 

customer segmentation

What Are the Benefits of Customer Segmentation? 


If your target market is not segmented, you will most likely just fire shots randomly. There is even a possibility that you won’t hit your target. Customer segmentation helps you design your marketing strategy so your efforts would reach the right audience.


When done right, marketing segmentation can help your business in the following ways:


1. You Can Relay Specific Marketing Messages 


When you segment your customers, you would know who you are communicating to. In the process, you also learn the characteristics of your customers and know about them on a deeper level. You can use this information to effectively send your messages.


You can customize your ads based on a particular segment. In effect, you can avoid general, indirect, or unclear messages that speak to a wide audience. Specific groups of customers will then find these marketing messages appealing and relevant.


Once your customers feel connected to your content, they are more likely to engage and avail of your products.


You would also be able to identify the best communication medium to use to reach a particular cluster. For example, if you want to target customers who use the internet, you can use social media to disseminate information. 


2. You Can Enhance Your Products and Services 


Segmentation gives you a clear picture of your target market as well as their wants and needs. This can help your business to stand out as you provide the best solutions to their problems.


Additionally, there would be an opportunity for you to upsell and cross-sell your other offerings. You can even think of promotion strategies based on the customer data you have. This can give you an edge over your competitors.


The insights and product recommendations coming from your customers can also help you develop your offerings and better your customer service. Customer feedback can even create new products that your target market would be interested in. 

3. You Can Refine Your Customer Relationship Management 

Segmenting your customers is a way for you to enrich your customer relationship management or CRM. When you know the right approach to use, you get to serve them and suit their needs. This can enhance customer loyalty or customer retention.


Sending appropriate messages or offering the right products would also make your customers feel relevant to your business. This, in turn, can lead to increased interactions and stronger, lasting bonds with them. 

4. You Can Improve the Cost-Efficiency of Your Business 


As much as possible, you would want to maximize the profit from your customer base. However, tapping and selling out to the wrong target market can be expensive. 


Marketing segmentation helps you divert your attention to customers who are most profitable and valuable. When you know who to target, you can adjust and allocate your resources accordingly.


You can be specific about where and how you spend your budget. Once you get rid of activities that are not successful, your marketing efforts can produce higher win rates and revenues. 


5. You Can Discover Niche Markets 

Niche marketing involves recognizing clusters with a large base of customers that can be served in innovative ways.


In customer segmentation, you can find niche markets that are not yet tapped. You can create products and expand your offerings to this group of customers. 

customer segmentation

What Are the Customer Segmentation Strategies? 

1. Define Your Goals 


Why are you segmenting your customers in the first place? Determine the reasons and ask yourself what you are trying to obtain. Take a look at your business traits and needs as a starting point in forming your goals.


Keep in mind that your goals in segmenting your customers are unique to your business. These will be based on the industry you are in, the size and type of your business, and your customer base.


2. Group Your Customers 

After determining your goals in customer segmentation, think about how you will classify your customers. 

You may conduct interviews with your previous and existing customers as well as your target market. You may also set a meeting with your sales team since they work with your customers firsthand.


Utilize customer relationship management tools, algorithms, or analytics to gather data. They may show information such as the spending behaviors of your customers as well as their interests. 

Afterward, go back to the different types of customer segmentation models to guide you. For instance, if you wish to acquire a new customer and boost sales in a specific area, you can do geographic segmentation. 

Remember that there is no right or wrong way of grouping your customers as it depends on your business goals. 


3. Know Your Customer Segments


Analyze how you have segmented your customers. You may also consult your marketing, sales, and support teams, and get their feedback. There may be updates or changes that you need to do.


Alternatively, you can experiment and come up with new groupings to look at it in a different way.


Tip: In cases wherein you made changes to your products and services, revisit your customer segmentation. Update and reorganize them if possible. 

customer segmentation

4. Create Buyer Personas 


After grouping your customers, you now have more or less a good idea about who they are. You may now create buyer personas to help you visualize the specific type of customer you wish to target.


Buyer personas are partially fictional representations of your target market. It lets you envision the type of person you are trying to capture. Once you get a grasp of your customer, it can be easier for you to look for opportunities. 

5. Identify Opportunities 

Now that you have a buyer persona in front of you, ask him questions about your product or service.


Does your product address his problems? Do your competitors have similar or better solutions?


Answering these questions can help you uncover more opportunities both for your product and customer segmentation. 

6. Target Your Customers


Once you are done with data collection and market segmentation, set strategies on how you can reach out to your customers.


You may start within your organization. Make sure that your departments are aware of your customer segmentation. This way, all of you will be working toward a common goal.


Understanding customer segmentation can help you focus your marketing efforts on specific groups of customers who can yield the most profit.


Plan your marketing strategy with this guide in mind, and witness the unfolding of opportunities for your business.


Do you need help growing your business? The Virtual Hub can help you conquer business overwhelm! Book a call now!


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