Think about the people in your life. When you have a big announcement to make, chances are you do some manual customer segmentation.
For example, you might tell everyone in your family about a promotion with a group text before you email your coworkers.
The same goes for your customers. They each have unique needs, traits, pain points, and expectations for your business. And sometimes, the most effective way to communicate with your target customer is by making them part of a group.
Customer segmentation can help you better understand your customers and meet their unique needs. This can help you effectively and efficiently meet (and, hopefully, exceed) their expectations.
What is customer segmentation?
Customer segmentation is the process of separating your customers into groups based on the certain traits they share.
Segmentation offers a simple way of organizing and managing your company’s relationships with your customers. This process also makes it easy to tailor and personalize your marketing, service, and sales efforts to the needs of specific groups. This helps boost customer loyalty and conversions.
What is a customer segment?
A customer segment is a group of customers with similar needs and behaviors. Customers can belong to more than one segment.
Why segment customers?
There are many reasons why customer segmentation is important. Here are some of the things this process can help your business accomplish:
- Learning about your customers on a deeper level so you can tailor your content to their unique needs and challenges
- Creating targeted campaigns and ads to resonate with and convert segments of customers
- Improving your customer service and customer support efforts
- Helping internal teams prepare for challenges different groups are likely to experience
- Increasing customer loyalty with customized content and interactions
- Understanding who your most valuable customers are and why
- Communicating with segments of customers through preferred channels or platforms.
- Meeting specific groups of customers where they are
- Finding new opportunities for products, support, and service efficiently
Now that you understand what customer segmentation is and why it’s a process worth investing time in, let’s cover the most common models and types of segmentation.
Customer Segmentation Models
- Demographic Segmentation
- Geographic Segmentation
- Psychographic Segmentation
- Technographic Segmentation
- Behavioral Segmentation
- Needs-based Segmentation
- Value-based Segmentation
Although this list doesn’t cover every type of customer segmentation, it gives you a starting point for organizing your customers. Along with each model is an associated list of ways to segment your customers.
1. Demographic Segmentation
Examples of segmentation by demographic include: Age, gender, income, education, and marital status.
2. Geographic Segmentation
Examples of segmentation by geography include: Country, state, city, and town
3. Psychographic Segmentation
Examples of segmentation by psychographics include: Personality, attitude, values, and interests
4. Technographic Segmentation
Examples of segmentation by technographic include: Mobile-use, desktop use, apps, and software
5. Behavioral Segmentation
Examples of segmentation by customer behavior include: Tendencies and frequent actions, feature or product use, and habits
6. Needs-based Segmentation
Examples of segmentation by customer needs include: Product or service must-haves and needs of specific customer groups
7. Value-based Segmentation
Examples of segmentation by customer values include: Economic value of specific customer groups for the business
Let’s take a look at some customer segmentation examples to show how you can apply these models to your segmentation strategy.
Customer Segmentation Examples
- Marital Status
- Household Income
- Preferred Language
- Lifecycle Stage
- Website Activity
- Last Customer Engagement
- Ecommerce Activity
- Device Type
- Browser Type
- Original Source
- Customer Satisfaction Scores
- Number of Purchases
- Average Purchase Value
- Product Attributes
- Service Needs
- Delivery Method
Demographic Customer Segmentation
This is one of the first places that businesses start when it comes to customer segmentation. And, while it’s good to get an idea of who’s engaging with your business, you should make sure this segment is inclusive. Be sure to share plenty of categorization choices so customers are accurately segmented into groups where they feel comfortable.
Age is another common factor that businesses use to segment customers. After all, age tells you a lot about the person that’s interacting with your business. For example, a 10-year-old likely won’t have the same budget and interests as a 60-year-old.
Your customers’ occupation tells you a lot about their interests and availability. It can also give you an idea of their budget as well as their annual income — especially if they don’t show this information to you directly.
4. Marital Status
If marital status is important for understanding your customer base, then you can segment buyers in a few different ways. You can categorize customers based on if they have a spouse or not, or ask them if they’re in an active relationship. How you gather this data will depend on your business’s marketing strategy.
5. Household Income
Household income gives you an idea of how much money a customer can potentially spend with your business. Keep in mind that income isn’t the only factor at play here. Location, occupation, family structure, and more will also influence a customer’s budget.
Geographic Customer Segmentation
Location is important for a few reasons. First, it tells you where your customers are and how you can find them. It also tells you how you should approach certain segments if they live in different areas. For example, how you market to people in Boston will likely differ from how you market to people from Walla Walla, Washington.
7. Preferred Language
It’s important to know the language that your customers prefer to speak. That way, you can communicate more clearly and make it easier for them to interact with your business.
Transportation can also present a valuable marketing opportunity for your business. For instance, if your customers take the subway to work, you can buy ad space on trains and popular subway stations. I can speak from experience that there’s not much to look at other than the ads on the train when you have a 30-minute commute that’s mostly underground.
Remote work was slowly gaining popularity in 2019. That timeline accelerated during the pandemic, and businesses can no longer assume that everyone is going into an office to work. As a marketer, it helps to know whether your customers are commuting regularly or staying at home throughout the day and working remotely.
Behavioral Customer Segmentation
10. Lifecycle Stage
Lifecycle stage refers to where the buyer is in the customer journey. Are they a new lead that’s ready for a sales conversation? Or, are they a loyal customer who’s willing to advocate on your business’s behalf? Knowing where the relationship stands between you and your customers can help you form a more effective marketing strategy.
11. Website Activity
Website activity is anything your customers do while engaging with your website. For example, you could segment customers based on the first page they interact with. Or, you could segment them based on how many times they’ve visited your home page or clicked on a certain page element — like a call-to-action.
12. Last Customer Engagement
You can learn a lot about customer relations from the last interaction a customer has with your business. If it was a positive interaction, they might be ready for a specific promotion based on when they are in the buyer journey. If the interaction was negative, you might want to ping your customer service or success teams to proactively reach out and strengthen the relationship.
13. Ecommerce Activity
Like website activity, ecommerce activity refers to any action a customer takes in your online store. For instance, abandoned carts are a very popular customer segmentation choice. You can also segment customers based on the products they’ve purchased or the product pages they’ve seen, but haven’t converted on.
Psychographic Customer Segmentation
Values are usually harder to identify than fundamental information like age or location. To determine a customer’s values, you need to understand their needs thoroughly. Then your next step is to empathize with the roadblocks they face when trying to achieve goals. When you can align with the customer in this way, it’s easier to see what they value most in a product, service, or brand.
Values are characteristics and actions that customers admire most. But interests are things that customers enjoy that may not necessarily relate to your business.
For example, your customers might have an interest in dogs, so you could partner with a local pet store and run a cross-promotional campaign. This lets you reach customers in places you might not have thought about before. It also creates opportunities to foster mutually beneficial relationships with adjacent businesses.
Personality can be hard to sum up in one phrase or sentence. But, you can segment customers based on different personality traits. Are they outgoing? Introverted? Comical? Serious? You get the point. The more you know about their personality, the more you can adapt your marketing to fit your audience.
Technographic Customer Segmentation
17. Device Type
Device type is the type of phone, tablet, or computer that a customer is using to interact with your website. If the majority of your website visitors are using smartphones, then you know mobile responsivity is imperative to your site. Or, you might consider building a mobile app to capitalize on users who are interacting with your brand while on the go.
18. Browser Type
Browser type refers to the internet browser that a customer is using. For example, are they using Google Chrome or Mozilla Firefox? Perhaps they’re an Apple customer and are using Safari. Point is, there are dozens of internet browsers available and each can display your website, emails, and apps differently. This makes it important to understand what your customers are using so you can test whether your marketing content displays properly on those browsers.
19. Original Source
You may have seen the question, "how did you hear about us?" in a customer survey. This question is great when you’re walking into a store or filling out a form online. But, it’s not so helpful if you’re browsing a site and not converting.
Original source solves this problem by telling you where your website visitors are coming from. This lets you know if people are discovering your site with search engines like Google. It also shows you if they’re coming to your pages from social media, email, or a referral from another site.
Once you know how your customers are finding you, you can optimize this conversion path. This can help make it easier for more people to locate your site.
Value-Based Customer Segmentation
20. Customer Satisfaction Scores
Whether you use CSAT or NPS, customer satisfaction scores tell you a lot about recent service interactions. Higher scores mean that customers are happy with your service. Lower scores indicate a risk of churn.
Segmenting customers into promoters and detractors can help you increase the value of your most loyal customers. It can also help you make sure that unhappy customers get the support they need.
21. Number of Purchases
The number of purchases that a customer makes is a primary factor in determining customer value. The more purchases they make, the more valuable they are to your business.
22. Average Purchase Value
This is also true for average purchase value. The higher this value is, the more overall value the customer offers to your business.
Needs-Based Customer Segmentation
23. Product Attributes
Some groups of customers need specific features from your products to use them.
For example, if your website isn’t web-accessible, you could be alienating individuals with disabilities. Make sure you’re aware of customers with these needs. This way you can cater to them and won’t miss out on valuable conversion opportunities.
24. Service Needs
Service needs are the services that customers require when interacting with your business. Let’s take HubSpot as our example. If you’re a new HubSpot user, you might want to undergo an onboarding process to learn how to use our products. Or, you might have experience with HubSpot in the past and decide to opt out of this service. Finding these needs will ensure your customers are properly supported.
25. Delivery Method
Your product isn’t as useful to your customers if you don’t deliver it at the right time or in the right way. This segmentation option allows you to categorize individuals who have specific shipping or delivery needs.
Customer Segmentation Strategy
- Determine your customer segmentation goals and variables.
- Break goals into customer-centric segmentation projects.
- Set up and prioritize each customer segmentation project.
- Collect and organize your customer data.
- Segment your customers into groups of your choice.
- Target and market to your client and user segments.
- Run regular customer segmentation analysis.
Your business goals should inform your segmenting process and decision-making. Businesses using market segmentation are most effective when they begin with a clear strategy.
If you're scaling your business or looking for new ways to engage customers, a customer segmentation strategy can help you:
- Organize your customer base
- Make it easier to manage targeted communications
- Choose top sales prospects
While there are many ways that you can start segmenting your users and clients, these steps can help your team avoid some pitfalls along the way.
1. Determine your customer segmentation goals and variables.
Your business may already have buyer personas that you use in your marketing and sales outreach. For some small businesses, personas are a huge help with customer segmentation.
But if you're using customer segments to solve specific business problems, segmenting may get more complex. You might not have enough data or the right kind of data to deliver the best customer experience.
Demographic or psychographic segmentation may help grow the top of the funnel. But a customer-centric strategy may take more work.
Start by thinking about what makes a customer valuable to your specific business:
- Is product fit or profitability more important?
- Do they make repeat purchases?
- Are they active in communities online?
- Where do they drop off during the buyer journey?
As you continue this process, brainstorm with key stakeholders. Use their unique experiences to target identifiers that can help you create more useful customer segments.
Before you move to the next step, you'll also want to look at variables within each target segment.
For example, say one of your customer segments is moms ages 30-35. Data shows that about half of this segment buys at the end of November. Do you know whether they're buying your product as a gift or to use at home?
This variable seems small, but it can make a big difference in marketing and sales messaging for this segment.
2. Break goals into customer-centric segmentation projects.
Once you have a clear picture of your segmentation goals and variables, it's time to break them into manageable projects.
As you develop these projects, keep in mind that you can't meet every goal at the same time. As you continue to sift through your customer data, you may surface a range of projects.
Some of these projects may be urgent, while others may take extra time and research to achieve. This is why customer segmentation can sometimes take longer than expected to get results.
Creating projects can make it easier to:
- Set boundaries
- Choose the right deliverables
- Put the right team members on project tasks
3. Set up and prioritize each customer segmentation project.
Once you have a clear picture of what projects you plan to complete, it's time to prioritize.
As the volume of data starts to come together, it's easy to get overwhelmed. Some companies also go through the effort of segmenting, only to continue to send the same message to every customer.
One simple way to rank the importance of your segmentation projects is to rank by volume. In this scenario, you would organize the largest segments first.
Another option is to rank segment projects by performance, like purchase value. Once you have the order set, it's time to set up each project.
Each customer segment project should have a SMART framework.
For example, your goal may be to create a customer segment for a new product release.
You'll want to see which customers on your current mailing list may be a fit for this new product. You'll also want to decide how to connect with the right new prospects.
A smart framework can help you define your objective before you get to work. This will help you answer questions like:
- How will you measure success for your new segment?
- Is there enough demand for this group to be a useful customer segment?
- How long will it take to build and define this group before product launch?
- What is the deadline?
Stakeholders for your segmentation project will usually include internal teams and employees. Other stakeholders might be:
- Current customers
- Local businesses
- Contract employees, like freelancers
Segmentation projects can sometimes get siloed. This can create a situation where the people who can get the most use of the information don't get what they need.
To avoid these issues, talk to stakeholders about their role in the project in advance. It's also a good idea to figure out how involved they would like to be in the process.
Defining the scope of each project can help you avoid overlaps and confusion later on.
Set clear boundaries for target market segmentation. This could include:
- Total number of segments
- Data sources
- Stakeholder expectations
- Resources and budget
Finally, you'll want to clarify what a deliverable looks like for your project.
Customer segmentation deliverables could include:
- An outline of your process
- Tenets that define the scope of each target segment
- Battle cards
- Segment playbooks
- Workflow wireframes
- Segment profiles
4. Collect and organize your customer data.
While some customer data is readily available for customer segmentation, other data may take more time to pull together.
This guide can help you find the right customer data types for your new market segmentation.
As you collect your data, think about the information you need to create a useful segment.
Anecdotes can sometimes offer a clearer picture than empirical data. They can also offer talking points and insights to better target your new segments.
Check out these ideas for anecdotal customer data collection:
5. Segment your customers into groups of your choice.
Once you've pulled the customer data you need, you're ready to start building your segments.
To make sure that your customer segmentation is useful for your business, there are a few critical things to keep in mind.
Make segments easy to use.
A customer segment might be complex, but it also has to be usable. It will be difficult to measure and put your segments into action if they are too complicated.
For example, a formal dress company has separate segments for 11th and 12th graders. These two groups of students attend different high school year-end events, which could mean unique outreach.
But these segments don’t make as much sense for a sporting goods store. They also work with athletes this age, but the difference between the two doesn't usually impact their buying decisions.
Use machine learning.
Customer segmentation with machine learning can save time and resources. Setting up behavior triggers can also help you update your segments in real-time.
This helpful article outlines how you can use HubSpot to segment contact lists and create communication workflows for subsets of customers.
Make customer segments the right size.
You'll want each segment to be niche enough to help you create relevant content. But each segment must be large enough to generate profit for your business.
Make them easy to access.
Customer segmentation needs to align with your marketing strategy. Each segment should be easy to reach through your marketing and sales channels.
For example, say your marketing strategy focuses on email and Facebook, but you're creating a Gen Z segment. 62% of this group is on Instagram, but only 34% are on Facebook. So, while this segment may be a fit for your business, you might have trouble reaching them.
Create stable segments.
Great customer segmentation takes time. So, the value of your segment has to last long enough for your team to connect and engage in a measurable way.
Behavioral and psychographic data can change quickly. Depending on the nature of your products, you may want to use these points less than other qualities that are more stable.
Make segments profitable.
It doesn't matter how clearly you define a segment of your target audience if they won't impact your profits.
Each segment should come from an existing product or service that your business offers. And each B2B segment should have a clear set of unique needs that align with business goals.
Understand how different models overlap.
Behavioral and demographic models are usually more useful together than they are alone.
For example, say you sell popular tennis shoes to men. You can create a segment based on ecommerce activity and purchase value.
But it could be tough to base a marketing campaign on these factors. And what if these buyers also happen to be break dancers from suburban neighborhoods?
You might miss an opportunity to connect with this group. Combining several models gives you a chance to make your brand more diverse and inclusive. It also offers more opportunities to improve your products for your target audience.
Find your loyal customers.
In the rush to find new customers, it's easy to miss creating segments for customers who are already loyal.
But the qualities of this segment can not only help your flywheel. It can help you develop a segment that makes it easier to find and attract more people who love your brand.
Segmentation is fun, because you get to take a closer look at your customers. But it can also be confusing. This free lesson can help you understand how to create the right segments for your business.
6. Target and market to your client and user segments.
It's not enough to have great customer segmentation. Your strategy has to include how to put your market segments into action.
According to a 2022 Forrester study, 76% of businesses say that their customers are engaging less with digital marketing than they were a year ago.
This makes effective segment outreach essential. There are a few simple ways that you can make the most of your customer segmentation.
Make communication customer-centric.
Use segment information to decide what content and products will bring the most value.
Create a strategy that authentically engages each segment.
You want your customers to feel like you understand them, and that you're connecting to delight, not just sell.
Create a plan for each segment.
You won't get the best outcomes by sending slight variations of the same content to each segment. Instead, create a unique plan for each segment.
You can use segment data to:
- Enhance each experience
- Create more meaningful landing pages
- Personalize emails
- Qualify and delight leads
- Figure out the best timing for outreach
- Anticipate support needs
- Create new targeted content
- Solve issues faster
7. Run regular customer segmentation analysis.
Change is constant. So, while you develop your segmentation to last, you will need to put in the work to make sure they stay useful.
While machine learning and automation can help you see how your data is changing, data needs analysis. It’s up to your business to create a regular cadence to review your segments so that they keep performing.
Customer Segmentation Analysis
You may only create customer segments once or twice. But if you want to thrive as a business, it's a good idea to perform regular segment analysis.
During this process, you'll confirm that your data and methods are accurate. This is also the time to check that your segments are helping you reach your goals.
You can use this process to assess resources, use customer feedback, and get a long-term view of your customer base.
Benefits of Analyzing Your Customer Segmentation
Segmentation analysis can seem like a time-consuming extra. But there are many reasons you'll want to analyze your segments on a consistent basis.
Customer segmentation can help your business:
- Improve product delivery
- Boost process efficiency
- Help you target content marketing and sales outreach
- Update pricing, plans, and strategy
- Improve customer relationships
- Create new offers, products, and services
- Improve brand awareness
- Stay ahead of competitors
- Track product sentiment
With consistent analysis, your business will be more aware of changes in customer sentiment. This approach can also help you innovate in a customer-centric way. It puts the latest customer ideas at the center of any new business plan.
How to Do Customer Segmentation Analysis
Segmentation analysis isn’t as time-consuming as creating new customer segments. But each step below is important to make sure that your customer segments are effective for your business.
1. Review customer segments for accuracy.
Check that data for each segment is still accurate. Changes in software, products, pricing, and more can skew data.
If you use your customer segments across different channels, you'll also want to check on the data input into each channel. If you can, check any data against another source.
For example, say you collect behavioral data through your email marketing software, but not on social media. Your first step might be to compare analytics between the two platforms. This can help you see if customer responses within the same segment have changed.
You may also need to repeat anecdotal data collection to update your segments. Have company goals, pricing, or brand reputation changed since you created your segments? If yes, you'll want to update your data in view of these changes.
2. Compare customer segment performance against business goals.
If you haven't already, review your key performance indicators for each of your customer segments. Compare the performance of each segment to your overall business performance.
This segmentation analysis can help you figure out how each segment compares to the whole. It can also help you see which segments are meeting, exceeding, or falling behind performance goals.
Watch for changes in growth within each segment. It may also help to review segment changes alongside current events and cultural shifts that impact demographics.
For example, over 180,000 people moved away from California in 2020, and almost 118,000 left in 2021. During this same period, more people were moving away from dense cities like San Francisco and Los Angeles, to more open inland communities. Because these shifts impact transportation and development, they can create other changes in customer needs.
Businesses that watch these shifts can better meet customer expectations than those that miss these details.
3. Check with internal teams for segmentation feedback.
Customer segmentation is only useful if it's used consistently. When you're analyzing your segments, be sure to loop in relevant internal team members.
It's also a good idea to connect with key stakeholders. This can help you make sure that company-wide decisions factor in customer segment changes.
These are a few strategies you can use to quickly collect feedback from your peers and leaders:
- Send email surveys
- Add targeted feedback forms to employee newsletters
- Organize a committee or focus group
- Create a Slack channel for informal feedback
- Offer project-specific incentives
4. Collect feedback from your customers.
You may want to supplement your anecdotal research with feedback from a wider group of customers. These strategies for gathering customer feedback can help you improve your response rate.
You might also want to vary the type of outreach by segment.
For example, busy B2B customers might respond well to an in-app survey while loyalty club members may be open to a customer interview.
Here are some other suggestions to gather customer feedback:
- Website feedback widgets
- Long form-based surveys
- Suggestion boards
- Newsletter requests
- Survey incentives
- Live chat prompts
- Social listening
- Customer support outreach
5. Put segmentation analysis results into action.
It's often easier to start something new than to change. Once you've updated your customer segmentation, it's important to put those updates into action.
You may need leadership support to revise employee habits. Marketing, sales, and service plans may need to change to align with new customer needs and expectations.
There are many ways that you can help your team understand the value of your updated segments. These might include:
- Presenting your findings to the team
- Collaborating to update action plans
- Partnering with managers to address employee feedback
If you face any resistance, it may help to separate your analysis into separate projects for short, medium, or long-term changes. This can help your business figure out what resources you need to make these changes. It can also help different departments understand what they need to update.
Now, what about a tool to support you while you work through the strategy and analysis steps we just covered?
Customer Segmentation Software
There are many choices when it comes to customer segmentation software — here are five of the most popular to help you get started.
The software also offers an option for event-based segmentation. For example, if your company is holding a day-long workshop in Boston, you could use event-based segmentation to help you locate and inform your customers in the area.
Then, once the workshop is complete, you can use details obtained from participants to segment your customers for your future events.
These customer segmentation features, among others, are automatically included in HubSpot’s (free) CRM, CMS, Marketing Hub, Sales Hub, and Service Hub (the specific segmentation features within each of these tools are listed here).
Experian’s customer segmentation software has multiple functions so you can build, view, and manage your segments in a way that meets your business needs.
Focus on lifestyle segmentation to hone in on the habits and preferences of your customers. You can also find your most economically-valuable groups so you can add those details to your profitable-customer contact portfolio.
Sprout Social allows you to reach specific segments when creating and sharing messages on both Facebook and LinkedIn. They do this through Audience Targeting — it’s a marketing-centric customer segmentation tool.
On Facebook, the tool allows you to segment and target customers by interests, gender, age, location, relationship status, education, and age. O Linkedin, you can segment and target customers by business size, industry, location, and seniority.
Qualtrics is a customer segmentation software that offers segmentation tools for your customers and products.
You can build studies, organize groups of customers, and analyze the way you segment your customers. You can also determine the right type of communication for each of your segments in the tool. Qualtrics also has machine learning and artificial intelligence (AI) capabilities to help you learn new ways to segment your customers.
Mailchimp’s marketing and email automation service includes a customer segmentation tool. Organize and manage segmented email marketing campaigns to target groups of your contacts and customers. This lets you send messaging that’s customized and tailored to their needs. You can filter between one and five criteria to communicate with your specific group of choice.
Segment Customers to Grow Better
Customer segmentation helps you boost conversions. It lets you reach your audience through cross-team efforts and communicate more effectively with customers to meet their specific needs. Start working on your customer segmentation strategy and use these tools for support along the way. You have everything you need to exceed customer expectations.
Editor's note: This post was originally published in February 2020 and has been updated for comprehensiveness.