Each buyer’s journey to conversion is different. Their pain points, how they discover and interact with your business, and their buying motivations will differ. As such, you need to personalise your marketing approach to meet customers where they are.
However, tailoring your strategy to each individual’s needs may not be realistic, especially if you have hundreds of customers. This is where customer segmentation comes in. It is a process that involves separating customers into smaller groups based on shared characteristics.
This way, you can reach out to these customers more effectively. In the following sections, we’ll discuss how customer segmentation analysis can enhance your business strategy and the steps to conduct one.
But First, What is Customer Segmentation?
Customer segmentation occurs when you group existing and potential customers based on shared characteristics, behaviours, or preferences. This enables you to personalise campaigns to meet the unique needs and maximise the value of each customer group.
For example, let’s say you run a digital marketing agency that serves small business owners and entrepreneurs. Customer segmentation guides how you tailor your marketing messages and service packages to each audience segment.
Customer Segmentation Types
There are many ways to group customers—too many, in fact. However, they can all be classified into eight categories, which include:
Demographic Segmentation
This is one of the most popular types of customer segmentation. It divides your customers based on demographic factors such as gender, age, education, income, marital status, and occupation.
Behavioural Segmentation
You can group customers based on the behaviours they exhibit. These behaviours include the type of products and content they consume and the cadence of their interaction with an app or website.
An effective way to gain insights into behavioural patterns is through a clickstream data analysis. This analyses a user’s behaviour while navigating through your digital platforms.
Psychographic Segmentation
Psychographic segmentation divides your customers into segments based on their beliefs, lifestyle, values, social status, interests, and opinions. Surveys, customer interviews, and social media insights are practical ways to get this information.
Geographic Segmentation
As the name suggests, this customer segmentation is based on location. Some good sources of this data are sign-up forms and location-specific data, such as IP addresses and GPS coordinates.
Technographic Segmentation
This type of customer segmentation divides customers based on their tools and technology—for example, desktops or mobile devices and Windows or iOS.
Firmographic Segmentation
Firmographic segmentation involves grouping businesses based on industry, company size, location, and revenue. You can measure the performance of this segmentation approach using account based marketing metrics, such as conversion rates, deal size, and customer lifetime value (CLV).
Needs-based Segmentation
In this segmentation type, customers are grouped according to specific needs, preferences, or problems they’re looking to solve with your product or service.
For example, one segment may need your branding services, while another is interested in SEO (search engine optimisation).
Value-based Segmentation
Value-based segmentation involves sorting customers based on the revenue they generate and the cost of maintaining relationships with them. For example, you can segment customers based on their pricing plans and prioritise addressing friction points of your high-value subscribers.
Benefits of Customer Segmentation
Identifying customer segments allows you to:
- Personalise your marketing campaigns: Segmenting your audience enables you to create targeted messaging and offers that resonate with each group. For example, through customer data integration, you can deliver personalised product recommendations and tailored email campaigns. This, in turn, leads to higher engagement and conversions.
- Enhance loyalty and retention: Customers tend to stick with brands that treat them like individuals. When you segment your customers, you can nurture them with relevant communication, reinforcing their decision to remain loyal to your brand.
- Better understand your customers’ needs: By segmenting your customers, you gain insights into a lot of data, such as purchasing patterns, preferences, and pain points. This information can guide you in developing more relevant products, services, and marketing strategies.
How to Conduct Customer Segmentation Analysis
You now know why it is essential to segment your customers; let’s discuss how. Follow these steps for a successful outcome:
1. Define Goals
As with any initiative, you need to establish what you intend to achieve at the end. You may want to identify customer segments at risk of churn or discover new segments with high potential for conversion. Perhaps you just want to determine an optimal pricing strategy for different customer groups.
Defining these goals will help you set the right segmentation model and criteria. Regardless of your goal, ensure it is SMART (specific, measurable, achievable, realistic, and time-bound). This makes it easy to track and assess performance.
2. Collect Data
Once you have a goal, start collecting the necessary data. To do this, conduct surveys and interviews, and analyse data from CRM systems, website analytics, and social media platforms. Customer support tickets and customer feedback forms are also valuable sources of information.
Afterwards, use a customer data platform like RudderStack to consolidate and organise all this data into a single, unified customer profile. This makes it easy to identify patterns and draw meaningful insights from your customer data.
Next, you need to clean your data. That means removing duplicate entries, fixing missing or incorrect information, and consistent formatting.
3. Choose Segmentation Criteria
It is now time to define the characteristics and traits that fit your selected segmentation model. Remember the goal you set earlier? Well, it will guide your choice.
Say your goal is to determine optimal pricing strategies. In that case, you’ll segment customers based on their price sensitivity. Then, analyse their purchasing power, spending habits, and willingness to pay for premium services.
4. Create Segments
Based on the analysis, divide your customers into distinct groups. Each group should be different enough from the others to justify tailored strategies.
Let’s stick with our goal of creating effective pricing strategies. You might have segments like budget-conscious clients, value-focused mid-market businesses, and enterprise clients looking for comprehensive solutions.
Now, use these cases to design targeted pricing strategies that align with each segment’s purchasing power and value perception.
5. Analyse and Adjust
Regularly monitor the performance of your segmentation strategy. Use KPIs (key performance indicators) like conversion rates, customer satisfaction scores, and revenue per segment to measure results.
Then, change what isn’t working and optimise what’s delivering positive outcomes. Customer segmentation isn’t a once-and-done activity, so expect to update your segments with new customer experience data regularly.
Conclusion
Employing the same marketing strategy for every customer is like throwing darts blindfolded. You might hit the target occasionally. However, you miss countless opportunities to make meaningful connections and drive better results.
Customer segmentation helps you avoid that. It enables you to deliver targeted, personalised experiences that resonate with different customer groups.
