customer-segmentation

Customer Segmentation: Types, Examples And Case Studies

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

market-segmentation
Market segmentation is the process of dividing the market into sub-groups. Market segmentation can be based on characteristics such as age, behaviors, income levels, and more. This process helps to understand what your key customers want, where they are, and how to talk to them effectively.

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.

Demographics 

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.

Geography

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.

Psychographics 

psychographic-segmentation
Psychographic segmentation is a form of market segmentation, that looks at consumers into sub-groups that share specific psychological characterises, that comprise activities, interests, and opinions of customers. The rise of data-driven marketing enabled psychographic segmentation to become a key element of digital marketing activities to personalize those campaigns and reach a micro-audience.

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.

Behavioural 

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 

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.

Target market examples

To recap, a target market is a segment of customers most likely to purchase a company’s products or services.

While the two terms have some overlap, it’s important to first make the distinction between a target market and a target audience.

The target market is the end consumer who will use the product.

The target audience, on the other hand, is the focus of the brand’s promotional efforts. 

To illustrate this difference, consider the McDonald’s Happy Meal. The product itself is obviously consumed by children, but it is the parents who control the finances and what the child eats.

As a result, McDonald’s may promote the Happy Meal’s nutritional value or low cost – factors that appeal to the parents but which the child cares very little about.

To solidify the concept of a target market further, read through the following examples.

Nike

Nike started out marketing to professional athletes and then expanded its business model to incorporate “everyday” athletes and sports enthusiasts.

As part of its rebranding effort, the company analyzed the benefits of owning its apparel, shoes, equipment, and accessories.

From this, Nike defined a target market of mostly younger consumers who were interested in fitness and possessed the disposal income to invest in equipment and achieve their goals.

Today, most of Nike’s promotional efforts focus on aspiring athletes and runners in a way that is motivational and inclusive.

Vans

Vans is an American shoe manufacturer founded in 1966 that made the bold decision to champion alternative subcultures such as skateboarding and bicycle motocross (BMX).

The brand appealed to so-called “misfits and rebels” who saw these sports as not only a hobby or passion but a lifestyle choice.

Vans is now taking advantage of the athleisure trend target market and has a much broader appeal, but the company’s stores continue their retro, skateboarding vibe.

In a Manhattan store, for example, vintage posters of skateboarders adorn the walls with industry slogans and skateboards from popular brands.

Next to skateboard accessories such as wheels and trucks is apparel more reminiscent of earlier decades with muted colors and oversized logos.

Dior

Dior is a French luxury fashion house founded by Christian Dior in 1946.

The company primarily targets the so-called “Chardonnay Girls” target market which consists of confident, optimistic, fashion-conscious women in the 18-32 age bracket.

Perhaps unsurprisingly, this target market tends to live in world cities such as Moscow, New York, and Milan with above-average salaries and career prospects.

They have also a propensity to shop offline, but having said that, Chardonnay Girls are consumers that are more likely to become advocates for a brand and share their experiences with friends.

Thus, reducing marketing costs through efficient, customer-focused communication.

Customer segmentation examples

In this section, we’ll delve into some additional customer segmentation examples.

Region and culture

With more than 36,000 restaurants in over 119 countries, McDonald’s uses a subset of geographic customer segmentation to promote menu items to users from various cultures.

In India, for example, ads show McSpicy Paneer alongside Green Chili Naan-Aloo. 

Another region and culture-specific advertisement promotes the Maharaja Mac – better known as the Big Mac – which is “made with handpicked ingredients from across India” and features the #TrulyIndianBurger hashtag. 

Weather

Customer segmentation based on the forecast weather conditions enables the company to predict the moods, needs, and purchase behavior of its customers.

This is usually achieved via the integration of real-time weather data into an existing personalization platform.

Segmentation based on the weather is especially important for retail brands whose products are highly seasonal.

A clothing brand based in the United States, for example, can segment its users based on location and direct those living in the colder northern states to a page promoting scarves, jackets, and gloves.

An undisclosed football club – but one of the largest in England – used weather targeting to recommend merchandise to fans based on their location which is positioned on a Google Maps image in the background.

Some airlines are also using the approach to promote destinations with warmer or sunnier weather than the customer’s home conditions.

Profession

Home Chef is a food delivery company that segments its customers based on their profession.

In one email campaign aimed at the healthcare and education industries, the company referenced the upcoming National Teachers and Nurses Day and took the opportunity to thank these individuals for their service.

For those that could verify their teaching or nursing credentials, Home Chef offered 50% off the cost of their first box of food.

Cart abandonment

Almost 70% of desktop users and 86% of those on mobile abandon their cart before finalizing the purchase.

This represents a major source of lost income that can at least be partly recovered with laser-focused customer segmentation.

To encourage users to complete their purchases, companies can create a series of drip campaigns or emails based on metrics such as product type or customer activity level.

Google’s approach for abandoned items in its Google Store is to send users an email with personalization, excellent copywriting, and a clear call to action.

This is normally accompanied by a message that creates urgency such as “Our popular items sell fast” and “Going, going, (almost) gone”.

Politics

Politics is a divisive issue that can easily result in negative publicity for a brand. But rather than shy away from the topic, some brave companies use it as a tool for advanced and highly targeted customer segmentation.

Ben & Jerry’s is one brand that uses political segmentation to sell different flavors of ice cream across the United States.

In the democratic state of Vermont, for example, it released an “Empower Mint” ice cream with a slogan that read “Democracy is in your hands”.

Key takeaways

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 costs.

  • In essence, a target market is a segment of customers most likely to purchase a company’s products or services. A target market should not be confused with a target audience, which is the focus of the brand’s promotional efforts.
  • Nike’s target market consists of younger consumers who are interested in fitness and possess the disposable income to invest in equipment and achieve their goals. 
  • Vans once appealed to smaller alternative subcultures such as skateboarding and BMX. Today, the company’s target market has broadened to include athleisure wearers.

Connected Concepts

market-segmentation
Market segmentation is the process of dividing the market into sub-groups. Market segmentation can be based on characteristics such as age, behaviors, income levels, and more. This process helps to understand what your key customers want, where they are, and how to talk to them effectively.
customer-segmentation
Customer segmentation is a marketing method that divides the customers into sub-groups, that share similar characteristics. Thus, productmarketing, 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 in several ways, such as demographics, geography, psychographics, and more.
product-differentiation
Product differentiation is a marketing strategy used by a business to differentiate its products or services from the competition, thus enabling your business to gain a long-term advantage (an economic moat), thus building a viable business model.
grassroots-marketing
Grassroots marketing involves a brand creating highly targeted content for a particular niche or audience. When an organization engages in grassroots marketing, it focuses on a small group of people with the hope that its marketing message is shared with a progressively larger audience.
customer-experience-map
Customer experience maps are visual representations of every encounter a customer has with a brand. On a customer experience map, interactions called touchpoints visually denote each interaction that a business has with its consumers. Typically, these include every interaction from the first contact to marketingbranding, sales, and customer support.
Shotgun Marketing
Shotgun marketing is a form of above-the-line (ATL) marketing, where popular mediums such as TV and radio are used to market to a mass audience. This technique of marketing targets as many consumers as possible. Also known as mass marketing, the technique attracts a large number of leads that, on average, might be of lower quality in nature.
microniche
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.

Read Next:

Scroll to Top
FourWeekMBA