Customer segmentation is a marketing method that divides the customers in sub-groups, that share similar characteristics. Thus, product, marketing and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down is several ways, such as demographics, geography, psychographics and more.
Why customer segmentation matters
No matter how niche your brand may be, it is important to keep in mind that every customer is, in fact, an individual. What’s more, they deserve to be treated as such.
Of course, most businesses will not have the resources to cater to every customer on an individual basis. They can, however, more broadly assess the needs of their customers according to certain metrics.
Customer segmentation in a nutshell
Customer segmentation is the process of separating your customers into groups according to certain traits (e.g. personality or interests) and factors (age or income level).
So why should customers be segmented? There are several important reasons:
- It allows businesses to tailor marketing strategies and ad campaigns according to particular groups of people.
- It enables businesses to learn about their consumers on a deeper level. And with this increased understanding, to create better products that resonate with consumer needs.
- Enhanced customer support – since businesses with customer segments are better able to predict problems ahead of time.
- Conversely, segmentation may also identify groups of consumers previously unknown to the business – allowing marketing resources to be directed toward these untapped groups.
Now that we have a basic understanding of customer segmentation and why it should be implemented, let’s look at some common customer segment types.
Demographic data is relatively straightforward and includes information on age, gender, marital status, income, and education level. It is perhaps the most well-known and well utilized of all customer segments, because demographic data is easy to obtain through market research.
A simple example of demographic customer segmentation might involve the marketing of a high-end sports car. The manufacturer may want to target consumers that are unmarried or divorced, have a high income, and be at or approaching retirement age.
While the above examples deal with business to consumer marketing, demographic segmentation can also be used in business to business marketing. In this case, businesses may target the industry, job function or company size as part of their marketing efforts.
Geographical segments detail such parameters as climate, zip code, land use (urban or rural), and the radius around a particular point of interest. But it also concerns the scope and extent of potential marketing efforts. Smaller organizations, for example, may target consumers living in specific towns or cities. Larger organizations may target consumers according to their country or continent of residence.
If we return to the sports car example, let’s assume that the car is marketed primarily as a convertible. As a result, the manufacturer may choose to target specific countries (or geographic areas) with sunny climates that are conducive to driving with the top down, so to speak.
Public transport operators could also use geographic segments to target commuters living within 15 minutes of a train station. They could use this information to develop a marketing campaign to convince commuters to leave the car at home and take the train instead.
Psychographic segments include such things as socioeconomic class, lifestyle, and personality traits. They also include factors that are big drivers of buying decisions, such as values, motivations, attitudes, and conscious or subconscious beliefs.
However, psychographic data is more difficult to collect than demographic data. Why? Because it is more subjective and requires deeper research to unearth. Psychographic segments and the information that comprises them are also more fluid because motivations, beliefs and values can change over time.
The luxury sports car manufacturer may target consumers whose values and motivations relate to status, freedom, and fine craftsmanship. But if, for example, the consumer who bought a 2-seater convertible suddenly welcomed grandchildren into his life, he may then prioritize safety and reliability over status and freedom.
Of course, marketing departments cannot plan for every contingency. But they must be aware that psychographic customer segmentation is fluid and has the potential to shift over time.
Behavioral segments include a consumer’s direct interactions with a business. In other words, behavior dictates how they act according to their demographic and psychographic attributes.
The behavioral segment encompasses spending habits, product/service usage, and the perceived or actual benefits of such usage.
Behavioral segments are derived from internal data that is collected by the business itself. It may include data on how consumers use a product and the frequency with which they do so. Furthermore, information may also include the specific benefits that the consumer is after, such as a time or money saving or loyalty status.
Perhaps most importantly, behavioral segments clarify a consumer’s willingness to purchase. If a typical sports-car driver likes to upgrade to the new model every three years, then it is the marketing team’s priority to understand this cycle and market to this segment accordingly. Similar predictive behavioral learning is also utilized by Netflix, who segment their users according to their content preferences and then recommend content in similar genres.
Technographic segmentation is segmentation according to a consumer’s preferred choice of technology. Think smartphones, software, operating systems, desktops, and apps. As technology becomes increasingly prevalent in the lives of consumers, technographic segmentation has never been more important to marketing departments.
Business to consumer marketing can also use technographic segmentation to target consumers according to their social media use. In their Harvard Business School published book Groundswell, authors Li and Bernoff suggest that marketing teams further divide their technographic segments according to social media use.
Each “sub-division” requires a different marketing strategy. Some of the more common sub-divisions include:
- Creators – who maintain a blog or website or upload music or videos.
- Critics – who post reviews of products or services or who like to contribute to forums or blog posts.
- Joiners – who maintain active social media accounts.
- Spectators – who read blogs, listen to podcasts, or watch video content without contributing or participating.
Business to business (B2B) also stands to benefit by technographic segmentation. Specific parameters in the B2B sphere include network and storage capabilities, cloud utilization, and big data technologies. All B2B interactions should segment businesses according to the prevalence of their technological capabilities before the marketing strategy is developed.
Customer segmentation is a crucial part of any marketing strategy, but some businesses may be daunted by the initial investment of time and money.
However, customer segmentation concerns serving customers and serving them well. Those who do not invest in segmentation run the risk of losing their customers to a competitor. Accurate and detailed segmentation allows businesses to understand their customers on a deeper level and increases the probability of retaining them.
For the business, this increases conversion rates and drives down marketing costs through efficient, customer-focused communication.
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