Today, almost everything has gone global and market competition is becoming stiff. Consumers are spoilt for choice. And in fact, 72% of consumers will only engage with businesses that provide personalised messaging.
Most businesses are aware of the importance of customer segmentation. Grouping your customers by common characteristics makes it easier to focus on messaging for your target audiences. But did you know that market segmentation can also help in many other areas, like identifying acquiring new customers or improving customer support?
In this blog, we will go over how customer segmentation can unify and improve all areas of your business.
What is customer segmentation?
Customer segmentation is a method by which a business separates its customers into several groupings based on a variety of identifiers and shared common characteristics. These types of categories can include things like age, gender, income, location, buying behaviour, and more.
How does customer segmentation work?
Companies place their customers into different segments. This segregation is done according to predetermined criteria. As part of a complete marketing strategy, these criteria are based on desired business goals and outcomes. These goals can range from facilitating more personalised marketing messages to discovering the highest value customers.
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What kinds of data do you need to start with customer segmentation?
The first sets of data you can look at will be public or shared information. These can be data that is either available in websites, online directories, and press releases, or personal information you’ve already collected from customers with their consent. These types of data can be your first line to creating segregation of your target market.
The next type of data you may need, depending on the goals of your segmentation and marketing strategy, is what would be behavioural and use data. This can be recorded from visitors to your website by live chat. Or visitor data can be collected via browser cookies and tracking pixels.
Another type of data that you can collect would involve customer feedback. Surveys, questionnaires, and customer reviews can give you plenty of information for an effective segmentation strategy.
What are the benefits of customer segmentation?
There are many benefits that organisations can gain from effective customer segmentation.
More effective marketing
By separating your customers based on useful identifiers to your business model, you can better tailor your marketing at each customer touchpoint. This means you can better discover what works for each segment of your customers and improve conversion rates.
Discover your high-value customers
By separating your customers into different groups, you’ll get a magnified view of your audiences. And you’ll be able to conduct a comparative analysis that will help you identify who your best customers are, and how to give them what they want.
Improving and innovating your product
By differentiating your customer base, you’ll find more specific needs for each group. This will help guide your teams to improve your products to meet those needs. And you’ll likely find inspiration for new and innovative products and services.
Better return on your investment
Market segmentation will help guide you to expend your effort on your best customers. You’ll spend more marketing on target segments with lower churn and use more personalised content and messaging to increase customer loyalty, customer retention, and lifetime value.
Level up your growth
Customer segmentation will help to mature the marketing efforts of any organisation. By facilitating more personalised interactions with your customers, you’ll be more successful in meeting their needs and scaling the business to grow with each segment.
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7 Common types of market segmentation and sample metrics
There are many methods for differentiating your customers. And likewise, there are many common types of market segmentation.
- Demographic segmentation
This type of segmentation is based on identifiers that are not based on behaviours or personality traits of the customers.
Demographic segmentation metrics include:
- Profession/Role in a company
- Level of education
- Marital Status
- Geographic segmentation
A simple yet effective method of segmentation is for businesses to identify customers based on their location. This can be effective for global organisations with a far-reaching audience, but can also be very useful for smaller businesses wishing to focus on locals within a defined radius.
Geographic segmentation metrics include:
- Behavioural segmentation
Segmenting your customers by behaviour can be more complicated when it comes to data collection. However, behavioural segmentation can provide valuable insights that make it a great tool for customer segmentation.
Behavioural segmentation metrics include:
- Types of products viewed
- Types of products purchased
- Email click-throughs and open rates
- Cart abandonment
- Psychographic segmentation
Psychographic segmentation involves separating your customers based on shared psychological characteristics. These types of identifiers reflect what makes your customers tick, consciously and subconsciously. This type of segmentation is also commonly viewed as lifestyle segmentation.
Businesses will collect and analyse a broad spectrum of data that can give great insight. These data sets can help improve things like ad budgeting, development of new products, sales forecasting, and more.
Effective customer segmentation can help you get a better ROI on your resources across the company.
Psychographic segmentation metrics include:
- Personality traits
- Technographic segmentation
Every customer has their own relationship with technology. Technographic segmentation lets you segregate your audience based on the role technology plays in their lives. This can range from how much they rely on technology to what devices they use daily.
Technographic metrics include:
- Adoption rates—Early vs late
- Social media channels and activity
- Smartphones—iPhone vs Android
- Laptops and PCs
- Mobile app use
- Software service use
- Needs-based segmentation
Your customers may have specific needs when it comes to your products and services. And these types of identifiers can be deal-breakers when it comes to acquisition and retention. This type of segmentation can require a large amount of market research to differentiate your audience.
Needs-based segmentation metrics include:
- Product or service must-have features
- Compatibility requirements
- Platform functionality
- Software and API integrations
- Feature requests via customer surveys
- Value-based segmentation
Not all of your customers are created equal. They all have different needs and motivations. But how much value they contribute to your business can depend on several factors. By using value-based segmentation, you can identify the customer groups that bring the most economic value to your organisation.
Value-based segmentation metrics include:
- Pre-order history
- Average spend (monthly, quarterly, yearly)
- Average order size
- Company revenue
- Company size
- Purchase frequency
- Return and refund history
2 Common approaches to customer segmentation
There are two main customer segmentation models to fit most businesses.
If your organisation deals mainly in B2B, your approach to customer segmentation will be different than if working with individuals. Businesses operate with less emotion than customers, and the types of data you can collect will be different.
This includes information like total employees, revenue, vertical, business model tech stack, web track, and more. Essentially, whatever “demographic” type information on your client companies that you can find publicly.
When it comes to B2B ecommerce, the decision process is down to a group of people and not an individual. They’ll have certain criteria of expectation and a budget as part of their search for a solution or service. Often teams will be led by senior management individuals. Metrics like job titles, function, and seniority all contribute to the buyer persona of your B2B customers.
Intent to buy and use-case
The customer needs of B2B buyers are typically very complex. They need solutions that already fit into a much larger architecture. Many potential customers and clients will need specialised or modified products that are unique to their organisation’s use.
Unlike B2C, your marketing team can research to find existing businesses that already have a demonstrated need or use case for your products or services. Or product development may be able to spot gaps in the market.
Instead of behavioural, the B2B segmentation process depends on customer engagement data. This includes interactions like trade shows, webinars, lead forms, sales meetings, email, and more. And it also includes engagement on all of your channels.
Compared to B2B, the approach for customer segmentation in B2C is vastly different. This is because human beings typically only need to consult with one person before deciding to make a purchase; themselves. This means you can appeal to emotion.
By using the seven common types of market segmentation, you will be able to discover key differentiators that you can target for your audience groups. Do some of your customers simply love to buy a good deal? Do others only want the newest product?
B2C businesses can use this information to appeal to a range of human emotions. Making a purchase may be a rational decision of fulfilling a need. However, the act of choosing to make said purchase from your business is likely to come down to the emotions they feel on the customer journey.
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How to get started on customer segmentation
Effective customer segmentation isn’t something that happens overnight. It involves many steps of planning before action can be taken. Follow our roadmap to customer segmentation success.
Define the problem
There’s no point in segmenting your customers if you don’t know the problem you’re hoping to solve. It’s not one-size-fits-all. Ask yourself and your department leaders to look for areas of improvement unique to your business.
This can apply to many areas of your business, such as:
- Marketing—How to better understand your customer base and how you can reach them.
- Sales—Who are your best prospects and how you can facilitate the customer journey for each subset of your audience.
- Support—What channels and support functions are necessary to reach your customers and give excellent service.
- Product—What’s in highest demand or what types of products and services meet each segment’s expectations.
- Organisational—Build a shared vocabulary for teams across the organisation to use when it comes to customer segments.
By working together with the leadership from each department, you should be able to create a set of defined problems to be addressed with customer segmentation. This alignment of company goals will set you up for success.
Set the objective
Once the problem has been defined, you need to set the objective. These are the business goals that the project will set out to achieve. To create an objective that aligns with the input of each department, define several project parameters.
Make sure that you define who the primary stakeholders are for this project. In most cases, these will be your senior leaders from each department and team. These will be the departments whose goals will be affected by the outcome.
The scope of a segmentation project must be defined. How far will the data collection go and with what percentage of your customer base? This also includes placing limits on time and resource allocation for the completion of the project.
These are the outputs that need to be achieved so you can measure the success of your segmentation project. Did you identify your most valuable customers? Or did you find customers who lack the proper channels of engagement with your company?
To achieve this, you’ll need a way to present the product of data collection and segmentation analysis. This can be in the form of presentations, shared documents ,and data files that each stakeholder can access. Together, these deliverables should keep everyone on pace for project completion. And also aware of any adjustments that may be necessary.
Create and analyse segments needed
At this point, you should have everyone involved with achieving the overarching goals of the project. Now it’s time to create your points of customer differentiation, and collect and analyse the data.
The easiest place to start harvesting data is from your own customer accounts. And the next best place would be external sources from public spaces like the internet or trade magazines.
Your team will gather firmographic or demographic data depending on whether you’re segmenting B2B or B2C customers. This includes data like employee headcount, revenue, and vertical or personal data like age, gender, and nationality. Some of these data sets may require sending out customer surveys or spending money on external sources.
Product use-case and behaviour data will help you classify your customers on how to use your products or services. This includes how often they use them, what actions they take, and what benefits they gain from using them. Depending on your product, this data may be available internally or externally.
Gathering data for economic value requires you to collect different types of data. Firstly, collect your internal data for customer accounts and sales. Secondly, you can collate this with data like income, household size, company size, or revenue. However, to segment customers on economic value, you may need more complex data analysis to correctly attribute customer value.
Depending on your business, there are likely unique factors that can help you segregate your customers. This will require collecting specific data that applies to your business model, vertical, or clientele.
As an example, if you sold analytics solutions for pro football teams, you could divide them up by which division (1st, 2nd, 3rd) in which they play in their respective countries.
Pick your segmentation variables
Ideally, you want to run with segmentation variables that divide up your entire customer base. But simplicity is the key.
Let’s say you plan to segment by use-case but you sell a product that is installed on company sites physically and utilised within a private cloud network. But you won’t be able to access that data so segmentation by use-case would prove a flabby action to take.
However, let’s say you sell an app on your website to learn music on smartphones. In this case, you can collect a wide array of use metrics on every customer. This type of access would be a goldmine of information and a great segmentation variable.
Another thing to consider is whether or not a segmentation variable demonstrates a meaningful difference for your customers. In other words, does the segmentation really cut a hard line between your audience?
For example, if you offer unified communications solutions for businesses you could segment by company size or employee headcount. But you might find more useful segmentation by looking at variables like the average daily use per employee at each company. Or another more useful variable might be what departments (e.g., support, sales, ops) use your service at each company.
Select what is the best approach to apply
Once you’ve chosen your segmentation variables, it’s time to turn insight into action. But first, you’ll need to run everything past the stakeholders. This will ensure nothing is missed, and all segmentation stays aligned with the needs of the business.
Putting all of the data together, you can try one of several approaches:
Performance – This approach includes segmentation by business model, vertical, and factors of economic value. It can demonstrate your best performing customer segments. This can work well for B2C, B2B, or B2B2C segmentation.
Buyer personas – This is who marketing and sales will know intimately. Demographic information, personality, and interests can give great insight for better understanding your audience and what triggers them to buy your products. This would be a good approach for most B2C businesses.
Marketing channels and sales motions – Different verticals may require different customer touchpoints, have varying sales cycle lengths, and generate very different lifetime values. This approach lets you tailor your customer journey to each type of buyer and adjust the total marketing spend to reflect the value of each segment. This approach can work well for B2B and B2B2C.
Evaluate the segmentation performance
Segmentation success is achieved when the simplest variables are used to differentiate most if not all of your customer base. But it also must demonstrate underlying needs that can be met, and achieve the business objectives.
To effectively evaluate your segmentation performance, you will need to use tools and platforms to help give deep insight and analysis. Use this insight along with feedback from the stakeholders to adjust your segmentation if necessary.
This will ensure that you get full stakeholder buy-in and that your customer segmentation will be effective. Use your customer data and any access you have to them to reaffirm or adjust your segmentation strategy. This includes getting feedback from customers on your points of differentiation.
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Common customer segmentation pitfalls to avoid
Always be alert and aware not to fall into common traps when it comes to customer segmentation.
A lack of stakeholder buy-in
If any of the stakeholders don’t buy in fully to customer segmentation, then it will be less effective or even completely fail. With so much to collaborate on, it can be easy for an important department like sales to slip through the cracks.
Maintain a practice of transparency and open communication to make sure each department’s needs are being met. But also be certain that each department understands the value that market segmentation can bring.
Not enough or too many parameters
It can be tempting to use as few variables as possible for differentiation. But don’t lose focus on what the goals of your segmentation strategy are. And also, be mindful of mixing in too many points of segmentation. This can overcomplicate the process, create useless customer groups, and reduce stakeholder adoption.
No proper plan for data collection and analysis
If you don’t have a plan for data collection and analysis, your customer segmentation strategy will fail. Data won’t be collated correctly and any analysis will be wrong or incomplete. This pitfall can quickly derail your segmentation project.
You need a data plan to ensure a free flow of intel and communication for the project to succeed. This includes knowing what tools will be used to collect and record data. And also knowing what ecommerce platforms will be used to integrate data for analysis.
Lack of collaboration in the planning process
Market segmentation requires a great deal of strategising. And, as such, it will require the ultimate decision making of the CEO and other board executives. But it’s important that the planning comes from all the departments and stakeholders.
Sales and marketing might have big motivations for customer segmentation, but every department will need to work together to ensure the project accomplishes its goals.
How can PureClarity help you kickstart customer segmentation?
At PureClarity, we offer an ecommerce personalisation solution with built-in segmentation. Our product allows you to create specific groups of customers based on demographics, geographic, behavioural, psychographic, and persona-based variables.
With PureClarity you can:
- Use external factors to segment your online shoppers. This includes where a visitor is located, what device they’re using, and which campaign referred them to your site.
- Use popular and pre-built criteria to segment your visitors. This includes seasonal, geographic, visits (first-time, second-time, etc.), cart value, past purchase history, and more.
- Create custom and niche segments to fit your unique business. You can apply as many customer segmentation conditions as you wish to each segment to be as specific as you want.
Once conditions are set, our built-in segmentation solution collects customer data. You can find this data in the application in easy-to-digest formats for greater and actionable insights. This means you can find areas for potential improvement converting more sales or boosting customer retention rates. And you can also optimise marketing efforts and spending, to save money and increase your ROI.
With PureClarity, creating segmentation is quick and easy. Platform automation will boost customer personalisation with features like product recommendations, web content, and email marketing.
And your customers will experience personalised 1-2-1 dialogue as part of a highly relevant shopping experience. Those kinds of personalised shopping experiences could lead to an increase in your conversions of up to seven-fold.
Whether a small business or an enterprise, we have simple pricing plans for every budget. You can try a 30 day free trial with no obligation or credit card and get started today!
Wrapping it up
Customer or market segmentation is a powerful starting point for businesses to find channels for growth and improvement. But customer segmentation requires planning and purpose to produce desirable outcomes. When done properly, the journey to customer segmentation will help you to gain a better understanding of your customers.
And armed with a better understanding of your target audience, your business will be able to innovate with new and improved products and services. What’s more, you’ll also be able to tailor and target your customer interactions for more personalised experiences.
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Frequently asked questions (FAQs)
- What is customer segmentation?
Customer segmentation is the process of segregating an organisation’s consumers into groups based on their similar characteristics for effective marketing.
- What are the types of customer segmentation?
The main types of customer segmentation are demographic, psychographic, geographic, and behavioural.
- What are the benefits of customer segmentation?
Customer segmentation has a lot of benefits like an increase in customer retention, better customer relationships, establishing brand identity, enhancing channel of distribution and many more. Experience these benefits with PureClarity!