What's the best way to reach the right customers at the correct time with the information they need? Customer segmentation. This way, you can better understand your customers and meet their unique needs.
In this post, you'll learn about customer segmentation and how you can use this method to improve your business.
What is customer segmentation?
Customer segmentation is the process of tagging and grouping customers based on shared characteristics. This process also makes it easy to tailor and personalize your marketing, service, and sales efforts to the needs of specific groups. The result is a potential boost to customer loyalty and conversions.
You're probably already familiar with customer segmentation in your personal life. For example, you might tell everyone in your family about a promotion with a group text before you email your co-workers.
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.
Why segment customers?
Segmenting customers is far more than just putting people into categories. Customer segmentation allows you to learn about your customers on a deeper level. With this information, you can tailor your content to each group's unique needs and challenges. You'll also be able to create targeted campaigns and ads that resonate with and convert certain segments of customers.
Other common benefits of customer segmentation include:
Improving your customer service and customer support efforts.
Helping internal teams prepare for challenges different groups are likely to experience.
Communicating with segments of customers through preferred channels or platforms.
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 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, you should have a good starting point to start getting your customer segmentation model established.
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 technographics 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 includes: the 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
- Life Cycle 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
Many businesses start with gender segments when building a customer segmentation program. While this is a quick way to start, you should ensure this segment is inclusive. There should be 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 who is interacting with your business. For example, a 30-year-old single person living in Boston won't have the same budgets and interests as a 70-year-old retiree in Oklahoma.
Occupation can reveal a lot about customers' interests and availability. It can also give you an idea of their budget as well as their annual income — especially if they don't share this information with you directly.
4. 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.
5. Marital Status
If marital status is important for understanding your customer base, then you can segment buyers in a few different ways: whether they have a spouse, are in a relationship, or otherwise. Collecting this data will vary based on your organization's marketing strategy.
Geographic Customer Segmentation
Location is important to make your marketing strategy feel more personalized by region. First, it tells you where your customers are and how you can find them. This data 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. This allows you to communicate more clearly and makes it easier for customers to interact with your business.
Out-of-home advertising is getting more and more advanced. Transportation, for instance, 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, as well as digital billboards throughout cities.
Understanding how and where your customers work can be valuable insights depending on your line of business.
Behavioral Customer Segmentation
10. Life Cycle Stage
Life cycle stage attempts to clarify which part of the customer journey a particular buyer is in. Are they a new lead who is 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 tracks 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 strengthen the relationship.
13. Ecommerce Activity
Like website activity, ecommerce activity refers to actions customers take in your online store. For instance, abandoned carts are a common customer segmentation choice. You can also segment customers based on the products they've purchased or product pages they've seen but haven't converted on.
Psychographic Customer Segmentation
Values are usually harder to identify than demographic information like age or location. To determine a customer's values, you need to understand their needs thoroughly, possibly through one-to-one interviews or surveys.
From there, you can use this information 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. As an added bonus, you can foster relationships with adjacent businesses. This lets you reach customers in places you might not have thought about before.
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 segments users based on the type of device they're using to interact with your website, whether that's a phone, tablet, or computer.
For instance, 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, Safari, DuckDuckGo, or Mozilla Firefox?
With dozens of internet browsers available, each displays 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
Original source is a segment that helps you understand 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
The higher the average purchase value is, the more overall value the customer offers to your business.
Those customers who make repeat or regular purchases from your business are invaluable. One tactic to consider is rewarding them with special, exclusive offers or promotions.
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 inadvertently alienating individuals with disabilities. Make sure you're aware of customers with these needs so that your website is as inclusive as possible.
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 go through an onboarding process to learn how to use our products. Should you already have experience with HubSpot in the past, you might decide to opt-out of this service. Finding these needs will ensure your customers are properly supported.
25. Delivery Method
Your product isn't 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 be using buyer personas. For some small businesses, consider investing the time to develop personas, as they can be a huge help with customer segmentation.
If you're using customer segments to solve specific business problems, segmenting may get equally complex. The end result is that you may 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, include important team members from across the organization. By leveraging their unique experience and viewpoint, you can 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 mothers between the ages of 30 to 35. Data shows that about half of this segment buys at the end of November. But 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.
Creating clear projects around customer segmentation can make it easier to:
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 data increases in volume, it's normal to feel overwhelmed. Some companies also go through the effort of segmenting, only to continue to send the same message to every customer.
One way to approach this is by organizing the largest segments first and proceeding from there. That way you have large groups of people that can be leveraged immediately.
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.
Set an objective.
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:
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.
Define project scope.
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:
The total number of segments.
Resources and budget.
Define Project Deliverables
Finally, you'll want to clarify what the results of your project will be.
Final customer segmentation deliverables might include:
An outline of your process.
Tenets that define the scope of each target segment.
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, it's time to start building your segments.
In order to get the best results from customer segmentation, you should approach them with a few key ideas in mind.
Make segments easy to use.
While the segments might be complex to compile, they need to be easy to use by other team members.
For instance, a local grocer segments their in-town shoppers from out-of-town shoppers, which can help with more personalized outreach.
But these segments don't make as much sense for a multinational sporting goods store. What defines "out of town" simply doesn't apply.
Use machine learning.
Applying automation powered by machine learning in order to build your customer segmentation can be a huge time saver for your team.
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 don't want to go too narrow in your segments, so make sure you end up with useful segments that are still large enough to have a measurable impact on profit.
Make them easy to access.
Your customer segmentation should start with your marketing strategy. Each segment should be well-aligned with your marketing and sales channels.
For example, say your marketing strategy focuses on email and Facebook, but you're creating a Gen Z segment. Of this group, 62% are 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 a part of your ecosystem. By maximizing your interactions with current customers, you can maximize the average purchase price or the number of purchases a customer may make on a regular basis.
6. Target and market to your client and user segments.
Just having the customer segments isn't enough. You need a plan to put 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 which messages, content, and products will bring the most value. Then, craft a strategy that authentically engages with each segment.
You want your customers to feel like you understand them, and that you're connecting to help, 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.
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.
So, while you develop your segmentation to last, you will need to put in the work to make sure they stay useful.
In the end, change is the only constant. 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
Once you've got those segments set up, it's important to go back and revisit them from time to time.
Not only can you confirm that these segments are necessary, but you can also analyze whether or not particular 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 consistently.
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.
Changes in software, products, pricing, and more can skew data. You'll want to make sure that the data used to build each segment is still accurate, especially if they're used across multiple channels.
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.
2. Compare customer segment performance against business goals.
If you haven't already, review your key performance indicators (KPIs) for each of your customer segments. Then, compare how well those segments are doing in comparison to your overall business performance. Are some segments doing better than others? Are some underperforming?
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 all relevant internal stakeholders.
It's also a good idea to connect with key stakeholders. This can help you make sure that companywide 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.
Live chat prompts.
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 daylong workshop in Seattle, 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 attendees 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 here).
Learn how to create a contact management and segmentation strategy with HubSpot.
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.
You can 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 makes it easier to reach specific segments when creating and sharing messages on both Facebook and LinkedIn. Their Audience Targeting feature is 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. Meanwhile, Linkedin allows you to 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 includes a customer segmentation tool. Organize and manage segmented email marketing campaigns to target groups of your contacts and customers. This lets you send messages that are customized and tailored to each segment's 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 by providing more relevant information to your audience. It also helps streamline cross-team and communication efforts so that you can meet customers' 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.