Understanding your customer starts with segmentation. By categorizing your audience into groups of shared characteristics, it’s far easier to personalize your message to respond to specific needs. What elements will help you find the most useful customer segments as quickly as possible?
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Why customer segmentation matters
Offering an excellent product or service isn’t enough by itself to ensure success for your company. You’ll waste precious time and resources by trying to be all things to all consumers. Tailoring your approach to clearly defined customers increases your ROI as you invest in methods and products more likely to resonate with your audience. The better you know your customers, the more precisely you can cater to their preferences, habits, and needs, thereby creating an exceptional buyer experience.
Customer segmentation helps you understand what motivates them, and speak directly to those needs. Well-examined segments are the first step in higher customer retention, a superior overall customer experience, and more effective ad targeting.
There are several different ways to divide your customer base into various segments. All of them offer useful information you can use to benefit your business, but not all segmentation methods suit all organizations at all stages of their development. Before creating your customer segmentation strategy, consider what you’re trying to achieve. To get the answers you want, you first need to understand the questions you’re asking. Do you want to increase customer retention, or improve ROI on ad spend? Do you want to expand into new territories, or simply know the buying habits of your existing customer base? A smart examination of customer segments can help with all of that—and more.
Demographic Segmentation
Demographics are probably what come to mind first when you think about dividing your customer base into segments. Customer demographics typically cover some mixture of data about age, gender, marital status, education, or income. In a B2B setting, demographic information might include company size or industry. Consumers are usually willing to share this sort of anonymous information, which makes demographic segmentation one of the easier ways to define your audience. This data can create a baseline against which you can use other segmentation to drill down into smaller customer segments. For example, starting with a demographic of women over 40, you could break down the results of a specific ad campaign with a secondary segment based on geography.
Geographic segmentation
Geographic segmentation breaks down your audience based on where they live or work. It can be as broad as country or state, or as narrow as population size or climate features. Customer needs may vary dramatically depending on the economics or culture of their area. An ad that may be amusing in one country could be considered wildly offensive in another. For example, geographic segmentation can inform you on whether or not you need to pull back your ad spend in India during Diwali—or increase it. You can collect some geographic information from your customers based on the ISP they use to visit your site, which can also be categorized alongside other basic demographic information.
Behavioral segmentation
A good way to think about behavioral segmentation is breaking down your customers by their purchasing and spending habits. It’s important to note that in this context, purchasing and spending are not the same thing. Purchasing habits are defined by where and when customers buy. Spending habits are defined by how often customers make purchases and how much they spend. For example, only buying a car during fall clearance sales is a purchasing behavior, while consistently purchasing a car that costs over $30,000 is a spending behavior.
Buyer’s journey segmentation
Buyer’s journey segmentation is particularly useful because it differentiates customers based on how they interact with your site. Perhaps they added something to their cart but never checked out, or they may faithfully browse new stock when prompted by a promotional email. Targeted messaging that speaks to their specific behavior can move the customers in these segments further along their buying journey, and careful examination of them can reveal opportunities for improving your buyer’s experience. Along this line of thinking, information gleaned from follow-up surveys asking why a visitor didn’t buy can be just as valuable for your company as an actual purchase.
Psychographic segmentation
Psychographic segmentation relies on subjective personality traits, and as such is more difficult to collect than basic information like age or gender. This kind of segmentation defines your customers based on their values, motivations, priorities, and lifestyle. One example might be whether they’re early adopters of new technology, or whether they tend to wait for a product to be tried and true. The psychographic information you gather can help create a brand identity and design marketing materials that speak directly to your customers’ emotions. If your customers identify as being environmentally conscious, for example, you could create an ad campaign highlighting your eco-friendly manufacturing process.
Your market segmentation strategy may use just one of these, or all of them together. More information is typically more helpful, but be wary of overly narrow segmentation. It’s true that the smaller the group, the more precisely you can speak to their needs, but if the segment is too small, it won’t impact your business’s bottom line. Finally, be aware that customer segmentation isn’t something you do once and never worry about again. Your customer segments will remix as your customers grow and change over time. A sound strategy, revisited at regular intervals, will provide you with the insight you need to help your business thrive.