Customer segmentation 101: Everything you need to know

Customer experience is quickly becoming the highest priority for online businesses. In fact, it’s well on the way to overtake price and product as the main brand differentiator. 

Yes, people value the experience more than money. Here’s why: they don’t want to spend money with businesses that don’t provide the experience they expect, let alone with those treating them badly.

Recently, this concept has been shifting, and instead of just “not bad treatment,” customers want “exceptionally personalized treatment.” 

Many of them are quick to leave a business that doesn’t provide that. 

As for highly positive experiences, people remember and seek them the next time they need to buy something. What’s more, 91% of customers are willing to provide referrals for the companies that lived up to or exceeded their expectations. Word of mouth can become your secret weapon.

All in all, many factors contribute to providing that highly positive experience but knowing your customers is the most important. 

This is where customer segmentation comes into play. 

What is customer segmentation?

Customer segmentation is the process of dividing your existing buyers into groups based on their needs, habits, preferences, and other shared qualities. 

The segmentation benefits both customers and businesses. 

On the one hand, it helps businesses improve their ability to provide personalized customer experiences. This also includes mapping a customer’s journey to discover all touchpoints of their interaction with the business. 

On the other hand, it facilitates the ability to find the most valuable buyers and market products and services more effectively to them.

There are many types of segmentation that businesses rely on to keep their marketing relevant. 

Types of customer segmentation

Knowing the types is important to understand which segments are relevant to your business and how they can inform your marketing campaigns. 

Type 1: Demographic Segmentation

This is one of the essential segmentation approaches that categorize a customer base by the following criteria:

• age
• gender
• ethnicity
• education
• income
• marital status
• education 
• job position
• family size
• religion.

In many cases, businesses use only the demographic factors they perceive the most relevant. 

For example, a business that sells computers should benefit from segmentation based on age, income, and family size. Factors like religion and education are less relevant in this case.

Type 2: Behavioral Segmentation

This is the process of categorizing buyers based on their interactions with a business. 

The goal is to understand how to address more needs and identify more opportunities to improve their customer experience.

Some common behavioral segmentation examples include:

• purchasing behavior. Product/category pages visited, shopping cart content, purchases, how many times they visited a store before making a purchase, etc.
• timing and occasion. This group involves buyers who made purchases on special occasions like birthdays, weddings, and Christmas
• user status. These are non-users, prospects, first-time customers, regular buyers, and defectors (those who switched to a competitor).

Type 3: Customer Journey Segmentation

In addition to learning about customer interests and needs, businesses also need to know which stage of the buying process they’re in. To achieve this goal, the need to create a customer journey map. 

That’s where customer journey-based segmentation comes into play. 

Here are examples of segments:

• those who bought from the business two months ago but haven’t since
• those who abandon their shopping carts and never completed the purchase
• those who buy only discounted and products on sales
• repeat visitors who haven’t bought anything but have a product in the shopping cart.

This approach helps with targeting customers with more useful and relevant marketing, offers, and recommendations. Understanding customer actions is an essential element of business development.

Type 4: Geographic Segmentation

As the name suggests, this process is about categorizing customers based on their location. The location provides many valuable insights for businesses because it helps to define expectations, local traditions, and usage patterns. 

Here are the common geographic segmentation variables that businesses use:

• region. Some regions have shared cultural and other preferences 
• country. Countries have unique holidays, customs, and issues 
• climate. It may affect marketing and products sold in a specific area during a specific time period
• cultural preferences. International businesses need to respect these differences to incorporate local traditions.

Geographic segmentation is often used in combination with other types. 

Here’s a recap of all of them:

Source: Tidio Live Chat

Benefits of Customer Segmentation

The one-size-fits-it-all approach rarely works. That’s why you need customer segmentation to be the base of your marketing strategy. 

Here’s how it can help.

Price Optimization

Understanding the financial and social status of your target customers will help you to define prices they’ll find reasonable and affordable. 

More Effective Acquisition and Retention

With customer segmentation, you can learn a great deal about your target audience. For example, you have a good idea of how to attract their attention and what kind of benefits they are after. 

This way, you can acquire more customers. For example, when you’re trying to convert a prospect, you talk about specific problems they might have. This technique gives you the best chance to grab their attention. 

As for retention, you can use the results of your segmentation analysis to create more relevant and personalized marketing strategies for those who haven’t made purchases recently. If some of them engage, you can focus your marketing efforts on them.

More focused and relevant marketing messaging

I’ve mentioned repeatedly that businesses using customer segmentation are able to make their marketing communications more meaningful, personalized, and relevant to their customers. The more your content resonates with potential buyers, the more likely they are to become a lead.

Here’s how it happens. 

While you’re improving your product or service, doing customer segmentation can reveal how to craft a more focused marketing messaging strategy. If done right, that messaging can generate higher interest in your proposition, as the prospects are likely to perceive it relevant. 

Higher ROI from marketing

It’s a known fact that the personalization of marketing content increases the chance of getting a higher ROI. 

For example, the name of the recipient in an email subject line increases open rates and improves email marketing performance. By getting more emails opened and read, you’re more likely to improve website traffic, and, of course, sales.

Personalizing the message using the purchase history is also a powerful way to increase ROI. if you segment your audience by purchase history and send them offers featuring similar products. 

As a result, they’ll be more likely to consider purchasing. On the other hand, if you don’t segment by purchase history, many of your subscribers would be just annoyed to get offers they have no interest in. 

How to segment your customers?

Let me give you a simple example.

Let’s suppose your business has a customer base sorted by income range and demographics. The base isn’t really useful when it comes to helping you reach your marketing goals because it’s simply too chaotic. 

So you decide to do something about it. You create groups based on income. The highest-earning group, as it turned out, is also the youngest one (19-28 years olds). To differentiate this group from others, you call it “High-Earning Young Experts.” 

By defining this group, you can now make an informed assumption about how to approach them and what their goals with your product/service might be.

The process of segmentation doesn’t end there, of course. Let’s now go through the most important steps to take to make yours as successful as possible. 

1. Understand your target audience

I can’t stress the importance of this one enough.

Do you know who your customers are?

It’s impossible to solve customers’ problems or appeal to their needs without having a good idea of what they actually are. 

That’s why you need to study your target audience. Online surveys, interviews, browsing history, purchasing history, online communities, you name it – use all this to look for information.

One great way to collect customer data and discover some insights into their behavior is CRM software. 

Using a CRM like Salesmate is a powerful way to gather data because it tracks every action a customer does on your website, with your emails, or just contact you with an inquiry. 

Here’s the view of a customer profile in Salesmate with contact details and previous communication points. 

The ultimate result of your research will be a customer profile. Also referred to as “customer persona,” it’s a representation of your ideal buyer.

The most essential things to include in a customer profile are:

• demographics. Age, gender, location, marital status, family size (if applicable)
• background. Educational background, current job position, daily duties, desired career path, etc.
• marketing communication. How does your audience prefer to communicate with businesses? How does he or she get info about products/services? Email, social media, web, etc.?
• objections. Are there any reasons the buyer wouldn’t want to use your product or service?
• daily challenges. The list of common issues and challenges the customer faces and how your product/service can help with solving them
• marketing messages. Your ideas on language, style, and tone for marketing campaigns that target this specific buyer. 

You can start by collecting this essential information but feel free to add more points. For example, if your customers want to receive brand emails, you can extract emails from Linkedin or ask them to sign up for your email list. In fact, the more details you get, the better, as you might need them for more detailed segmentation. 

2. Choose the Right Tools

There are many automation tools you can use to inform your customer segmentation strategy. 

Here are some of the most important ones.

• CRM. As mentioned, CRM is home to lots of customer-related information you should use to effectively segment your audience.
• Email marketing tools. Some email marketing software can help by creating user segmentation based on their actions with welcome emails and subsequent messages.
• Webinar platforms. Most of the best webinar software will sync with your CRM or email marketing solution to provide live or on-demand webinars with your list.
• Google Analytics. It has a suite of web analysis that provides useful insights; for example, you segment the traffic by new, returning, devices, geography, conversion behavior, and more.

Using sales automation tools for collecting customer information is a must. 

However, I still recommend you conduct customer surveys and interviews and communicate with your audiences online to get insights from them directly. 

3. Set Segmentation Criteria

This means you have to choose the criteria for the categorization of your customers. 

Begin by selecting the types of segmentation you’d like to apply (feel free to consult the section above). Each type has its own criteria that help with refining the targeting. As mentioned, age, gender, marital status, and income are demographic segmentation criteria. 

Here’s how you can use criteria from different segmentation types to refine your customer personas:

Target men 20 to 35 years old who are interested in outdoor activities and have bought a product from our online store in the past 3 months. 

Feel free to add more criteria to refine your targeting if you feel they can help with making marketing messaging and offers more relevant. This is called “cross-segmentation” and involves combining multiple types.

Traditional segmentation model: Should you consider it?

If you’re been doing business online for a while, chances are you’re familiar with traditional segmentation methods. They involve collecting basic demographic information like age, location, loyalty factors, and job.

Many businesses are still using the traditional model to get a basic understanding of their audiences. However, you need to collect more data to be able to serve customers better, so expanding your segmentation beyond demographics is a must. 

With customer data becoming more available thanks to tools like CRM, it makes more sense to take advantage of it and build more detailed profiles (or personas). 

Key takeaways

Customer experience is the number one priority for all businesses. Since people don’t want to spend their money and time on businesses that have no idea how to treat them. 

To create frictionless and highly positive interactions with customers, you need to master segmentation. Now you know what it is and how it can help, so use it to your advantage. 

Just keep in mind that the segmentation is a continuous process, not a one-time project. Your audience’s needs and expectations are constantly changing, so you might be missing out on some great opportunities. So, make sure to revisit your segmentation strategy once in a while.