customer segments in business plan

Customer Segmentation: The Ultimate Guide

Updated: Jun 14, 2024, 7:57pm

Table of Contents

What is customer segmentation, types of customer segmentation, how to segment customers, customer segmentation tools, frequently asked questions (faqs).

Each customer is different from the next, so a single approach to dealing with different customers won’t work. With customer segmentation, your business can better understand every customer and align relevant strategies and tactics to meet their distinctive needs, helping you to make more profits.

In this customer segmentation guide, Forbes Advisor will show you what customer segmentation is, why you need it and the different types and strategies you can adopt to effectively reach various customers and increase revenue.

Customer segmentation involves grouping existing and potential customers based on shared characteristics. When you segment customers into different classes, you will better understand their needs, preferences and buying patterns. Your marketing and sales team can then tailor their efforts to reach out to your customers in the most fitting way. The result of the guided campaigns and actions will be a boost to customer loyalty and conversations.

Benefits of Customer Segmentation

Customer segmentation will help you learn about customers more deeply, so you can know how to market and sell your products, which customers to invest in and how to improve your marketing techniques. Below are the primary reasons to try out customer segmentation for your business.

• Enhanced customer relationship and brand loyalty: Customer segmentation shows you precisely what each customer seeks so that you can align your marketing messages and know the exact channel to use for communicating with them. It reveals customers’ interests, spending habits, budgets and more to you. And when you interact with customers based on these things, they believe you care, and it’s easier to get more purchases from them. Also, their frequent engagement with your business drives loyalty, which keeps them coming back.
• Enhanced customer experience and sales: With customer segmentation, you will know what customers need, when they need it and what they need it for, which will enable better deliveries for each customer. For example, fine-tuning your marketing messages gets users to make more purchases since they will receive ads or promotions on exactly what they need. When you know how to attend to customers in terms of changing seasons and needs, you can offer better professional services, customer support and product or service offerings. Doing these will bring you more sales since you meet needs, and your business becomes in demand. Also, since you’ll know whom to concentrate on, your business saves time and resources, and customer segmentation ultimately increases your revenues.

Customer Segmentation vs. Market Segmentation

Sometimes, there’s confusion around customer segmentation and market segmentation since many companies use the terms interchangeably. Most businesses consider customer segmentation as a subset of market segmentation. The truth is that the two overlap, and both aim to define their customers, which is the focus of segmentation; however, each has its own uses. And depending on your product or service, you may choose to do one or both. Here’s how customer segmentation and market segmentation compare.

There are several types of customer segmentation you can use for your business. Each one has variables you’ll need to consider when segmenting. Let’s look at the most popular ones below.

Demographic Segmentation

Demographic segmentation groups customers according to shared characteristics, such as gender, age, marital status, educational level, occupation, household income and location.

• Gender: Ensure that this segment is inclusive, with plenty of categorization choices, so you can capture every gender and make customers comfortable.
• Age: This category will direct you to customers’ likely budgets and their most preferred products.
• Marital status: You can segment this as “married,” “in a relationship” and “without a spouse.”
• Occupation: Segmenting customers according to their occupation will give you an idea of customer income and budgets and their interests and availability.

Geographic Segmentation

For geographic segmentation, you will need to divide your customers according to geography, which includes their common language and location. Location can be a neighborhood, city, country or region. You can include their transportation mode, too.

• Preferred language: Knowing this about your customers will help you to communicate better with them. For example, you can use English and Español in a business you run within the United States.
• Location: Knowing where your customers are and how to find them will aid your marketing approach. Your marketing approach to New York residents should be different from your Alabama customers.
• Transportation: Knowing how customers commute will also enhance your marketing and sales. For example, you can use out-of-home advertising on trains, billboards and subway stations if your customers use the train or buses more for transportation.

Psychographic Segmentation

This type of segmentation is based on customer interests, values and personality traits.

• Interests: These are the things, such as sports, games, pets and activities, that customers enjoy. You can, thus, direct your ads towards their areas of interest or collaborate with relevant institutions. For example, you can run a cross-promotional campaign with a seniors’ home if a customer loves spending time with seniors.
• Values: You can determine customer values from surveys or one-to-one interviews. Then, pay attention to fine-tuning your product or service to meet their specific needs.
• Personality traits: You can also segment customers based on their personality traits. Doing this will help you market to them in a way they can better relate to and respond.

Behavioral Segmentation

Behavioral segmentation considers customer purchase history, response to marketing campaigns and product or feature usage patterns when grouping.

• Website activity: To determine this, you will need to track the activities of your customers, such as the elements or pages they interact with the most whenever they visit your website.
• E-commerce activity: Here, you’re monitoring their actions when visiting your online store. It may be based on the products they’ve purchased or the ones they’ve seen but are yet to purchase—their abandoned carts.
• Frequency of purchases: The more purchases a customer makes, the more valuable they are to your business. So you’ll need to determine customer value and consider rewarding customers who have made regular or repeated purchases with exclusive offers.
• Recent customer engagement: Insight into a customer’s most recent interaction with your business will guide you on what to do next with them. You can reward a positive reaction with promotions or have your customer service team work on strengthening the relationship with a customer whose recent interaction with your business was negative, such as returning an item or dropping a negative review.

Needs-based Segmentation

Businesses conduct needs-based segmentation according to the must-haves specific customers require in a product or service delivery.

• Product features: Some customers have certain requirements or buy your products because of specific features they have or needs that they help them fulfill. Find out what these features are, so you can keep your products as inclusive as possible.
• Service needs: For some, it is in how you interact with them, such as your smooth onboarding process, effective customer service or prompt deliveries.
• Delivery method: Customers have specific needs, such as how and when you deliver their products. You need to categorize individuals according to their specific shipping needs.

Technographic Segmentation

This customer segmentation group divides customers based on their use of devices, applications and software.

• Device type: You can divide customers based on the specific type of device they use to interact with your website, which can be a phone, tablet or computer. Knowing this will direct your focus. For example, if most of your customers visit from their phones, you need to consider introducing a mobile app and ensuring that your site is mobile-responsive.
• Browser type: Customers use various browser types, including Google Chrome, Mozilla Firefox and Safari. Find out the ones your customers use to better drive your site layout. You might need to test your content to ensure that they display properly on these browsers.
• Original source: Customers can find you via social media, search engines or even referrals from other customers or websites. You need to know how they discover you so you can optimize the conversion path.

From highlighting your customer segmentation goals to setting up your customer segmentation project, executing data collection, conducting segmentation, incorporating results into marketing and running customer segmentation analysis, customer segmentation can be overwhelming. However, considering the fundamentals of customer segmentation and taking them one step at a time will set your business up for conversion and sales.

Below are the fundamental strategies required for an effective customer segmentation process.

Identify Your Customer Segmentation Goals and Variables

To be able to gather the proper data required to deliver the best customer experience, you first need to determine the type of customer segmentation your business needs. For example, are you looking to offer a new product or feature or expand your market? For a new product or feature offering, consider psychographic, needs-based and technographic segmentation.

Then, examine each segmentation type to determine the elements that require your attention. While this may look insignificant, it can make a difference in the type of messages you send to the segment customers and influence the results of your marketing actions. After that, you can break them into manageable projects.

Set Up Each Customer Segmentation Project

Once you get a clear picture of the customer segmentation types you need, it’s time to set up your projects. An easy approach is to organize the segments and then start with the largest one. Once you’ve set the order, start setting up the projects.

• Set an objective: For each customer segmentation project, you need to first set a goal. Then, create a SMART framework to define your objective and answer questions around areas, such as the demand for the particular segment, how long it will take to build and complete the project, the deadline and how to measure your success.
• Involve stakeholders: Primary stakeholders include employees from the departments and teams that need to be invested in the project’s success since the goals directly affect them. However, you need to also include relevant stakeholders who will use the project most. They include your existing customers, vendors and local businesses. Also, highlight how they can be involved in the segmentation process.
• Define the project scope: To avoid overlaps or confusion later on, define the scope of each project from the onset. Set targets for areas such as data sources, resources and budget.
• Define the project deliverables: The final thing to do when setting up your project is to highlight expected results. These might include segment profiles, highlighted scope of each segment, outlines of processes and workflow wireframes.

Collect and Organize Customer Data

It’s easy to obtain data such as job titles and product purchases from simple purchases. However, you will need to be deliberate about acquiring data such as age and marital status from your customers. Thankfully, there are multiple ways to collect data from customers. Some are direct, such as through customer surveys, while others are indirect—insights are derived from data obtained.

• Surveys: You can use surveys, including post-purchase surveys, after-store surveys and product satisfaction surveys, to gather honest data from customers by asking targeted questions. They can help you cull information about customer thoughts and behaviors necessary for product or service improvement. However, explain why you need answers and ask only questions directly related to the survey goal in the terms and language each customer can connect with. Also, allow them to add their own answers, where pre-provided answers won’t adequately capture their responses.
• Analytics tools: You can also use omnichannel analytics tools to comb through different social platforms. They will find out what customers say about your company and where the conversations occur.
• Social listening: Social media is a good place to obtain customer data. So, search through customer feedback and mentions or discussions about your brand. Then, follow the social listening with an analysis that provides valuable insights for better customer-focused business activities.

Segment Your Customers Into Groups

After pulling the necessary customer data, build your segments. To get the best results, you need to approach this fundamental step with some key ideas in mind.

• Use machine learning: While it’s not compulsory to do this, it can be a huge time saver for your team. Applying automation makes customer segmentation easy, as it can help your business segment contact lists and even create communication workflows, leaving your team with less to do.
• Make segments easy to access: Align each customer segment to relevant marketing and sales channels. For example, to reach Gen Z customers , your marketing strategy should be on TikTok, Instagram or Twitter, not Facebook.
• Include loyal customers: Don’t miss out on existing customers while trying to find new ones. Work on maximizing your interactions with them to increase their number of purchases.
• Make segments easy to use: Ensure that team members find customer segments easy to use. Use clear language they can relate to, and ensure the sections are organized and easy to navigate.

Market to Your Customer Segments

It’s not enough to have customer segments. You need to utilize your customer segments. And that means creating a plan for each segment and making your communications with them customer-centric.

For the best outcome, you need to create specific plans for each segment. You can use the segment information to determine the type of content and products or features that will bring them the most value. Then create new targeted content they can engage with, and craft a strategy to get it to them. Also, find out the best time to send out content.

You can then personalize their emails and create more meaningful landing pages. These will help your customers feel that you understand them, value them and are willing to solve their issues faster.

Run Regular Customer Segmentation Analyses

Change is constant, so you need to analyze your customer segmentation model from time to time. They will help you confirm whether the segments are still necessary and whether or not they are performing by helping you to reach your goals. You can conduct customer segmentation analysis by doing the following.

• Review each customer segment for accuracy
• Compare each segment’s performance with the business goals that prompted its creation
• Ask your internal terms for their feedback
• Collect feedback from customers
• Take actions based on acquired results

Customer segmentation tools help businesses collate data from multiple sources and organize them for effective customer segmentation. These tools automate the technical processes in segmenting customers so that your team members can have more time to focus on other tasks needed for your business’s growth. There are several tools available, including the following.

Qualtrics is a customer segmentation software with machine learning and artificial intelligence (AI) capabilities to help you group customers into segments. Qualtrics also organizes studies on segments, determines optimal communication approaches for each segment and runs customer segmentation analyses. It also provides segmentation features for your products so you can fine-tune your product offerings to specific customer segments.

HubSpot offers customer segmentation tools for creating segments from static and active contact lists. HubSpot uses contact scoring to segment your customers. This software also offers its users event-based segmentation, which can help you locate customers within a specific area and market to them. Also, after events, this customer segmentation tool will use collated details from attendees to create customer segments for future business events.

Segment is a suitable tool for aggregating data points from mobile and website applications. It integrates with more than 300 software tools so you can have your data in one place. Segment tracks customer interaction and offers daily reporting. It will help your marketing team create specific marketing campaigns and deliver personalized customer experiences.

Userpilot has advanced segmentation features for managing customer relationships. With Userpilot, you can track customer engagement, from where they visit to how often they click on specific elements on your website and their journey as customers. Userpilot will segment your customers based on their value to your business or however you want them segmented. It is easy to use and it enables smooth integration with other tools.

Bottom Line

Customer segmentation is relevant for all businesses, as it groups customers based on shared characteristics to provide customers with the exact experience they need. However, to enjoy business growth and sales, which is the aim of customer segmentation, it is important to identify and follow the fundamental strategies for customer segmentation. So, start working on these strategies and use customer segmentation tools for faster processes.

What are the five Ws of customer segmentation?

The five Ws of segmentation are:

• Who: Who the customers are in terms of, for example, age and gender
• What: What customers have done, what they do, what they are likely to do and what they think
• Where: The geographic diversity or concentration of customers
• When: The seasons, life events and periodic activities of customers
• Why and how: Customer interaction with your business, such as online vs. in-store

When should you use customer segmentation?

You should use customer segmentation on an ongoing basis since it will help your teams better understand customers and interact with them. Your marketing team can tailor campaigns to different segments with peculiar characteristics, your product team can identify active and inactive customers and your customer support team will know how to relate with customers.

Why is customer segmentation necessary?

Customer segmentation is necessary because it helps you optimize marketing strategies, which improve customer experience and satisfaction and enhance your customer retention and sales.

Are customer segmentation tools good?

Yes, customer segmentation tools are good. They help you sift through several data points and determine relevant segments. Their automation features save businesses a lot of time and energy.

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Customer Segments

Customer Segments is the first and most important building block of the Business Model Canvas . So let’s explore what is the customer segments block and why segmentation can be the difference between your canvas’s success or failure.

No company will succeed without customers . If no public buys a product or service, the organization can close its doors because it will not make sales and therefore cannot survive. That is why the customer is the focus of any business .

To meet the needs and interests of these customers, it is important that the company or organization be able to segment them into groups by similarity. That is, these groups of people will have common goals and interests, kind of the same behaviors and needs, and a similar financial and social profile. This makes it easier for the company to visualize and reach each type of audience .

We are going to understand, then, how to segment audiences and what the relevance of this procedure is.

What is a customer segment?

Customer segments are, simply, the group of customers or companies for which you plan to sell your products or services. This is the first and perhaps the most important step for your Business Model , since getting the definition of this block right is the key to your canvas success.

Customers can be segmented into distinct groups based on their needs, behaviors, social and demographic profile, interests and motivations, and other similarities they share. An organization may choose to target a single group or multiple groups through its products and services.

Once a company has segmented and selected the customer groups it wants to serve, it will be able to create a value proposition and employ a business model more appropriate to meet the needs of the chosen customers.

The organization may categorize customers into distinct groups if they have the following features:

• a specific need justifying the creation of a product to meet this need;
• a distribution channel to be reached;
• different types of relationships
• the difference in the level of profitability that each group represents for the organization;
• each consumer group is strong enough to pay for a different version of the product or service, tailored to their preferences.

Segmenting Customers

Customers can be segmented through different profiles, for example:

• Demographic : establishes the consumer community by characteristics such as age, ethnicity, religion, gender, educational level, income, among others.
• Geographic : defines the audience by area, such as country, city, region, and even by the differentiation between rural and urban areas.
• Psychographic : puts together clients with the same social status, lifestyle, personality traits, behavior, and consumption, in addition to the desired benefits.

There are thousands of ways to create Customer Segments. What you should keep in mind when setting your criteria is that if it does not help you better identify the customer, it is only a waste of time. When determining your customer segments, consider the following:

• Depth of pain : The greater the pain (need), the greater the chance that the client will be open to your solution.
• Budget : Are customers willing to pay for your solution? How many? And how much? The greater the pain (need), the more customers are willing to spend.
• Reach : How are you reaching your customers? Is it too expensive to deliver in person or more effectively?
• Market size: What part of the market do you need to meet? Does this market share represent more than 10% of the size of your market? Is that safe?
• Value : How do you feel about serving this segment? Do these clients match the mission of your company?

Types of Customer Segments

Mass Market

Business models geared towards the mass market , in fact, choose not to perform customer segmentation. Its products and services are attractive or meet the needs of a large part of the population and do not discriminate between different customer segments. In this case, value propositions, distribution channels, and customer relationships are intended for many people who have a common problem or need. This is the case, for example, of manufacturers of electronics or appliances, which do not usually differentiate between products. A refrigerator or a television usually serves different people equally, since, however distinguished the public, the need to be satisfied is the same.

Niche Market

These Business Models are intended for smaller customer segments, since they are specific and specialized, with very particular characteristics and needs. It is a segment that expects a highly personalized product or service, practically tailor-made. In this case, value propositions, distribution channels, and customer relationships are strictly defined according to the preferences of that particular segment of customers. It is what happens in Business Models where a supplier depends on a trade or distribution. Like a manufacturer of auto parts, for example, which depends on the automobile manufacturers so that its business can exist and remain.

In this Business Model, the organization develops products and services for different segments with very subtle variations regarding their needs and interests. For this purpose, several value propositions, distribution channels, and customer relationships are created according to these minimum differences. It is the case of a bank, for example, that offers different products and services for clients with income over 100 thousand dollars and others with incomes over 500 thousand.

Diversified

Unlike Segmented, this Business Model chooses to serve customers with completely divergent needs and requirements. For a variety of reasons, the company believes that it is worth developing products and services that satisfy different customers, who do not share many similarities. This is the case, for example, of companies that serve both individuals and corporate clients.

Multilateral Platform (or Multilateral Markets)

These Business Models serve two or more customer segments . Such segments tend to be interdependent, that is, for business to function, it is necessary to satisfy both sides. This is the case, for example, of credit card companies, which need to be chosen by a wide range of consumers as well as accepted in a great variety of establishments. Both cardholders and business owners are customers of these Business Models.

The Business Model is, therefore, able to define one or several customer segments, even of different sizes. This way, the company can analyze each segmented group and decide which will be its target and which can be ignored.

Customer Segments are, as already mentioned, the first step to be developed within the Business Model. Thus, the entire Model will be designed with a defined target audience, tailored to its needs, goals, and preferences. Having established this first block, it will be time to move on to the next.

Have you designed your canvas yet? Start by downloading our Canvas in PDF or our Canvas in PPT , and do not forget to start with the Customer Segments .

To make it easier to understand who your client is, you can also fill out the Empathy Map template in PDF !

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19 Customer Segmentation Examples + How To Segment Customers

15 min read

Looking for the best customer segmentation examples? You’ve come to the right place.

They can help you understand how to target your marketing better to increase product engagement and usage. It’ll also help you figure out if you should segment users based on their age, company size, or pain points. Let’s get started.

• Customer segmentation involves dividing your customers into different groups based on common characteristics, such as age, gender, industry, device type, and company size.
• Market segmentation, on the other hand, focuses on dividing the broader target market into different segments . Its purpose is to assess market viability.
• Segmenting your customer base offers several benefits, including improved personalization , retention, and customer loyalty. Also, it helps tailor your marketing efforts, so your messaging aligns with each segment.
• You can choose from different customer segmentation models , such as demographic segmentation, geographic segmentation, firmographic segmentation, and more.
• You can segment customers based on different criteria. Customer segmentation examples include age, gender, location, language, industry, behavioral data , company size, values, interests, and more.
• To perform a customer segmentation analysis, start by defining SMART goals to specify the reason for segmenting customers.
• Next, collect customer data as you can only create segments based on this data. It’ll also help you decide the segmentation criteria.
• Finally, analyze the customer segments you’ve created to understand their unique requirements.
• Userpilot lets you create user segments based on different factors and analyze their behavior and usage patterns. Schedule a demo to see the platform in action.

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What is customer segmentation?

Customer segmentation is the process of dividing your existing customer base into groups based on shared attributes or traits. For instance, you can segment users based on their age, gender, pain points, or industry.

This customer segmentation process helps you dig deeper into your customer base and understand their needs and preferences. It enables you to delight users with personalized in-app experiences , feature recommendations, marketing campaigns, and more.

Customer segmentation vs. market segmentation

The terms customer segmentation and market segmentation are often used interchangeably, but they serve different purposes.

Unlike customer segmentation, market segmentation focuses on the broader market (including your target customer segments). It involves dividing the entire market into different segments based on shared characteristics, such as needs or pain points.

Market segmentation is used to determine the viability of your product idea for a specific target group. On the other hand, a customer segmentation strategy is more specific than market segmentation and aims to deepen your understanding of the existing target audience to enhance their experience and drive product adoption .

Why segment customers?

Customer segmentation is a valuable tool for several departments, including marketing and product teams. It helps you tailor the user experience for each segment, which, in turn, emphasizes that you care for your customers.

Key benefits of customer segmentation include:

• Better personalization – The main benefit of segmenting your target audience is that you can deliver a personalized user experience from the get-go. You can tailor onboarding flows and in-app messages and offer personalized support.
• Improved marketing efforts – Customer segmentation lets you dig deeper into user needs, in-app behavior, and product usage patterns. It allows you to develop more targeted marketing campaigns that cater to each segment’s pain points.
• Data-driven product development – Evaluating how different users navigate and interact with your product eliminates the guesswork from product development . Instead, you can use customer segmentation analysis data to identify and build features that resonate with each segment.
• Increased customer loyalty – Customer segmentation enables personalization, ensuring a better user experience. It makes each user feel valued and helps boost customer loyalty .
• Improved retention and revenue growth – Happy and loyal users are more likely to return to your product and spend on add-ons and upgrades. This helps you generate more revenue from each user and ultimately skyrockets customer lifetime value .

Customer segmentation models

You can use different parameters to divide your customers into segments. Let’s take a look at the most commonly used customer segmentation models.

Demographic segmentation

Demographic segmentation uses criteria such as age, gender, income, or occupation to divide customers into groups. This type of customer segmentation is commonly used by B2C businesses looking to implement targeted marketing campaigns and tailor their product offerings to different age groups, genders, and so on.

Geographic segmentation

Geographic segmentation involves grouping users based on their location. It comes in handy for localizing the user experience.

Firmographic segmentation

This type of customer segmentation uses properties such as industry, company size, and revenue to group customers. It’s particularly useful for B2B businesses looking to drive product growth and adoption.

Behavioral segmentation

It refers to dividing users into different groups based on their in-app behavior and product usage patterns. This type of segmentation comes in handy for driving user engagement and feature/product adoption.

Needs-based segmentation

Needs-based segmentation uses criteria like aspirations, needs, and pain points to group customers. It helps you create hyper-personalized marketing messaging and in-app experiences that resonate with each segment.

Technographic segmentation

This type of customer segmentation uses technical parameters, such as device type, operating system, or browser, to divide users based on the tech they use. You can use it to improve product usability .

Psychographic segmentation

Psychographic customer segmentation accounts for factors such as beliefs, lifestyle, socioeconomic background, and values to group customers. It comes in handy for understanding what motivates users to behave the way they do and creating detailed user personas .

19 customer segmentation examples

How do you select the right customer segmentation model for your product? Let’s take a closer look at a few customer segmentation examples to help you get started.

Type: Demographic segmentation example

Age is a commonly used demographic segmentation factor. Users in different age groups have varying buying habits, needs, preferences, and tastes.

Segmenting users into age groups can help you tailor marketing messaging and in-app experiences.

For instance, a B2C platform like TikTok, with a predominantly Gen Z user base, will create ad marketing campaigns targeting 15 to 25-year-olds. Similarly, in-app gamification can be an excellent way to boost engagement among younger age groups.

Sex or gender-based segmentation is another common example of demographic segmentation . Dividing users into different groups based on their gender can provide you with deeper insights into their behavior and purchase habits.

Let’s say you’ve launched an online apparel store. You can group users based on their gender and target each segment with personalized clothing recommendations. Better still, you can customize on-screen elements, such as the color palette and page microcopy , so that they resonate better with each gender.

3. Occupation

Segmenting customers based on their occupation helps you dive deeper into their income and purchase habits. You can also gain insights into when they’re more likely to use your product and why.

Take the example of LinkedIn, where the user base comprises different professionals. These include recruiters, sales managers, and marketers. Knowing how each customer segment navigates the platform comes in handy for delivering targeted ads and content recommendations. That, in turn, boosts engagement .

4. Location

Type: Geographic segmentation example

Location-based segmentation involves dividing customers into different groups based on where they live. It’s a valuable tool for products with an international user base, as it helps you customize the user experience for each country. Even if you have a domestic user base, you can create localized experiences for users in different regions.

5. Preferred language

Language-based segmentation can be as straightforward as grouping users according to their spoken languages. Alternatively, you can segment users based on their preferred linguistic style and tone.

Let’s say you’re building a graphic design tool that caters to folks all around the globe. You can tailor the languages for each region like French for France and German for Germany. Offer variations in English as well, such as British and American English.

6. Industry

Type: Firmographic segmentation example

This comes in handy for B2B businesses. Let’s say you’ve built a CRM platform that caters to businesses in different industries, such as finance, insurance, and real estate. The needs of a sales rep in an insurance firm will be different from those of a sales rep working for a real estate broker.

Industry-based segmentation can help you recommend relevant features and support resources to each user group. It will eliminate friction from their journey and help them generate maximum value from your product.

7. Company revenue per year

Annual revenue is a segmentation criterion used in firmographic segmentation. Segmenting user accounts based on revenue offers insights into the scale and size of their business. It can help you understand their needs better and come up with more tailored product offerings and pricing.

This type of segmentation is helpful for B2B products that cater to different types of clients, from small home-based businesses to corporations.

8. Company size

Here, you group users based on the number of employees in their company. This is usually helpful when you want to personalize your product based on the user’s company scale. Startups will have vastly different needs compared to enterprise businesses, for instance.

You can also customize your pricing based on company size to better cater to a user’s needs.

9. Growth stage

If your product caters to B2B users , it’s crucial to understand where each user’s company stands in terms of growth stage. This type of firmographic segmentation involves dividing users into different groups such as solopreneurs, startups, and enterprises.

Monitoring and analyzing product usage for each segment will give you a better idea of their needs and in-app behavior . You can use that data to create personalized onboarding experiences for different groups.

Let’s go back to the example of a CRM solution. A solopreneur would only be interested in storing and organizing customer data. Overwhelming them with advanced features like sales and service could result in friction . Growth stage-based segmentation can help you highlight the right features for each user, ultimately enhancing their experience.

10. Device type

Type: Technographic segmentation example

This is a type of segmentation where you group customers based on the type of device they’re using. For instance, you can divide them into desktop and mobile users or Android and iOS users.

Knowing what device each segment uses can help product teams optimize UI design . For instance, if you’ve launched an online news app, you can tailor the font size, color palette, and layout of your content for different device types. This will ensure a seamless experience regardless of the device used.

11. Existing tech stack

With this type of segmentation, you group users based on the technology they use, such as devices or software. This can help them have a smoother experience with your app.

Here’s an example. Let’s say your product is a digital adoption platform. When a new user logs in, you can launch a welcome survey inquiring about the CRM software and analytics tools they’re currently using.

You can then divide your user base into different customer segments based on the CRM software they’re using. Next, you can guide each segment to relevant support resources that outline steps to connect their CRM with your platform. Alternatively, you can use tooltips to highlight features on your platform that can help them use their CRM data better.

12. Pain points

Type: Needs-based segmentation example

Pain points are a widely used criterion for needs-based segmentation. This type of segmentation involves grouping users based on their challenges. Then, you can recommend the right features, knowledge base articles, and other resources to help them derive maximum value from your product.

13. Use cases

This type of segmentation groups users based on why they’re using your product. It can help you design tailored in-app experiences to guide users to the Aha! moment faster.

For instance, let’s say you’ve built an AI writing tool. Your customer base will likely comprise people who use the tool for copywriting, long-form content writing, and scriptwriting.

Segmentation based on these use cases allows you to provide each user with contextual guidance . Instead of overwhelming them with unnecessary features, you can gently direct them to the right features and resources that help them get their job done fast.

14. Customer journey stage

Type: Behavioral segmentation example

In this type of segmentation, you group users based on where they’re located in the customer journey. It helps you develop more personalized marketing messaging that resonates with each segment.

For instance, you can divide users based on whether they are first-time visitors, new customers, or repeat customers . Many apps use this segmentation type to personalize in-app experiences based on a user’s eagerness to purchase.

Monitoring the behavior of users in different stages of their journey can also help you understand why many of them drop off at specific steps and then work to fix the problems accordingly.

15. Usage patterns

This segmentation type divides customers into groups based on their product usage patterns. SaaS companies have several uses for this, such as analyzing and improving feature adoption or understanding user preferences.

Here’s an example. You can segment users by whether they’ve tried a new feature or not. In the first segment, you can launch a survey asking about their experience and feedback. For the second one, you can create an interactive walkthrough that helps them understand how to use the new feature.

16. Pricing tier

Type: Value-based segmentation example

It involves dividing your user base based on their selected pricing tier. Let’s say your product comes with three pricing plans—free, growth, and enterprise. Segmenting users based on their selected plan offers insights into how much revenue you can generate from each account. Also, you can devise ways to maximize customer lifetime value with targeted upsells and upgrade recommendations.

17. Satisfaction scores

Segmenting users based on satisfaction scores provides you with a closer look at overall user sentiment around your product. Also, you can identify users who are happy with your product and monitor their behavior through analytics reports like path analysis and heatmaps.

It’ll help you understand how happy users interact with your product and the paths they take to reach certain features. This data can come in handy for eliminating friction from the user journey.

Type: Psychographic segmentation example

Value-based segmentation involves grouping customers based on their values. It can help you understand what motivates users to behave in certain ways so you can improve your messaging and build meaningful user relationships.

Let’s take the example of a grocery delivery app. If a segment in your user base values sustainability, you can send them personalized push notifications or newsletters to showcase your efforts to minimize carbon emissions. Also, you can create tooltips within your app to show users how they can minimize their carbon footprint (such as opting to get the order without a plastic packet).

19. Interests

You can also create user groups based on common interests. This comes in handy for delighting users with personalized content recommendations, such as on video streaming websites. Alternatively, a food delivery app can use interest-based segmentation to personalize restaurant recommendations for each segment.

How to perform customer segmentation analysis

Now that you’ve learned about some of the best customer segmentation examples, let’s find out how you can perform a segmentation analysis. Dividing users into different customer segments is the first step. You also have to monitor and analyze each segment for a better understanding of their behavior, needs, and preferences.

1. Define your segmentation goals

The first step is to understand why you want to segment your user base.

Do you want to maximize the adoption of a new feature ? Or are you looking to introduce your product to a new age group? Or maybe you want to improve customer satisfaction and loyalty. Knowing the answers to these questions will help you select the right segmentation model and criteria.

For instance, if your goal is to boost feature adoption, you can segment users based on where they are in the customer journey . You can also divide them into groups based on in-app behavior and usage patterns .

When setting your segmentation goals, use the SMART framework . It involves setting Specific, Measurable, Achievable, Relevant, and Time-Bound goals. Using this approach makes it easier to track your goals and determine whether you’ve accomplished them.

2. Collect customer data to segment customers

The next step is to collect in-depth customer data relevant to your segmentation goals. Here are a few ways to do that:

• Use a product analytics tool for detailed data on user behavior, preferences, pain points, and needs.
• Implement in-app surveys, such as welcome surveys and NPS surveys , to get feedback from active users. Use email surveys to collect feedback from inactive users.
• Conduct user interviews for deeper insight into their motivations and wants.

3. Identify segmentation criteria and create segments

It’s time to specify the attributes and traits that fit your selected segmentation model.

For instance, if you want to identify power users and maximize customer lifetime value, you need to segment users based on NPS scores. Then, deliver targeted feature recommendations and contextual in-app guidance to users with positive NPS scores .

Alternatively, let’s say you’ve launched a new pricing tier that caters to small businesses and startups. In that case, it’s a good idea to segment users based on their company size and revenue.

You can use a tool like Userpilot to segment users based on different parameters.

4. Analyze each customer segment to identify their unique needs

In the final step of customer segmentation analysis, you dig deep into user data for each segment. You can view the behavior of a few individual users in each segment.

Alternatively, you can use analytics software to generate detailed reports like funnel analysis , path analysis, heatmaps, and user session recordings. These reports can provide you with a detailed glimpse of how users interact with your product.

You can learn more about the characteristics, needs, and behavior patterns of different groups. That, in turn, will ensure your marketing and product development efforts resonate with each segment.

For instance, let’s say your product is a project management tool. You segment users based on usage patterns and observe that power users tend to use features like task creation and image library a lot more. You can perform path analysis for this segment to identify happy paths to these features and help other users find their way to them.

Userpilot – Best tool for user segmentation

Userpilot is a powerful product growth platform that comes with built-in product analytics . You can also use it to create detailed customer segments and design personalized in-app experiences for each group.

When it comes to customer segmentation on Userpilot, the following features come in handy:

• User segmentation – Create customer segments based on different criteria, such as user ID, sign-up date, company data, and in-app behavior. You can also segment users based on in-app survey responses.

• User feedback widgets – Create and implement a variety of in-app surveys, including NPS and CSAT surveys, to collect user feedback . You can even trigger different surveys for each customer segment to understand their needs better.

• Analytics reports – Explore a broad spectrum of analytics reports, from trend analysis and funnel analysis to cohort analysis and heatmaps . Filter the data based on different parameters to view insights specific to a segment. These reports come in handy for analyzing each user segment’s behavior and usage patterns.

• Analytics dashboards – Access multiple analytics dashboards to monitor user behavior. For instance, you can use the product usage dashboard to identify active users and their usage trends for a specific segment.

• User dashboard – Utilize the user analytics dashboard to track and analyze all user insights in one place. You can even filter the data based on different customer segments.

• CRM integrations – Userpilot supports integration with commonly used CRM platforms, such as HubSpot and Salesforce . That means you can bring additional user data to Userpilot and fine-tune your customer segmentation criteria.

Customer segmentation is essential to improving user engagement, feature adoption, and product growth. It allows product teams to deliver a personalized user experience, which, in turn, drives retention and loyalty.

It also deepens your understanding of user needs and pain points, allowing marketing teams to create more targeted messaging. And the above customer segmentation examples will enable you to get it right and drive greater adoption and engagement.

Ready to take product growth to the next level with customer segmentation? Get a Userpilot demo to explore our segmentation and analytics features.

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Customer Segments in Business Model Canvas

Published: 20 July, 2023

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Business Models

Table of Contents

Though every business model is different, and each company crafts its value proposition uniquely , one common goal for all business owners is the importance of finding and retaining customers. Marketing can often constitute a significant expense on a business’s balance sheet, making it essential to maximize the impact of marketing efforts to ensure long-term success. Understanding your customers plays a crucial role in achieving this, and to do so efficiently, we highly recommend implementing a customer segmentation strategy.

By employing a customer segmentation strategy, businesses can identify distinct groups within their customer base based on shared characteristics, preferences, and behaviours. This allows companies to tailor their marketing messages, products, and services to each segment’s specific needs, enhancing customer engagement and satisfaction.

Unlock the full potential of your business with the Unite Extended Business Model Canvas . By embracing the Extended Canvas, you can gain valuable insights, spot hidden opportunities, and develop innovative solutions to meet the evolving needs of your customers. Empower your teams with a culture of innovation and drive your business toward sustainable success in today’s dynamic market. You can download the Extended Business Model Canvas now.

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Related: https://digitalleadership.com/unite-articles/extended-business-model-canvas/

In this article, we discuss different types of customer segmentation and how they can be used to drive product management and find profitable customers.

As with so many of the topics we discuss here at the Digital Leadership website, customer segmentation is a very complicated topic. This article is intended to provide merely an overview of how you might approach different segments of customers and how the types of customer segmentation can be put to use.

What are Customer Segments in Business Model Canvas?

In the Business Model Canvas, customer segments represent distinct groups of customers that a company aims to cater to with its products or services . These segments are fundamental elements of the canvas, and they significantly influence the organization’s strategy and value proposition.

To define customer segments, a company needs to consider factors such as demographics, geography, buying habits, and psychographics. For example, a company might segment its customers based on age, income, or lifestyle. The more specific and well-defined the customer segments are, the more effectively a company can tailor its products, services, and marketing strategies to meet the needs of each group.

Customer Segments

What are customer segments.

Customer segments are distinct groups of customers that companies identify and target based on shared characteristics, needs, or behaviours. Through market segmentation, businesses categorize their customer base more effectively. Defining customer segments helps tailor products, services, and marketing strategies to address each group’s unique requirements and preferences, driving business growth and maximizing customer satisfaction.

Customer segments Types

Customer Segmentation

Customer segmentation is a process used to categorize a customer base into separate groups with similar characteristics. By doing so, businesses can efficiently target these specific groups with customized products, services, and marketing strategies, resulting in more effective and personalized interactions with their customers.

Customer segmentation is meant to help us better understand the needs of our customers, how we can meet those needs, and how we can best convey our abilities through our marketing efforts. In the wrong hands, a customer segmentation strategy results in making assumptions about potential customers that are unfairly biased and, ultimately, unhealthy for our business. Customer data must be evaluated truthfully and with the company’s best interests in mind.

What are the Types of Customer Segmentation?

Segmenting customers entails dividing them into groups based on various profiles, including demographic, geographic, and psychographic characteristics. These profiles serve as valuable tools for businesses to better identify and comprehend their target audience. Some typical segmentation criteria include:

When implementing a customer segmentation strategy, it typically involves considering your customer groups through various perspectives:

• Demographic Segmentation: This involves dividing customers by demographic factors like gender, education, family size, or marital status. An example would be a skincare brand offering different product lines for men and women
• Behavioural Segmentation: This approach categorizes customers based on their purchasing behaviour or usage patterns. For instance, frequent buyers, occasional customers, and first-time purchasers could each represent separate segments.
• Geographic Segmentation: Companies may divide their customer base based on geographic locations, such as urban, suburban, or rural areas. This helps tailor marketing strategies to regional preferences and cultural differences.
• Psychographic Segmentation: Segments based on personality traits, values, attitudes, and interests. A travel agency might target adventurous thrill-seekers and relaxation-focused vacationers with different travel packages.
• Lifestyle Segmentation: Companies may target customers with specific lifestyles, values, or interests. For example, fitness-oriented companies might create segments for health enthusiasts and gym-goers.
• Age-Based Segmentation: A company may target different age groups with products or services tailored to their specific preferences and needs. For example, a toy manufacturer might have segments for toddlers, young children, and teenagers.
• Income-Based Segmentation: Businesses may create segments based on income levels to offer products or services that align with varying spending capacities. Luxury brands often target high-income segments, while discount retailers focus on budget-conscious customers.
• Usage-Based Segmentation: Companies can segment customers based on their usage frequency or intensity. For instance, a software company may offer different subscription tiers for light users and power users.
• Customer Needs Segmentation: Businesses may identify segments based on specific needs or problems they aim to address. An electronics company could have segments for gamers, business professionals, and creative designers.
• B2B Segmentation: In business-to-business markets, companies can segment customers based on industry, company size, or specific business requirements to offer tailored solutions and services.

When determining customer segments, it is crucial to focus on criteria that truly help identify and serve customers better. Consider the following factors:

• Depth of Pain (Need): The severity of a customer’s pain or need influences their openness to your solution.
• Budget: Assess whether customers are willing to pay for your solution, how many are potential customers, and the amount they are willing to spend. Higher pain points often lead to a greater willingness to spend.
• Reach: Evaluate how you can effectively reach your customers. Determine whether it is cost-effective to deliver in person or use alternative methods.
• Market Size: Analyze the size of the market segment you aim to target. Ensure that the share of this market represents a substantial portion of your overall market.
• Value: Consider whether serving this segment aligns with your company’s mission and values.

Effective Customer Segmentation Strategies

• Every business has specific customer segments and aims to attract as many potential customers as possible, but targeting everyone is often impractical.
• Understanding the target market is crucial for tailoring marketing messages and meeting customer needs effectively.
• No business plan survives first customer contact because the ultimate prerequisite for creating a successful product or service is understanding the real needs of customers. Many times, we fail to grasp these needs accurately, leading to theoretical business plans and presentations that miss the mark on customer and market reality. To excel in business, it is essential to gain a much better understanding of what our customers truly want.
• Firms often base their ideas on their perceived understanding of their customer (segmentation) , which can lead to flawed approaches, especially in innovative contexts where customer behaviour is unknown. Because this goes against most of what we have been taught about understanding our customers, let’s dig into it a bit. Let’s start by discussing a Customer Persona – a typical representation of a customer segment, displaying its key characteristics.
• Introducing the concept of a “ Customer Persona ” as a typical representation of a customer segment, incorporating visual, demographic, sociographic, and psychographic data. A Persona is a typical representative of a larger Customer Segment. A description of a Persona should include visual material (photo of a typical segment representative and potentially photos of the typical “world” of this Persona), demographic, sociographic, and psychographic data. Importantly, Personas should represent reality and not just be invented and designed to your taste (a common problem, believe it or not!)
• Demographic data is informative but may not provide insights into actual behaviours. Effective Personas require discussing “design-relevant parameters” to understand customer information relevant to the product or service.
• Accurate and well-defined Personas help businesses better understand customer needs and preferences, aligning their offerings with real-world demands.
• Building a customer persona involves considering both demographic and customer-specific information, such as goals, barriers, and common behaviours among the targeted groups.
• Various ways of segmenting customers are mentioned, including geographic, behavioural, and demographic segmentation.
• Businesses are encouraged to create buyer personas for different customer groups, including current customers, important customers, and potential customer segments, to optimize marketing efforts and meet customer needs effectively.

Customer Persona

• Definition: A customer persona is a representative of a larger Customer Segment, providing insights into the characteristics and behaviours of a specific customer group.
• Visual Material : Include photos of a typical segment representative and their environment to visually depict the Persona.
• Demographic Data : Consider basic information like age, race, gender, education, and marital status, similar to a governmental census.
• Sociographic Data : Understand the social and cultural characteristics, interests, and lifestyle of the Persona.
• Psychographic Data : Explore the Persona’s attitudes, beliefs, values, and motivations.
• Design-Relevant Parameters : Discuss relevant parameters that provide valuable information for understanding the customer and developing your product.
• Representing Reality: Ensure that Personas are based on real customer data and behaviours, avoiding the temptation to invent them based on personal preferences.
• Importance of Behaviour: Recognize that demographic data alone does not reveal customer behaviour, which is crucial for effective marketing and product development.
• Semi-Fictional Representation : Personas are semi-fictional, allowing businesses to create a clear picture of potential customers.
• Sources : Base Personas on existing customers, including best customers, or create them for a target audience.
• Pattern Identification: Use Personas to identify patterns among specific groups of potential customers, improving targeting strategies.
• In-Depth Insight : Go beyond demographics and delve into customer-specific information, such as their needs, goals, and challenges.
• Addressing Barriers : Identify barriers that might prevent the Persona from engaging with your products or services.
• Goal-Oriented Approach : Understand the Persona’s goals and aspirations to align your offerings with their desires.
• Common Customer Behavio r: Analyze common behaviour patterns among the targeted customer groups.
• Segmenting Customers: Consider different segmentation approaches, such as geographic, behavioural, and demographic segmentation.
• Different Customer Groups : Develop buyer personas for different customer groups, including current customers, important customers, and potential customer segments.
• Comprehensive Understanding: By creating detailed Personas, businesses can gain a deeper understanding of their customers, leading to more effective marketing efforts.
• Human-Centric Approach : Understanding customers on a more human level enables businesses to tailor marketing messages and strategies to meet real-world demands.
• Meeting Customer Needs : Utilize insights from customer Personas to ensure that your products or services align with customers’ actual requirements.

Related: https://digitalleadership.com/unite-articles/value-proposition-canvas/

Considering Customer Segments and Their Jobs to be Done

When considering customer segments and the Business Model Canvas, understanding their Jobs to be Done becomes particularly relevant. It is worth emphasizing that a major element of customer segmentation is the consideration of consumer needs. Your business benefits from understanding Jobs to be Done – the term widely applied to refer to the challenge a customer faces when he or she turns to our companies for a solution.

When the Digital Leadership experts segment customers, we spend as many resources as necessary to understand the Jobs to be Done for each target audience. This is an essential element of customer segmentation analysis.

Jobs to be Done can be described in a number of ways, but we like to focus on two varieties of jobs, functional jobs and emotional jobs.

Customers Value Proposition

While a simple reorganization around Jobs to be Done and customer segmentation will not resolve all culture and communication problems, it is a step in the right direction. It creates an organization that is clearly aligned with customers and customer value – something that traditional organizational approaches often get wrong.

The basis of any successful innovation venture is finding a strong Problem/Solution Fit: the identification of an important but unmet customer need that can be fulfilled with our solution. So, we need to think in terms of customer value as opposed to a business case. To structure those terms, customer segmentation grants us insight into customer needs.

The Value Proposition Canvas , integrated into the Business Model Canvas , serves as a potent tool for businesses to craft and enhance their value proposition through a profound comprehension of their customers’ needs, challenges, and desires. By utilizing this tool, businesses can develop compelling and customer-focused value propositions that precisely cater to distinct customer segments. You can download it now.

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What is Customer Segmentation? Practical Guide with Templates

Customer segmentation is a strategic approach to understanding and categorizing your customer base. It helps businesses customize their approach, making products and marketing more effective. And in this guide we will share what is customer segmentation along with insights and tips on how to use customer segmentation to boost satisfaction and overall success.

What is Customer Segmentation?

Customer segmentation is the practice of grouping customers based on similarities in characteristics, behaviors, or preferences. This helps businesses tailor their products and marketing to meet the specific needs of each group, ultimately improving customer satisfaction and overall success.

Segmenting customers involves dividing them into distinct groups or segments based on identifiable traits, behaviors, or preferences. These characteristics could include demographics (age, gender, income), psychographics (lifestyle, values, interests), geographic location, purchasing behavior, or other relevant factors. The primary aim is to create segments that share common attributes and respond similarly to marketing efforts.

Understanding each segment’s unique needs and preferences helps businesses create targeted marketing strategies, personalized communications, and tailored products. By doing this, companies can allocate resources more efficiently, target high-potential customers, and improve customer satisfaction.

Customer Segmentation vs Market Segmentation

Customer segmentation is about grouping a company’s existing customers based on things they have in common, like age or interests. The goal is to understand their needs and tailor products or marketing to each group.

Market segmentation is a broader concept, including not only existing customers but also potential customers in the target market. It divides the overall market into segments based on various factors to identify and prioritize different customer groups.

In short, customer segmentation focuses on current customers, while market segmentation considers both current and potential customers in the broader market.

What is CLV-Focused Customer Segmentation

CLV-focused customer segmentation involves sorting customers based on how valuable they are over the long run. It involves grouping customers by the potential revenue they can bring to the business throughout their entire relationship. Businesses then prioritize strategies for the high-value groups, like personalized marketing and special offers, to maximize their loyalty and contribution. The goal is to allocate resources wisely and build strong, profitable relationships with customers who are likely to be most valuable over time.

Types of Customer Segmentation

1. demographic segmentation.

Demographic segmentation involves categorizing customers based on specific demographic factors.

• Age : Sorting customers by age groups like teens, young adults, middle-aged, or seniors.
• Gender : Grouping customers as male or female.
• Income : Categorizing customers by income levels - low, middle, or high.
• Education : Segmenting customers based on education levels such as high school, college, or postgraduate.
• Occupation : Sorting customers by their jobs, like healthcare professionals, IT specialists, or teachers.
• Marital status : Grouping customers as single, married, divorced, or widowed.
• Family size : Considering the number of people in a customer’s household, like singles, couples, or families with children.
• Ethnicity or race : Segmenting customers based on their ethnic or racial background.

2. Geographic segmentation

Geographic segmentation involves categorizing customers based on their geographical location. Here are key aspects of geographic segmentation;

• Country : Dividing customers based on the country they reside in.
• Region : Segmenting customers according to their specific region or area within a country.
• City : Categorizing customers based on the city they live in.
• Climate : Considering the weather and climate conditions of the customer’s location.

3. Psychographic segmentation

Psychographic segmentation involves categorizing customers based on their lifestyle, values, interests, and personality traits.

• Lifestyle : Grouping customers based on their activities, hobbies, and overall way of life.
• Values : Segmenting customers according to their core beliefs and principles.
• Interests : Categorizing customers based on their hobbies, passions, and areas of interest.
• Personality traits : Considering customers' personality characteristics, such as adventurous, conservative, outgoing, or introverted.

4. Behavioral segmentation

Behavioral segmentation involves categorizing customers based on their behaviors, actions, and interactions with a product or service.

• Purchasing habits : Grouping customers based on their buying patterns, such as frequent, occasional, or seasonal purchases.
• Product usage : Segmenting customers according to how often and in what ways they use a product or service.
• Brand loyalty : Categorizing customers based on their loyalty to a particular brand or willingness to try different brands.
• Responses to marketing : Considering how customers respond to advertising, promotions, and other marketing efforts.

5. Needs-based segmentation

Needs-based segmentation involves categorizing customers based on their specific needs, preferences, or challenges that they aim to address through a product or service.

• Specific needs : Grouping customers based on the particular requirements or problems they are looking to solve.
• Preferences : Segmenting customers according to their preferences and desires related to a product or service.
• Challenges : Categorizing customers based on the difficulties or obstacles they face that the product or service can alleviate.

6. Technographic segmentation

Technographic segmentation involves categorizing customers based on their technology usage, preferences, and familiarity.

• Technology usage : Grouping customers based on the types of technology they use, such as devices, software, or platforms.
• Preferences : Segmenting customers according to their preferences for specific technological features or functionalities.
• Familiarity : Categorizing customers based on their level of familiarity with and adoption of new technologies.

Why Segmenting Customers is Important

Segmenting customers helps businesses better understand, target, and serve them. It’s essential for marketing success, customer satisfaction, and overall business success. Here are some benefits of customer segmentation to consider.

• Helps businesses comprehend the varied needs and preferences of different customer groups.
• Allows for personalized and effective marketing strategies tailored to specific customer segments.
• Enables businesses to allocate resources more efficiently by focusing efforts on high-potential customer groups.
• Tailoring products and services to customer segments leads to increased satisfaction and loyalty.
• Facilitates the customization of products to meet the specific demands of each customer segment.
• Tailoring communication to specific customer segments ensures messages resonate effectively.
• Helps businesses adapt to changes in the market by understanding customer responses to evolving trends.
• Provides a competitive edge by positioning products or services uniquely for specific customer groups.

Customer Segmentation Template

Creating a customer segmentation template can help you organize and document key information about your different customer groups. You can use this template to begin segmenting your customers. You can customize and expand on this template based on the specific needs of your business:

• Ready to use
• Fully customizable template
• Get Started in seconds

How to Segement Customers

The idea of segmenting customers is to break them down into smaller, more manageable groups based on shared characteristics, behaviors, or preferences. Remember, customer segmentation is an ongoing process that evolves as your business and customer dynamics change. So, it’s important to reassess and adjust your segmentation strategies regularly.

Step 1. Define objectives

Clearly articulate the goals you want to achieve through customer segmentation. Whether it’s improving marketing effectiveness, increasing customer satisfaction, or targeting new markets, having well-defined objectives will guide your segmentation strategy.

Step 2. Gather data

Collect relevant data about your customers. This data can include demographics, psychographics, purchase behavior, geographic location, and other pertinent information. Use both quantitative data (such as sales records, website analytics, and customer surveys) and qualitative data (customer feedback, interviews, and social media interactions).

Step 3. Identify segmentation variables

Determine the criteria or variables that will be used to segment your customer base. Common segmentation variables include:

• Demographic variables : Age, gender, income, education, occupation.
• Geographic variables : Location, region, urban/rural.
• Psychographic variables : Lifestyle, personality, values, interests.
• Behavioral variables : Purchase history, frequency of purchase, brand loyalty.
• Technographic variables : Technology usage, online behavior, platform preferences.

Step 4: Segmentation analysis

Use statistical techniques and tools to analyze the gathered data and identify patterns or groups within your customer base. This may involve using clustering algorithms, regression analysis, or other statistical methods. The goal is to group customers who share similar characteristics.

Step 5: Develop customer profiles

Create detailed profiles for each customer segment. These profiles should include the defining characteristics, behaviors, and preferences of each group. This step involves combining both quantitative and qualitative insights to develop a comprehensive understanding of each segment.

Step 6: Implement targeted marketing strategies

Tailor your marketing strategies to each customer segment’s needs and preferences. Develop personalized messaging, promotions, and product offerings for each group. This helps make sure that your marketing efforts resonate more effectively with specific segments, leading to improved customer engagement and satisfaction.

Step 7: Evaluate and refine

Regularly assess the effectiveness of your segmentation strategy. Monitor key performance indicators (KPIs) such as customer retention, conversion rates, and sales. Gather feedback and be prepared to refine your segmentation approach based on changing market dynamics or evolving customer preferences.

When to Use Customer Segmentation

Use customer segmentation when you want to:

• Identify and comprehend diverse customer groups with unique needs and behaviors.
• Customize marketing efforts to address the specific preferences of each customer segment.
• Increase customer loyalty by addressing the individual needs of different customer segments.
• Identify characteristics of target audiences when entering new markets or launching products.
• Set prices based on perceived value, maximizing revenue and competitiveness.
• Inform product design and innovation by understanding the unique needs of customer segments.

Tips for Effective Customer Segmentation

Here are some tips to help you segment customers successfully.

• Blend traditional demographics (age, gender, location) with psychographics (interests, values, lifestyle) for a richer understanding of your customers. This will provide a more holistic view of who they are and what motivates them.
• Make use of advanced analytics tools and machine learning algorithms to process large datasets. This helps uncover hidden patterns, predict customer behavior, and refine your segmentation strategy.
• Map out the customer journey and segment customers based on where they are in the buying process. This allows for targeted messaging and interventions at key touchpoints.
• Don’t forget that customer preferences change. Stay relevant and responsive with dynamic segmentation strategies that adapt to changing behavior.
• Gather insights about customer sentiments, opinions, and emerging trends on social media and online platforms. You can tweak your segmentation strategy based on this real-time data.
• Establish feedback loops to continuously gather input from customers. Understand their experiences, preferences, and pain points to refine your segmentation and improve customer satisfaction.

Simplify Segmenting Customers with Creately

Creately’s visual collaboration platform offers several features that can help teams perform effective customer segmentation.

Visualize customer data

Creately’s diagramming tools allow teams to visually map out customer segments. Using shape libraries or templates for flowcharts, Venn diagrams, customer journey maps, user personas and other visual elements, teams can organize customers based on attributes like demographics, psychographics, behaviors, and needs. This visual representation makes it easy to see how segments differ and where they overlap.

Integrated notes and data fields

Keep all customer segment related data in one place with per item notes and data fields. Attach files, images, and embed anything on the canvas to centralize information.

Real-time collaboration

Work with teams across the organization with real-time collaboration features like live mouse tracking, synced previews and comment threads. Use Creately’s plugin for Microsoft Teams to easily brainstorm, plan, and execute your ideas during meetings.

Present and share

Use presentation mode to create slides right out of your visuals on the canvas and create interactive presentations for clients and stakeholders. Easily share your customer segmentation research with other collaborators with a workspace share link or embed it in any site or intranet with a secure link.

Project management tools

Go from idea to execution in the same place. Ideate, plan and execute your marketing strategies for each customer segment with built-in project management tools. Assign responsibilities, set due dates, and monitor progress with Agile Kanban boards, Gantt charts, timelines and more. Create task cards containing detailed information, descriptions, due dates, and assigned responsibilities.

Customer segmentation helps businesses understand and connect with different types of customers. By looking at demographics, interests, and behaviors, companies can create better, more personalized strategies. It’s important to keep adapting and working together across teams to stay in tune with what customers want. We hope that this comprehensive guide on customer segmentation helps you with that.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

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What is customer segmentation analysis, and how can it help.

17 min read Customer segmentation analysis can help make your business strategy more effective, but what is it and how do you do it?

Customer segmentation is an effective tool for businesses to closely align their strategy and tactics with, and better target, their current and future customers. Every customer is different and every customer journey is different, so a single approach often isn’t going to work for all.

Don’t worry, though – you can effectively reach your target audience with the valuable process of customer segmentation analysis.

Let’s begin with understanding exactly what customer segmentation is before diving into customer segmentation analysis.

Free eBook: How to drive profits with customer segmentation

What is customer segmentation?

Customer segmentation is the process by which you divide your customers up based on common characteristics – such as demographics or behaviours, so your marketing team or sales team can reach out to those customers more effectively.

These customer segmentation groups can also be used to begin discussions of building a marketing persona or product user persona. This is because effective customer segmentation analysis is typically used to inform a brand’s messaging and positioning , helps organisations know what new products are services they might want to invest in, and uncovers ways to improve how the business sells. Because of this, marketing personas need to be closely aligned to those segments in order to be effective.

The “target persona” (or “marketing persona”) is, by definition, a personification of a specific customer segment so it’s not uncommon for businesses to create several personas to match the various customer segments they’ve created.

But for that to happen, a business needs a robust set of customer segments to form a customer segmentation model. This leads us to the next section, distinguishing the difference between customer segmentation and market segmentation , so that your segmentation is as accurate and specific to you as possible.

Customer segmentation vs market segmentation

In comparison to customer segmentation, market segmentation is more general and looks at the entire marketplace. Whereas market segmentation relates to the whole market, customer segmentation is your part of the market.

For example, if you’re in the business of selling vehicles and you typically sell directly to businesses, then your customer segment is B2B and you might compare customers that are likely to buy large commercial trucks, versus small business-owned vans. These two customers have different needs and, depending on the correlation you find, might then become two different customer segments for you to focus on.

However, if you’re considering the entire market, you might compare people that are in the market for a sedan versus a sports car, which is much broader. In this instance, most market producers aren’t going to cater to the whole market, so it is more effective to focus on the selling element. You’ll see a better payoff by targeting one or two focused customer segments rather than trying to attract the whole market with a broader, shotgun approach.

Types of customer segmentation

There are different segmentation variables that you should give careful consideration as you begin to build out your customer segmentation efforts. These are not one-size-fits-all, so you should do what is right for your business.

Customer segmentation can be broken down into two types:

Segmenting customers based on who they are

The process of understanding who customers are typically focused on psychographics , demographics and, in the case of B2B, firmographics. This will include factors such as:

• Urbanisation – are they city or rural?
• Relationship status

Segmenting customers based on what they do

You can also segment customers based on how much they spend (share of wallet), how often, and what products (this allows you to see how much you can increase spend). This is more focused on behaviours.

Breaking this down even further, customer behaviour can vary so you may want to look to separate your data analysis as follows:

• Basket size
• Share of wallet
• Tenure (how long they stay with you)
• Long-term loyalty (a combination of share of wallet and tenure)

As mentioned above, there is no single approach to use here as part of your customer segmentation process. It varies depending on your industry and size. For example, in supermarkets it’s very unusual to get 100% share of wallet, so you might focus on customer behaviour – such as what products they buy – so you can implement a strategy to get customers to buy a greater quantity, or to buy a more premium product.

However, in insurance 100% share of wallet is common and many companies incentivise customers to achieve this (such as discounts to add car insurance to their existing house and pet insurance). If you have three pets, it’s easier to have them all on the same policy rather than taking three different policies.

In financial services, it’s common to have nuances too. Generally, most people have one current account, but they might have multiple providers for savings accounts or credit cards.

Different approaches should be used to target different people or companies, based on what is appropriate for that customer segment — e.g. loss leading on an offer to get customers in-store, knowing the customer might buy more once they’re there in person.

Why segment customers at all?

Customer segmentation is popular because it helps you identify new products and services to create next, as well as how to market and sell existing offerings more effectively. This is because you can develop a better understanding of your customers’ needs and desires. Here are some reasons why customer segmentation and customer segmentation analysis are critical for businesses:

Improve brand loyalty and customer lifetime value

The business impact of doing this is even more important, as effective customer segmentation will help you to increase customer lifetime value , which means they will stay longer, and spend more.

By better understanding your customer, and therefore being able to target them more effectively, you can drive greater loyalty. Instead of customers visiting Sephora.com two times a year to get skincare products (with a big basket size), segmentation can give you insights that will help you get customers returning 5x a year with smaller basket sizes. Although each basket is smaller, customer loyalty has increased because they’re interacting with the business more frequently.

Smaller, more frequent purchases are disproportionately more effective than one large one-off purchase. It’s a more predictive indicator of behaviour too, which will help inform business decisions in the future. Not only will it improve loyalty but it will increase the lifetime value of the customer.

Deliver 1:1 experiences at scale

As global consumer trends in 2022 indicated, customers are seeking one-on-one experiences at scale. Over two-thirds of customers want to feel cared for, and will spend more as a result — and with 9.5% of your revenue at risk, it’s critical to understand exactly what each customer wants through customer segmentation.

Whether it’s at a brand level or for a smaller marketing strategy, you need to understand each customer base’s wants and needs in order to target them most effectively. What do your high value shoppers value? What are the common denominators between target groups, and how can you group similar customers for better personalisation during the customer journey? With customer segmentation analysis, you can understand your current customers better, making developing a strategy easier on your marketing team.

You can also uncover segments that you could be focusing on, and understand how and when customers are moving between segments. Customers don’t stay in a particular segment, they shift and move. For example, consider how a person might move between segments when they’re a new college grad getting their first job, then getting promoted (and moving into a higher income bracket), then going from renting an apartment to owning a home, and from being single to getting married to becoming a parent.

Stay on top of changing customer needs

Customer behaviours and needs aren’t static, and the customer journey and experience has to adapt over time to reflect this. For example, the dramatic shifts within the last few years have created new needs as human experiences have changed. From office work to remote working, from eating out to dining in, from new artificial intelligence-driven technology to a return to the basics, your market knowledge needs to evolve as each of your customer segments do.

Developing customer segmentation models that can incorporate new information and segment data, and then adapt accordingly, is key. The most successful segments for one season might be completely different the next — and what existing customers are looking for might not be the same, as society and technology evolve. Understanding the why behind your ideal customers’ choices will help you to weather external storms and reach new segments more effectively.

How to segment customers and target them effectively

Wondering how to go about your segment analysis and develop a few strategies to target particular segments? Look no further.

First up, your customer segmentation analysis should look at industry-wide data on the marketplace, and then dig deeper and look at data on your own customer population. Now, look at subsets within your customer population. This is where you begin to segment, so look to see what similarities tie certain customers together. What correlations do you find? How do you know if there is a correlation? Or how do you even find a correlation? Then how do you know which engagement strategy will have the greatest influence over that customer segment? Use this as a structure when looking at the data and try to see how they tie together.

A segmentation variable might include:

• Who they are
• What they do
• What they want

Some products will have a stronger tie to demographics (like music), whereas products like food, for example, are for all. So bear this in mind when you’re digging into the data because it may or not be helpful to get very specific; it depends on your circumstances and objectives. Still not sure? We cover a few questions below which you can ask yourself so you know when to be specific with your segmentation or when it might be more appropriate to keep it broad.

Using experience data is essential if you hope to ascertain how these three factors correlate to one another.

Access customer data for customer segmentation analysis

There are multiple ways to go about experience data collection, and these are separated into direct or indirect streams. See below for a full list. Direct streams can typically involve customer surveys that elicit a direct response. Indirect streams will involve insights derived from data that wasn’t directly obtained, but can still point to important trends that will help understand any correlation in behaviour within the customer base.

• Relationship surveys
• After-store visit surveys
• Post-purchase surveys
• Product satisfaction surveys
• Video Feedback
• Brand Tracking
• Omnichannel Analytics
• Social Listening
• Frontline Feedback

Qualtrics can help you understand both of these approaches, by using DesignXM and CustomerXM to consider key trends and drivers of behaviour.

Once you’ve created your customer segments based on the correlations you found, they should be used to determine your brand positioning, messaging, and your go-to-market strategy. These segments give you valuable insight into how to effectively meet your business objectives, because you know who to target and how to effectively target them in a way that will grow your bottom line.

Customers do the customer journey in different ways, so a better understanding of how different segments behave will allow you to create journeys that cater to different segments and make it as easy as possible for customers to complete the journey.

Aligning your customer segments to your objectives will help to guide you about how specific these customer segments should be. For example, a global brand, such as eBay, who’s attempting to launch a new service offering that targets everyone will have a very different customer segment than a brand that’s only targeting small, independent businesses.

When undertaking your customer segmentation and aligning these to your objectives, ask yourself what you want to achieve:

• Is it a competitive reaction?
• Is it a new product offering?
• Do you want to expand the market?

These will help to determine how specific your segmentation should be.

Create rich customer segments

Your customer segmentation strategy should focus on your customers’ actual experiences, rather than demographic factors alone. Effective customer segmentation analysis should be able to use direct feedback, such as a post-transaction survey, as well as indirect signals from online reviews or social posts. This allows you to develop rich, dynamic customer segments that help you target not only your product or service, but drive better experiences across your customer base.

For example, with Qualtrics Experience iD , you can capture every signal across every channel to help group customers intelligently. Rather than limit your segments to listing demographics and customer needs, you can base your potential customer profiles on more granular data that includes emotion , intent and sentiment .

Close experience gaps and personalise every interaction

Effective customer segmentation analysis is only the beginning. A deep understanding of your customer base in all its different segments will help you to create personalised experiences at scale, while fixing experience gaps you find along the way.

Automatically detect where experiences diverge and break down, sending target segments on a personalised and smooth experience that exceeds their customer needs. Improve business outcomes by offering defined segments the experience that best suits them at every stage of their journey.

Drive profits with customer segmentation analysis

If you’ve never sold to a customer base before….

First, you should understand what the addressable market is.

Then, you’ll need to determine how much of the market you can reasonably expect to get.

Finally, you’ll want to implement effective customer segmentation to make sure that your messaging and positioning is meaningful for both your new  and existing customers.

Fortunately, Qualtrics offers a full suite of services to help you with all your customer segmentation analysis needs.

Identify distinct groups with customer segmentation: With our segmentation research service, you can determine which groups of customers are the key targets for your needs, based on customer data on needs, attitudes, behaviours and demographics.

Profile and prioritise the segments that matter most: Understand which are the successful segments based on customer data and drive higher value with a targeted strategy.

Send surveys and get response recommendations: Use our built-in survey function to gather customer data and utilise our Ph.D.-designed methodology to get the most out of your answers.

Use prebuilt reports to save time and get detailed insights: Increase your sample size with our successful response system, designed to help you gather meaningful customer data.

Work with Qualtrics Research Services to get the most out of your customer segmentation analysis: We offer you a dedicated Qualtrics Research Services representative to help you design a successful customer segmentation project.

Free eBook: How to Drive Profits with Customer Segmentation

Related resources

Customer experience software 19 min read, customer experience design 13 min read, customer data platforms 14 min read, customer equity 11 min read, customer profiles 11 min read, customer centricity 16 min read, customer experience & employees 18 min read, request demo.

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Customer Segmentation: How to Make Your Marketing More Successful

One of the largest challenges that a company can have is finding ways to connect with customers and market your business efficiently.

Whether you are a small business owner, run a medium-sized business, or are part of a much larger enterprise, following a customer segmentation strategy is a great option. Customer segmentation is a unique strategy that can help to find your target audience, improve client retention , and overall improve your number of clients and sources of revenue.

What is customer segmentation?

Overall, customer segmentation is a strategy that focuses on dividing customers and prospects into different categories.

The categorization techniques and methodology will vary based on the individual needs of your business. When you have a proper customer segmentation process in place, it can help keep your CRM systems organized and allow you to curtail your marketing strategy more effectively.

What are customer segments?

For those wondering what customer segments are, the ultimate use of segments is designed to help categorize and organize customers, clients, and prospects into various groups.

When wondering how to segment customers, you should consider a strategy that will be based on the needs of your business and various characteristics of your organization.

In many cases, when you are selling to other businesses, some of the factors that can be used when you are trying to create new customer segments will include the size of the businesses you are targeting, the location of the company, the industry that they operate in, number of employees, and whether the company has purchased similar products in the past.

If you are trying to sell directly to individuals, coming up with other similar characteristics to help organize your sales efforts will also be advantageous.

Benefits of customer segmentation

Using a customer segmentation strategy is very important and beneficial for any business. There are various benefits of customer segmentation. In particular, that can make it a good strategy for your organization.

Targeted marketing strategies with market segmentation

One of the advantages of segmenting your customers is that you can have more targeted marketing strategies. When it comes to finding a business or individual customer, no two situations are the same.

Due to this, you will want to have a strategy that is more curtailed to meet your customer needs. When segmenting your customer base the right way, you will be able to provide a more targeted marketing approach, which can improve the chances of conversion to sales.

Improved customer loyalty retention

While using a customer segmentation strategy can help to find new business, it can also be used to help retain existing clients as well. It tends to be much easier and more affordable to retain an existing client than it is to go out and find a new one.

However, there are still strategies that need to be followed to ensure you are able to retain the customers. When you segment your customers during the marketing process, it can help to improve your overall retention. The use of segmentation can also help improve your existing relationships and customer loyalty with your customer base.

Identify and build a brand with your customer base

Having a recognizable brand and image is important for any business. When you are looking to build a brand, starting with a proper segmentation process is very important. When you have segmentation strategies in place and a more curtailed marketing approach, it will make your brand appear less generic and can improve your reputation with these clients.

Customer segmentation reduces costs

One of the advantages of using a customer segmentation strategy is that it can make it a more efficient way for you to find new clients and retain existing ones.

Due to this, you will not have to spend as much money on marketing, which can help improve your bottom line overall. For larger organizations, it could also lead to a reduction in overhead costs as you will be able to use a CRM program that will incorporate these segments into target client lists for individuals that are responsible for sales and marketing.

Types of different customer segments

There are clear advantages that come with having a customer segmentation strategy. However, it continues to be very important that you know how to properly segment your customers. There are various ways that you can complete a segmentation strategy to make it as effective as possible:

Customer segmentation for B2B and B2C

One of the most important steps that you need to follow is to first identify whether they are a business or individual customers. Many organizations will target both groups, but the way that you go about selling to each is quite different.

Due to this, first segmenting your customer base down into these different market segments or groups is an important step and can help to make your process more efficient as you take a lead or client through the full customer journey .

Segment customers based on demographics

One of the ways that a business can help to segment its customer base is by using demographic information. This can be a good strategy whether you are selling to businesses or individual consumers. Some forms of demographics to focus on for businesses include the location of the business, size of the company, annual revenue, and other relevant data.

When selling to an individual, it would be a good idea to find important demographic information that is relevant to your business and target customers. This will help you go through the process of identifying who your target audience is and then curtail a business plan accordingly.

Segment customers by spending

While demographic information is important, you can get an even more clear and more focused way to segment your clients and leads if you segment based on spending.

When segmenting customers based on spending, you will look to find a customer base and leads that have completed purchases and sales of similar products in the past.

You can also incorporate customers that have purchased products that would be good ancillary additions to what you are selling. Doing this will help you find clients that are already knowledgeable about what you are selling, which could make the process more efficient for you in the future.

How do you segment customers?

Once you have decided that customer segmentation is an ideal strategy for you and your business and have determined appropriate segments for your business, you need to find a way to properly segment these businesses and individuals.

As this type of information is not always readily available, there are various strategies and tools that you can use to get the information you need to know that your segments are accurate.

Social media data analysis

Today, one of the most effective tools that you can use is social media data. Most consumers today have some form of an online presence.

When someone is active on social media, they will share information about themselves and will be active with certain groups or follow certain businesses and individuals. You can then use this available data to better segment your target customers into accurate groups.

Website analytics

The use of website analytics is also a good way to get quality information. Based on where a consumer will spend their time online, you can make a conclusion about how interested they will be in your products and services. Based on customer data and how someone spends their time, it can then be a good tool to use when moving forward.

Surveys to improve customer relationships

At times, it can be difficult to get the information that you need from social media and website analytic programs.

However, the use of surveys could make this process more efficient for you. When you do use a surveying program moving forward, it could provide you with direct answers to any questions that you may have.

This can help you get a clear picture of how likely a certain target group would be to purchase your product or service, which can make it a very efficient way to collect data.

Creating content for your customer segments

Following a customer segmentation strategy is always a good idea for businesses that are trying to maximize their marketing efforts.

When combined with a quality CRM program, it can help make your business more efficient and you will create a more targeted strategy.

For those that are looking to establish a customer segmentation program or wonder what CRM is , working with Mailchimp can be a great option. Mailchimp continues to be a leading provider of marketing services that can include helping you create a customized CRM plan.

Keep customers coming back for more with Mailchimp’s free Customer Retention Kit

Whether you’re looking to improve existing strategies or seeking fresh insights into who your customers are, this kit is a comprehensive collection of resources designed to cultivate lasting relationships with valued customers.

Fill out the form below to receive your free Customer Retention Kit

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Written by Onur Teler

28 March 2023

How to Develop a Robust Customer Segmentation Strategy in 5 Steps

In today’s competitive eCommerce landscape, businesses must find ways to stand out from the crowd and keep customers coming back for more. One of the most effective strategies for achieving this is customer segmentation, which divides customers into distinct groups based on common characteristics or behaviours. 

Businesses can better engage customers, build loyalty, and increase revenue by tailoring marketing efforts and product offerings to specific customer segments.

This article will explore the importance of customer segmentation in eCommerce and provide insights and best practices for developing and executing a successful segmentation strategy. Specifically, we will address the following key questions:

• How can businesses set realistic expectations and objectives for their customer segmentation efforts?
• What criteria should businesses use to identify and define relevant customer segments?
• How can businesses evaluate the potential of different customer segments and prioritise their targeting efforts?
• What strategies and tactics can businesses use to engage and retain specific customer segments effectively?
• How can businesses measure the success of their customer segmentation efforts and continuously optimise their strategies?

By answering these questions, we aim to equip eCommerce businesses with the knowledge and tools they need to succeed in today’s dynamic marketplace.

Key Takeaways Customer segmentation is a powerful tool for eCommerce businesses looking to improve engagement, retention, and revenue. By identifying and targeting specific customer segments based on shared characteristics or behaviours, businesses can better understand their customers and tailor their marketing and product offerings accordingly. However, to leverage customer segmentation effectively, businesses must set clear objectives, identify relevant segments, evaluate segment potential, develop effective strategies, and measure success through key performance indicators. With the right approach and tools, businesses can optimise their customer segmentation efforts and achieve long-term success in a competitive marketplace.

Build Your Customer Segmentation Strategy in 5 Steps

1. set clear expectations and objectives.

When it comes to customer segmentation, it’s important to have clear expectations and objectives in mind from the outset. Setting goals for customer segmentation efforts can help businesses focus their efforts and measure success over time. However, it’s also essential to set realistic goals that align with overall business objectives and consider the limitations of available data and resources.

Download FREE Customer Segmentation Marketing Playbook and start delivering personalised experiences that drive growth today!

Businesses should consider their target audience, product offerings, and marketing channels to set effective segmentation objectives. For example, objectives may include increasing customer acquisition or retention, boosting sales revenue, or improving customer satisfaction. By aligning segmentation objectives with broader business goals, businesses can ensure their efforts are strategic and impactful.

2. Identify Potential Customer Segments

One of the most critical steps in developing a customer segmentation strategy is identifying and defining relevant customer segments. This involves analysing data on customer demographics, behaviours, interests, and purchasing patterns to identify commonalities and group customers accordingly.

To effectively identify customer segments, businesses should first determine which criteria are most relevant to their business and target audience . For example, businesses may segment customers based on age, gender, location, purchase history, or interests. Once the criteria are established, businesses can use data analysis tools to group customers into relevant segments and gain insights into their behaviour and preferences.

3. Evaluate Potential Customer Segments

Once customer segments are identified, businesses must evaluate their potential value in terms of revenue, profitability, and customer retention. This involves analysing customer lifetime value , retention rate, and purchase frequency metrics to determine which segments are most valuable and worth targeting.

By prioritising high-value segments, businesses can focus their efforts on the customers who are most likely to generate revenue and contribute to long-term growth . However, it’s also essential to consider segment size, competition, and growth potential when evaluating segment potential.

4. Develop Customer Segmentation Strategy

With relevant customer segments identified and evaluated, businesses can begin developing a customer segmentation strategy that effectively targets and engages specific segments. This involves tailoring marketing efforts and product offerings to meet each segment’s unique needs and preferences.

For an effective customer segmentation strategy, businesses should consider factors such as customer communication channels, content messaging, and product recommendations. For example, companies may use targeted email campaigns , personalised product recommendations , and exclusive discounts to engage specific customer segments and encourage repeat purchases.

5. Launch and Measure Continuously 

Launching and measuring the success of a customer segmentation strategy is crucial for ensuring its effectiveness and ongoing optimisation. Businesses should identify key performance indicators (KPIs) that align with their segmentation objectives, such as customer retention, revenue per visitor, and return on investment.

Discover how Italian fashion retailer Fabiboutique increased retention rate by 10% .

By continuously tracking and analysing these KPIs, businesses can make informed decisions about which customer segmentation tactics are most effective and adjust their strategies accordingly. For example, businesses may use A/B testing to evaluate the impact of different messaging or product recommendations on customer behaviour.

Wrapping Up

Effective customer segmentation is critical to success in today’s eCommerce landscape. Businesses can optimise their segmentation efforts and drive long-term growth by setting clear objectives, identifying relevant segments, evaluating segment potential, developing effective strategies, and measuring success through KPIs.

With the help of tools and services such as Segmentify, businesses can take their segmentation efforts to the next level and achieve sustained success in a highly competitive marketplace.

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8 Companies Mastering Customer Segmentation [+ Examples]

Updated: July 18, 2024

Published: November 22, 2022

In a product-abundant world, creating a personalized experience can help your company stand out. In fact, 80% of buyers say they prefer to purchase from brands that offer tailored experiences.

However, before you start personalizing your products or services, you need to first segment your customers.

In this piece, you'll learn about customer segmentation and see examples that can inspire you.

Table of Contents

Creating Customer Segments

Companies mastering customer segmentation, getting customer segmentation right.

Customer segmentation is the process of splitting your entire customer base into smaller segments based on shared characteristics. These can include demographics, behavioral, geographical, or psychographic data. When done correctly, customer segmentation helps you better understand users' needs and adjust your offering to satisfy them.

Type of segmentation: Demographic (date of birth)

One of the easiest and most common ways to segment your customers is by their date of birth. It gives you a great opportunity — and an excuse — to send them a personalized email without appearing pushy.

H&M is one of the brands that use this segmentation criterion. They offer birthday discounts, which are valid for a fixed time period. The 25% off is quite generous, and it would be a shame to let it go to waste.

Image source

Pro tip: You can go above and beyond by adding the customer's name to your birthday promotions. This makes your marketing seem more friendly and personal.

Type of segmentation : Demographic (income)

Understanding how much a customer is willing to spend is crucial for any business. This information is particularly useful if you offer both affordable and expensive options. If you assess your clients' income correctly, you're able to present the right offers to the right group.

A great example of this is the retail chain Argos. They offer a wide range of products, from appliances and furniture to clothing and jewelry. By looking at their customers' past purchases, they're able to estimate their budget and age.

Below is an example of a coupon Argos emailed its middle-class clients around payday.

Notice how the message acknowledges their clients' hard work and encourages them to "treat themselves." This can mean getting their kids a new toy, buying a new pair of jeans, or some new piece of home decor.

Pro tip: Creating an income-focused segment helps you show empathy. It also allows you to assess what each group will consider an attractive price. By doing so, you can increase your chances of making a sale.

Type of segmentation: Behavioral

If you're a traveler, there's a high chance you're a member of a frequent flyer program, like Flying Blue by KLM. This customer loyalty program allows you to earn miles and then spend them on tickets, extra checked luggage, shopping, or charity donations.

You can earn miles in numerous ways, including:

Flying with KLM or one of their partners.

Booking a hotel.

Renting a car.

Shopping with one of KLM's partners.

The number of miles customers get is based on the ticket price and their elite status level. Flying Blue has four status levels. The higher the level, the more points customers get.

What we love: Introducing a customer loyalty program is a great tactic to keep customers engaged and prevent them from switching to another airline. Segmenting customers by points allows the airline to reward those who fly more frequently.

Type of segmentation: Psychographic/demographic

Did you know that college students in the US have $574 billion in spending power? It's an attractive demographic. For this reason, Comcast created a special offer targeted at students specifically.

The company partnered with Amazon Music and HBO to give students access to thousands of free shows, movies, and live sports. The deal was gated, and students had to verify their eligibility before subscribing, which made the offer even more exclusive.

The deal was a huge success, and within a week Comcast saw a massive increase in web traffic and a boost in conversions.

What we love: This program segmented customers by demographic (age and education level) as well as behaviorally. College students are less likely to pay for cable but still want ways to watch their favorite shows and movies.

5. Coca-Cola

Type of segmentation: Geographical

Another customer segmentation example is splitting buyers into groups based on their location. That's the approach Coca-Cola follows. They sell their products globally. While many drinks like Coca-Cola are available in over 200 countries, some like Ciel bottled water are only sold in Mexico, Morocco, and Angola.

The brand tailors its offering to local tastes. For example, they acknowledge that consumers in Asia prefer sweeter flavors than those in the US or Europe. They modify their drink formula to satisfy different preferences.

What we love: Segmenting buyers based on geography allows the brand to better recognize cultural and climate differences, which drive customers' buying preferences. Tailoring their offer accordingly helps companies reach a wider audience and maintain a high market share.

Type of segmentation: Psychographic (state of urgency)

Nalu is a boutique women's clothing brand. Each collection features a limited number of items, which are added to the online store throughout the season in "product drops." Like many small businesses, Nalu has a relatively modest, but loyal client base. There's one customer segment that's particularly enthusiastic about new products, i.e., newsletter subscribers.

Nalu knows how to make this group feel appreciated, all the while creating a sense of urgency. Newsletter subscribers receive an exclusive link, which unlocks new items 24 hours ahead of their launch in the store. This way, clients can buy clothing in their size before it runs out of stock. They use the same approach for their archive collection sales.

What we love: Nalu is a great example of how you can use customer segmentation to strengthen the bond with your high-value clients. Not to mention, this tactic offers a great way to boost revenue from clearing older items.

7. Duolingo

Customer segmentation : Behavioral

For the language app Duolingo, retaining users comes down to keeping them motivated as they memorize new words and phrases. They realize that most language learners eventually lose their initial drive and need a pick-me-up to continue studying. That's why Duolingo has decided to create user segments based on in-app behavior and milestone achievements.

Those who complete lessons receive badges and rewards. These can be exchanged for extra assignments. Meanwhile, those who've skipped a lesson (or two, or ten) start receiving motivational reminders.

Pro tip: Tailoring your in-app notifications and email sequences for each customer segment is a great way of preventing app abandonment. Active users feel appreciated, while those who lose motivation are brought back on track.

Customer segmentation type : Demographic/psychographic

L'Oreal is one of the most recognizable beauty brands in the world. Many of their clients have been loyal to the brand for decades. Perhaps unsurprisingly, they are very popular among older clients.

The average L'Oreal customer is around 50 years old in the Netherlands. That being said, the company noticed that they can't resonate with younger clients well. They've failed to do so by simply breaking down their customer base into age segments.

To tackle this, L'Oreal joined forces with Google and McCann. They wanted to learn how they can create more accurate segmentation criteria. The brand broke down Gen-Z's and Millennials into not just age, but also behavior-focused batches.

By using Google's audience segments, they created twelve ad variations. Each is for a different group of potential buyers. One of the video ads they've created targeted young music lovers. It featured a product for acne-prone skin, and a tagline "99 problems, and your skin is one?" The ad references one of the most famous pieces in hip-hop history that will be familiar to Millennials.

What we love: Digging deep into behavioral data helps L'Oreal restore (and maintain) relevance among all customer groups. It's also a great example of how you can supplement demographics with more sophisticated user contexts.

Customer segmentation is a powerful tool. One that puts personalization and unique client needs front and center. As you've seen in the customer segmentation examples above, there are plenty of criteria you can use to strengthen your bond with clients.

Be it age, location, budget, personal beliefs, or on-site behavior — the choice is yours. Good luck!

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Customer Segmentation: A Step-by-Step Guide for Growth

Tien-Anh Nguyen

May 13, 2021

To scale efficiently and effectively, expansion-stage companies need to focus their efforts on a specific subset of customers who are most similar to their best current customers, not a broad universe of potential customers. Customer segmentation is the way.

Table of Contents

What is customer segmentation and why does it matter, establish segmentation hypotheses and variables, explore b2b customer segmentation schemes, benefits of customer segmentation, creating change your company can believe in, step 1: setting up your customer segmentation project, step 2: analyzing customer data, step 3: data collection, step 4: analysis and prioritization, step 5: presenting and incorporating feedback, putting this into practice.

Also known as market segmentation, customer segmentation is the division of potential customers in a given market into discrete groups. That division is based on customers having similar:

• Needs (i.e., so a single whole product can satisfy them)
• Buying characteristics (i.e., responses to messaging, marketing channels, and sales channels, that a single go-to-market approach can be used to sell to them competitively and economically)

There are three main approaches to market segmentation:

• A priori segmentation, the simplest approach, uses a classification scheme based on publicly available characteristics—such as industry and company size—to create distinct groups of customers within a market. However, a priori market segmentation may not always be valid since companies in the same industry and of the same size may have very different needs.
• Needs-based segmentation is based on differentiated, validated drivers (needs) that customers express for a specific product or service being offered. The needs are discovered and verified through primary market research, and segments are demarcated based on those different needs rather than characteristics such as industry or company size.
• Value-based segmentation differentiates customers by their economic value, grouping customers with the same value level into individual segments that can be distinctly targeted.

This guide will focus on the value-based approach, which allows expansion-stage companies to clearly define and target their best prospects (based on its current knowledge of the market) and satisfy most of their needs for segmentation in the expansion stage—without consuming the time and resources of a traditional, descriptive segmentation research process.

Don’t have time to read it now? Check out our quick 10-step approach to customer segmentation.

While most companies possess enough market knowledge to predict or anticipate which customer segments are their most profitable, the leaders of those businesses also know that scaling a business is not best left to guesswork or instinct. That’s why, in a customer segmentation process like the one described in this guide, it’s critical to develop customer segment hypotheses and variables, and then validate them with a well-developed, scientific research process.

That’s particularly true in needs-based and value-based segmentation schemes, where it’s impossible to utilize a customer segmentation process without first establishing clear hypotheses that will serve as the foundation of your research. Ultimately, hypotheses should be formed around customer characteristics or factors that allow you to clearly separate your current customers into distinct needs-based or value-based segments. While your hypotheses do not need to be complicated mathematical or statistical statements, they should be clear and logical enough to be testable and useful.

For example, a typical hypothesis might look like this:

• Customers with revenues of $1 million tend to be in segment A
• Customers with revenues of less than $1 million will be in a different segment from customers with more than $1 million in revenues
• Customers with more than $1 million in revenues tend to be of higher value (or are part of a higher value segment)

Using that example, the segmentation variables can be defined as the objective measures, factors, or characteristics that help you differentiate segments, whether they are needs- or value-based. In the above scenario, those variables focus on financial information, but they could just as well pertain to the customer’s reputation, online presence, or business model, depending on what is most relevant to the segment.

Developing variables and hypotheses is important for a variety of reasons, but its primary purpose is to provide a framework for the customer segmentation research process. Once you have established a clear hypothesis and the variables that you need to test, you can begin executing the intricate process that will help you identify your best current customer segments.

As with most business initiatives, the goals and outputs of customer segmentation research will likely depend on your company’s stage, market conditions, and myriad other variables. However, there are some relatively standard schemes that coincide—or at the very least overlap—with most needs-based or value-based segmentation initiatives.

For example, here are six standard segmentation schemes that could be applied to your customer segmentation research:

• Geographic base / reach
• Industry / sub-industry / industry served / customer served
• Product class / product usage
• Organization size (measured by revenue, number of employees, etc.)
• Product delivery model / product or packaging format / special technology / process methodology
• Special use / needs

It is important to note that even if a market is divided into one of the schemes above, it is still not a valid segmentation of the market unless it results in meaningful differences in customers’ values and needs, the company’s value proposition, or the go-to-market strategy associated with each scheme. In such cases, it is merely a convenient organization of the market that has no strategic or operational value.

At the expansion stage, executing a marketing strategy without any knowledge of how your target market is segmented is akin to firing shots at a target 100 feet away—while blindfolded. The likelihood of hitting the target is a matter of luck more than anything else.

Without a deep understanding of how a company’s best current customers are segmented, a business often lacks the market focus needed to allocate and spend its precious human and capital resources efficiently. Furthermore, a lack of best current customer segment focus can lead to diffused go-to-market and product development strategies that hamper a company’s ability to fully engage with its target segments. Together, all of those factors can ultimately impede a company’s growth.

If best current customer segmentation is done right, however, the business benefits are numerous. For example, a best current customer segmentation exercise can tangibly impact your operating results by:

• Improving your whole product: Having a clear idea of who wants to buy your product and what they need it for will help you differentiate your company as the best solution for their individual needs. The result will be increased satisfaction and better performance against competitors. The benefits also extend beyond your core product offering, since any insights into your best customers will allow your organization to offer better customer support, professional services, and any other offerings that make up their whole product experience.
• Focusing your marketing message: In parallel with improvements to the product, conducting a customer segmentation project can help you develop more focused marketing messages that are customized to each of your best segments, resulting in higher quality inbound interest in your product.
• Allowing your sales organization to pursue higher percentage opportunities: By spending less time on less lucrative opportunities and more on your most successful segments, your sales team will be able to increase its win rate, cover more ground, and ultimately increase revenues.
• Getting higher quality revenues:  Not all revenue dollars are created equal. Sales into the wrong segment can be more expensive to sell and maintain, and may have a higher churn rate or lower upsell potential after the initial purchase has been made. Staying away from these types of customers and focusing on better ones will increase your margins and promote the stability of your customer base.

Conducting best current customer segmentation research can have numerous other ancillary benefits, of course, but this guide will focus primarily on how it can impact the four cited above. The bottom line is that if you are able to sell more of your product to your most profitable customers, then you will be able to scale the business more efficiently and ensure that everything you do — from lead generation to new product development — revolves around the right things .

This first step toward creating meaningful change in an organization is acknowledging that change is needed. For a technology company moving from the startup stage to the expansion stage, that often means abandoning a non-discriminatory, “take every customer we can get” approach, and replacing it with a far more targeted, best current customer segment strategy.

Executing a customer segmentation research process is the first step toward helping a growing company make that transition. Ultimately, best current customer segmentation can help your business better define its ideal customers, identify the segments that those customers belong to, and improve overall organizational focus.

5 steps to customer segmentation

In order to help you identify your best current customer segments, we’ve broken the process down into five clear steps, from setting up your project to performing customer data analysis, executing data collection, conducting customer segment analysis and prioritization, and incorporating the results into your organizational strategy.

While recognizing that being able to identify your best current customer segment can help your business is important, it is meaningless unless you act on it, or if you engage in segmentation activities that are more distracting than helpful.

To be effective, you need to execute a best current customer segmentation process that is driven by a clearly defined set of objectives and outputs, and is backed by all of the company’s relevant stakeholders. This guide will help you accomplish those tasks.

The systematic and scientific data collection and analysis processes laid out in this guide might seem complicated, but they are not impossible to manage. Like almost any initiative, you simply need to ensure that key players and shareholders remain focused on their specific roles and responsibilities, and work collectively to achieve a clearly defined set of goals and objectives.

As with any project, preparation is essential. Without it, your initiative will lack focus and direction, which can ultimately take you off course. So let’s make sure your ducks are in a row.

To determine your best current customer segment, begin by defining the project and planning for it appropriately. To do that, you first need to have a crisp understanding of its:

• Objective: The ultimate business goals that completing the project will address or contribute to. Ideally, these goals will overlap or be aligned with your company’s strategic goals.
• Stakeholders: The senior staff from the various departments and teams (e.g., product management, marketing, sales, customer support, professional services, operations, etc.) whose goals will be directly affected by the outcome of the project, and who will therefore be invested in the project’s success.
• Scope: The project’s parameters, which can be built around its inputs (e.g., the percentage of customer accounts to be analyzed or the number of segmentation hypotheses to be tested) or its outputs (e.g., the maximum number of segments to be identified or the maximum number of segments or the percentage of segments to be analyzed). Other examples of scope parameters include the amount of resources and/or time spent on the whole project or each stage of it.
• A list of the top customer segments identified and verified through the analysis
• Additional insights into these segments
• A representative list of customers within those selected segments
• A list of recommended next steps
• A file containing the data and analysis that support the main conclusions in the presentation
• Data file(s) containing the original inputs and intermediate files, as well as auxiliary output files (for recordkeeping purposes)

Creating a work plan Before executing the project, it is also important to have two sets of plans: a high-level outline and a work plan. The outline should detail the basic steps, methodology, and timeline of the project. It is a document that the project’s stakeholders should review and approve.

By contrast, the work plan is a much more detailed document that elaborates significantly upon the outline, typically breaking steps down into specific tasks that clearly indicate what needs to be done and what the related inputs and outputs are. The work plan also has to incorporate various internal touchpoints that happen internally between everyone involved in the project.

The work plan should reflect inputs on key tasks as well as suggestions and specifications for outputs at key internal review steps. It should also ensure that the methodology behind the main analytical tasks is consistent with the project’s overall methodology. The detailed work plan should then be used to estimate the time required for each task (in hours or days), project step (in days or weeks) and the whole project (in weeks). Given that the time estimate may not be 100 percent correct at the task level, expect some discrepancies between the estimated length of the project and the actual time it takes to complete.

During the course of the project, there will invariably be unplanned diversions and other changes that need to be reflected in the work plan. Major changes to steps in the project or the project’s methodology should always be vetted by the stakeholders and fully documented in the updated work plan.

Getting buy-in from the executive team To have true impact, a customer segmentation exercise — and specifically its outputs — need to be incorporated into your company’s go-to-market strategy. This is because, in many cases, selecting a top segment can actually kickstart the execution of a companywide go-to-market strategy. However, you will only achieve that level of impact if your company’s executive team is a true stakeholder in the project.

The way to secure their buy-in is by getting them to understand that:

• Selecting and focusing on a segment is a strategic imperative.
• Conducting a best current customer segmentation exercise — which is distinct from other types of segmentation analysis—is the best way to meet that imperative.
• The methodology being used, and the planned inputs and outputs of the project, are appropriate.

To ensure the executive team’s buy-in across these areas, it is important to actively articulate the benefits of best current customer segmentation. Be extremely transparent about the methodology and process steps involved in the project so that your stakeholders are always aware of any changes in the process that might make them reconsider their commitment to the overall project.

Additional best current customer segmentation prerequisites

Developing a customer list The project scoping and definition exercise continues by developing an account list to use as your data set. Built from a customer relationship management or billing database, the list needs to be comprehensive and include all of your customers with the exception of test and proof of concept (POC) accounts.

Note that any company’s customer base will contain outliers — customers with very special characteristics, deal structure, or conditions — which must be carefully considered before deciding whether or not to keep them in your analysis. Keeping the outliers in the analysis can be a disadvantage, skewing average values and expanding the variance of the data under analysis, thus reducing the precision of the results, and highlighting one-offs while disguising underlying trends.

Consider the following points as you seek to reduce your full customer list into one that is more conducive to statistical analysis:

Defining customer quality or value The purpose of your analysis is to identify common characteristics that define good customers. To do that well, you need to clearly and objectively define what good means by developing a quality score that you can use to objectively rank your customer base.

In the purest sense, customer value is the total net present value of the cumulative profits generated by a customer over their lifetime. Naturally, you won’t have data on the future behavior of your current accounts, so you will have to make certain assumptions about the future, and fill in missing data with averages based on the data you do have. Practically speaking, it is very hard to calculate or even approximate this, especially with the demographics of young, rapidly growing companies.

Another complication is that it is almost impossible to precisely identify all of the non-negligible costs associated with a customer over its lifetime, especially for software as a service (SaaS) companies whose service costs stem from a blend of hosting, bandwidth, customer support, and account management costs. You should not expect the score to include all of these factors completely or to be a precise measure of the value/cost/profits. Nevertheless, the quality score will serve your purposes as long as it captures enough of the differences between what your organization considers poor, average, and great customers, and allows you to rank customers based on those measurements.

The following example illustrates how to establish a quality score for a software as a service (SaaS) or license-based software vendor:

• Begin with the client’s annualized contract value, taking both current and former customers into consideration.
• Subtract an estimate of the costs directly associated with the account. For a technology company, the gross expenses will be fairly minimal, but should incorporate subtler costs such as:
• Maintenance costs: support tickets, client service payroll expenses, etc.
• Acquisition costs: payroll expenses and costs incurred during sales cycles associated with acquiring that account
• Adjust this score with bonuses and penalties for customer characteristics that hint at the future behavior of the account. Some examples of bonuses and penalties include:
• A bonus for license/revenue growth, which can be represented as a percentage of growth over the last period, or as a scaled score representing the magnitude of growth
• A penalty for cancellation (a fixed reduction of the total score)
• A bonus for marquee customers (to represent their value as a marketing asset)

Such bonuses and penalties are necessary to compensate for less concrete costs and income associated with the account. For example, as noted above, we are not sure how long a current account will stay a customer or at what rate it will renew. However, we can assume that growing accounts are happy and are more likely to renew at a higher rate. As a result, we can reward their score accordingly for that expected future behavior. Likewise, marquee accounts will have an impact beyond their own MRR, so their score should reflect that.

Once you’ve developed a quality score that sufficiently captures these nuances, the next step is to present it to the project stakeholders for their feedback. This is essential because the quality score is the foundation for the rest of the project and everyone needs to generally accept it as an accurate and reliable representation of customer “goodness.”

In the feedback process, you might uncover additional factors that need to be incorporated into the scoring formula (for example, additional usage costs for customers in a particular use case, or additional costs of acquisition for customers in a particular channel). Moreover, reviewing the quality score may also raise concerns about systematic errors in the formula that are obvious to certain stakeholders but not to others. This could mean anything from eliminating costs they don’t think are relevant, to increasing the weighting of a particular bonus or penalty.

Always remember, no matter how thoroughly defined and logical your methodology, the ultimate results of the analysis will not be credible unless all of your stakeholders agree with your proposed ranking of the accounts. Reaching that agreement may be difficult, and will likely require flexibility in your formula and some consensus building so that all of your stakeholders can agree and commit to the methodology.

In this section of our guide to customer segmentation we’ll cover everything you need to develop effective research criteria and successfully manage the data collection process.

The next step in the best current customer segmentation process is to develop a formula or set of criteria to measure the attractiveness or value of each customer in your customer base. This formula is determined by the actual economic benefits or net profits/loss that customer has generated over its lifetime. It creates an objective measure that can consistently and objectively be used to compare customers in different segments.

Identifying segmentation hypotheses: What are the characteristics that make a company a good customer? Once your list of accounts is objectively ranked, start identifying hypotheses for the observable characteristics that could predict their quality.

The hypotheses should represent proposed relationships between customer characteristics and the goodness of the customer, as measured by the quality score. If the company you are analyzing has more of a particular characteristic, it will likely have a higher quality score.

To generate an initial list of such segmentation hypotheses, you’ll need to analyze:

• The structure of the market:  Such analysis reviews major market participants to identify the buyers, sellers, providers, and beneficiaries in the company’s value chain. Check to see if there are distinct markets or use cases prevalent in the market. The alignment of the participants along product lines, use case, packaging format, or special offerings might suggest a similar division of your company’s customer base along the same lines.
• What are the key selling points that win an account?
• Why do customers generally cancel?
• Who is our marketing directed at and why?

If their answers can be framed as observable characteristics of a company, they can be used as a segmentation hypothesis.

• Market experts and their publications:  How do they segment the market? How do they define your market and your competitors?
• Competitive information:  Review competitor websites for their marketing messaging, promotions, sales content, and product features. Who are they targeting? Do they segment their website content, messaging, and product lines? If so, why?
• Structurally similar industries:  Review industries with similar organizational characteristics to your own market. Doing so can provide clues that reveal special structural characteristics that define its segmentation.
• Standard, a priori segmentation schemes: Consider customer size, customer industry, customer geography, etc.

The ultimate goal of your research and data collection is to determine what makes a good customer for your company or product. At this stage, no segmentation idea is too far-fetched, as long as there is some economic or logical rationale for why it could be true and it is a meaningful prediction that can be validated. You want to capture every angle that might help you segment your customer base.

When conducting interviews within your company, you will want to speak with a cross-section of team members from marketing, product development, and sales. Each function within the organization should have some ideas about who they are designing their marketing message, sales tactics, or product features for, and why those targets would make an attractive customer.

In many early stage companies, these ideas may differ substantially from person to person and function to function. Collect each of their viewpoints and ask a lot of follow-up questions to uncover any hypotheses they might have about customer segmentation.

Your list of ideas will typically include segmentation hypotheses like the following:

• Larger companies make better clients
• Hospitals typically make worse clients
• B2B companies make better clients
• Multinational companies make worse clients
• Companies with large advertising budgets make better clients
• Companies that are more active in social media make worse clients
• Companies with a small IT Team will make better clients

Identifying the data fields and internal or external sources required to test and prioritize the hypotheses Once you have built a comprehensive list of segmentation hypotheses and have standardized them in the format illustrated above (“companies with more of characteristic X make better/worse clients”), the next step is to devise the appropriate data-driven processes to validate them. This requires you to identify the right data points to support the hypothesis.

You can do so for each hypothesis you have identified by:

• Evaluating the best numerical measure for measuring the hypothesized characteristic X.
• Identifying public data sources that can provide the value of the measure for the companies in your list of customers. If there is no publicly available data source for the particular measure, you have three options to consider:
• Use paid sources (if available and affordable), such as subscriptions to corporate and financial information databases, e.g., Hoovers DNB, InsideView, or CapitalIQ.
• Devise or define a proxy measure that is available through a public source, such as number of online visitors or rankings in Fortune 500 or Inc. 500 lists.
• Consider dropping the hypothesis all together if there is no available source — paid or unpaid — for the data.
• For each of the data sources identified, estimate the cost of collecting the data by considering the cost of the subscriptions as well as the cost of collecting the data for the companies in your customer list (correlated to the time and effort required to collect the data). You can roughly estimate the time costs by carrying out the data collection steps for a few of the companies, using the time spent on those data points as a benchmark.
• Considering the quality and accuracy of the data sources.
• Considering the options for each hypothesis by weighing the total cost of using a data source and the quality, accuracy, and coverage of the sources to decide on the most practical data source and data collection process to use when testing a particular hypothesis. A data source should also be preferred if it provides sufficiently accurate data for multiple hypotheses at the same time.

The example below illustrates this approach:

• Hypothesis:  Larger companies make better clients
• Proxy:  Company revenues or company employees
• Sources:  Manta, LinkedIn, Data.com (free data), or Hoover’s database (paid data)
• To find company’s number of employees: 3 minutes per data point x 100 customers = approximately 5 hours
• To find company’s revenues: 4 minutes per data point x 100 customers = approximately 6.5 hours

Either task can be completed by an intern for approximately $75 to $130 assuming they earn between $15 to $20 per hour.

Using Hoover’s as a data source for either revenue or number of employees has no time cost associated with it, but rather a data purchase cost: $6 per record x 100 records = $600.

Based on this comparison, it would be better to use an intern to collect the publicly available data. However, in cases where multiple data points can be collected using Hoovers data source with no additional cost, doing so might be worthwhile.

For less quantifiable data collection tasks, you can use a scale system, for example from 0 to 5, where 0 denotes no effort required, and 5 denotes massive effort required for each data point.

Once you have identified the hypotheses that are testable with viable sources, your constraint becomes research capacity. You will need to prioritize the set of hypotheses you have documented to identify whatever subset will provide the most practical and impactful segmentation insights.

As noted above, you will find that for some of your more detailed hypotheses, there will not be a suitable proxy, or that proxy will be too difficult, expensive, or unreliable to collect. In such cases, deprioritize them, at least in the first round of analysis, for two reasons:

• The cost of data collection to verify the hypothesis can be prohibitive
• Even with the data, the value of insights to be gained from validating a segmentation hypothesis will be hard to put into practice given how difficult it is to measure the supposed segmentation variable

The output of this step should be a final list of hypotheses to be tested, data fields to be collected for each test, and the sources of that data.

The next step is to build a comprehensive list of ways of using the customer characteristics you have identified to distinctly classify your current customer base by attractiveness. This is done using inputs and recommendations informed by the company’s staff, experts, and customers, as well as research on competitors. It is important to be as comprehensive as possible because effective differentiating factors can go beyond typical schemes such as company industry, company size, or geographic region.

Managing the data collection process

Best practices for managing a research team

• Ensure proper and consistent documentation of the input and output specifications for each research task.
• Leverage overlapping data collection needs for different segmentation hypotheses: the same data field can be used in testing multiple hypotheses.
• Document research tasks—even the most minute details—as each one has a tremendous impact on the quality of the data.
• Establish a regular working rhythm with the team that includes reviewing the outputs, allocating new research tasks, and resolving any impediments.
• Consider establishing a separate sub team of researchers to focus on data quality assurance and require that all research outputs be vetted by the team.
• Use a collaboration and document sharing tool with versioning functionality to better manage the vast number of data fields typically associated with this process.

To collect the data, you need to develop a plan detailing where each variable will be found, and which resource and method will be used to find it. Doing so assumes that you have access to a team of data collectors who will carry out the research, or access to an external data provider that will provide the data you need in the required format.

As the research manager, you will need to work closely with your data collection team throughout this potentially complex research process. Therefore, sharing the research plan with them to get their feedback and support is very important. Their input will make the plan more accurate and realistic, while their support will make the project more efficient.

The data collection work plan and the best practices described in the callout [above] are still relevant even if you do not have access to any additional resources for data collection. When setting up your plan, identify potential weaknesses in the data set and pay special attention to them as the data is collected. These weaknesses might include:

• Incomplete or hard-to-reach data (e.g., revenues for private companies)
• Outdated data
• Data that is not easily standardized or has multiple definitions (e.g., profits are sometimes given as gross profits, EBITDA or operating profits)
• Data that requires qualitative judgment (e.g., industry or business model)

To ensure the quality of the data, conduct quality assurance before, during, and after the data collection process. Problematic data will not only create issues during your segmentation analysis, but also when it is time to generate outbound prospecting lists.

If, based on your review of the preliminary data outputs, you have any doubt about the quality of the data source, consider another proxy or data source. In cases where there is no suitable alternative, go back to the previous step and consider the hypothesis among the full list of prioritized hypotheses.

This section in our guide to customer segmentation will help you conduct the data analysis necessary to evaluate and prioritize your best customer segments.

In order to help you identify your best current customer segments, we’ve broken the process down into five clear steps. Check in weekly as we walk you through each step, from setting up your project to performing customer data analysis, executing data collection, conducting customer segment analysis and prioritization, and implementing the results into your organizational strategy.

The next step in the customer segmentation process is to analyze and validate the segmentation hypotheses you have identified. This analysis will require significant data about your current customer base, so you will need to develop a data collection plan and a research process.

Once the necessary data have been collected, you can analyze and validate each of the hypotheses, helping to identify whether a segmentation idea is right or wrong. Having done so, it is also important to analyze the relationships between validated hypotheses. The synthesis of these segmentation schemes is an overall segmentation of the best customers that incorporates each of the validated segmentation hypotheses. That results in segments that are not only analytically proven to be attractive, but also intuitive and targetable for the purpose of developing and executing a segment-focused strategy against them.

Executing data analysis to identify relevant variables and validate your hypotheses

Now it’s time to analyze the data to validate or reject each segmentation hypothesis, and uncover the relationship between them. There are several different ways to do so.

Lightweight clustering analysis If you have a small customer base, and/or a small list of segmentation hypotheses, one approach you can take is to conduct a lightweight clustering analysis by systematically reviewing the customer ranking relative to the hypothesized factors as follows:

• Create a table that lists all of the customer accounts you are analyzing together with their quality scores, as well as each account’s data fields that correspond to the segmentation hypotheses you have selected for testing.
• Sort the table by quality score and systematically go through the list of segmentation hypotheses to check if there is a correlation between the values in a segmentation hypothesis data field and the quality score. The relationship does not have to be one-to-one or even a linear correlation, but rather as simple as the following:

All customers with more than $5M in annual revenues are in the top 10 percent of the customer base, while all customers with less than $5M in revenues are in the bottom 20 percent of the customer base.

That observation is often enough to put some confidence behind the fact that characteristic X might be a good predictor of a customer’s quality.

Once a segmentation hypothesis appears to be validated using the steps above, sort the whole table according to the variable associated with that hypothesis. Doing so turns the analysis around to see if the segmentation variable in question is truly effective in separating great customers from the rest. This sorting process should lead to a clear segmentation of the customer base, where one segment is disproportionately represented by “good” customers.

By following the steps described above, you will have validated your segmentation hypotheses and provisionally reviewed the distinct segments formed by one or more of your hypotheses.

The second approach, listed below, can be used when you have more resources and time to spend on your analysis, or when there are many customer accounts to analyze.

Tree-based clustering analysis Begin by slicing your data into quartiles by account quality score, such that your best quartile of customers is labeled “A” customers, and your bottom quartile is labeled “D.” If you are dealing with a large number of customers (i.e., hundreds) you can divide them into deciles instead.

Now look at the characteristics of each quartile (or decile), using averages for each proxy variable that you collected. In which variables do the A’s appear significantly different from the D’s? Are there any patterns that immediately jump out at you?

Taking the most obvious pattern in the data, the next step will be to create a branch in the data to illustrate this. For example:

The end result will be a list of attractive segments for further analysis, which provides several advantages:

• It will serve as the basis for narrowing your regression analysis down to a few relevant variables.
• The tree is a visually appealing and logical way to look at the data, which will help you communicate your conclusions to stakeholders during the presentation phase of the project.
• It will help you determine cut-off points that regression analysis would not be able to properly capture.

There are some additional points to keep in mind during this stage of the analysis:

• The field you use as your first decision point (in the example above, “Companies selling to Businesses?”) is very important and can dramatically shape the rest of your decision tree. Try experimenting with different segmentation schemes to see if you can generate greater divisions at each decision point.
• In general, stop adding additional branches when the difference between the nodes stops being relevant or when the number of companies within each node becomes too low. For example, if you have segmented your list of 100 companies into a list of 50 different industries, a sample size of two for each industry will not be very convincing. You should either combine industries to create larger buckets, or consider segmenting based on another variable.

Below is an example of the full segmentation tree, after multiple iterations of the process described above.

Strengthening hypothesis validation with regression analysis Once you find your segmentation variables using either of the methods described above, you can take the process one step further by numerically validating those hypotheses using regression analysis.

Start with a large set of variables—perhaps all of the ones that appeared relevant in the initial quartering of the data set. Run a multivariate regression against those variables with the account quality score as the dependent variable. The result of the regressions will allow you to identify variables that are insignificant (variables that do not correlate with the quality score in anyway), as well as variables that might be too closely correlated to each other to both be included in the analysis. Eliminate those variables and rerun the analysis until you have reached a set of variables that are all significant, and yet substantially independent of each other. These are the ultimate segmentation variables for the purposes of this project.

It may also be advantageous to run separate regressions for different segments that you identified in the previous data. For example, the previous tree illustrated that B2B companies segment nicely based on employees. However, it’s possible that B2C companies segment better based on another variable. Therefore, running separate regressions for B2B and B2C companies may produce better results than including them all in a single model.

Evaluating composite segmentation Because value-based segmentation is a predictive process, any resulting segmentation schemes can be evaluated as if it is a predictive model of the customer’s quality. In order to come to the most appropriate segmentation scheme, we can compare the different composite segmentation schemes discovered using a technique called “lift charting.”

A lift chart shows the predictive power of a scoring model by comparing the likelihood that a customer with a high score on that model is also a good customer. Lift refers to the increase in probability that a customer that is scored highly by that model is actually a good customer, per historical data. If the model had no predictive power at all, the likelihood would essentially be that of a randomly chosen prospect, and its lift would be zero.

For example, using our segmentation scheme, we are effectively predicting whether a prospect will fall within the top 25 percent of our customer’s base, based on our recently established quality score. The way to measure this predictive power is to apply the predictive model to the existing customer base and see what percentage of the actual top 25 percent of customers fall within the top 25 percent of customers in that model.

Because the actual quality score incorporates information that is only available after a prospect becomes a customer, it is unlikely that we will be able to predict this perfectly, but the closer we get to correctly predicting the top 25 percent of customers, the better.

Extending this analysis further, we calculate the Y percent of the actual top 25 percent of customers captured by any given top X percent of the customer base as ranked by the predictive model in question. Calculate Y for each X from 0% to 100%, and then plot Y against X will give a line graph that is the “lift chart” of the model, as shown in the figure below.

To understand how these charts help to visually compare the predictive models and the segmentation schemes that they are based on, first look at the worst and best cases.

First we have a baseline model, which is a straight line where the slope equals one. This is the model with no prediction at all—we need to review the entire customer base to identify the top 25 percent of the customer base. The perfect prediction model, on the other hand, assumes perfect prediction—the top 25 percent of the customer base according to that model coincides with the actual top 25 percent.

Model 1 and model 2 are imperfect models with slightly different lifts. Model one has better lift because it is higher above the baseline model, and is closer to the perfect prediction model. The top 50 percent of the customer base according to model one captures the actual top 25 percent. In contrast, the top 90 percent of the customer base according to model two captures the same actual top 25 percent. Model one clearly has more predictive power than model two.

Ultimately the results of your regression and lift chart analysis will likely be too technical and detailed to be included in your final presentation to your stakeholders. However, it is still important to perform this analysis to verify that the results of your decision tree are rigorously supported by quantifiable measures, to choose between alternative segmentation schemes, and to retain it as an appendix for anyone looking for additional insight into your methods.

Synthesizing validated segmentation hypotheses to form distinct, homogeneous segments of high-value customers With your main segmentation variables identified, validated, and even stress-tested using both regression and lift chart analysis, you now need to develop a meaningful synthesis of these segmentation schemes and identify the most attractive targets.

The segmentation that you arrive at will most likely be a combination of the main segmentation variables, while the resulting segments will be defined by a combination of specific values of the segmentation variables. However, some of the segments you identify can also be merged together, and not all of the defined segments will satisfy the following list of desirable segment characteristics:

• The segments definitions are meaningful and intuitive. They make sense and do not require a lot of complex reasoning to be defined.
• The segments are well-defined and preferably demarcated by observable variables so that it does not take a lot of effort to classify the customer into the segments.
• The segments are addressable using modern communication and marketing tools (this typically follows the previous requirement).
• The segments are substantial enough (in terms of number of prospects or economic benefits) to be considered an integral part of strategy.
• The segments are sustainable and will continue to be a meaningful part of the market, growing at least as fast as the overall market.

The reason for listing the characteristics above is that they are what ultimately define actionable segments, as opposed to the analytically defined and validated segments that you might have developed through the previous analysis.

The main tradeoff in your selection and/or definition of segments based on the validated segmentation hypotheses is thoroughness versus practicality. For example, during the analysis stage, you may have identified half a dozen important characteristics that predict a customer’s success, all of which may interact in a complex way (for instance, B2B companies generally need to have more than 500 employees to be successful, whereas B2C companies can be successful with just over 100 employees). Incorporating that complexity fully into your segmentation plan can result in overly complicated, fragmented segments that are impossible to target and not scaled enough to be worth investing in the segmentation focus strategy.

To reduce some of this complexity, you should concentrate on a fewer number of segments that more fully satisfy the list of criteria above. While you will lose some accuracy by ignoring less important variables, your best insights will be much more powerful and useful to the organization. Thus, even though you might have validated many different hypotheses, you should work to synthesize them so that your final segmentation scheme depends on just a few segmentation variables. Having more variables will unnecessarily complicate the delivery of your results, and the subsequent efforts to target the identified segments.

Evaluating segment value, targetability, and size to prioritize your best segment(s) Once you have reached a satisfactory overarching segmentation scheme, the last analysis to be done is to evaluate the resulting segments and prioritize the few that are most promising in terms of:

• Customer quality: Measured by the average customer score, this is the spread of the scores within all customers in that segment, as well the lowest and highest scores of customers in that segment.
• Segment size: A rough estimate of the total economic value of all the prospects that have characteristics as defined by the segment. A true segment sizing analysis is beyond the scope of the present document and is often unnecessary. Typically, you only need to find an approximation of the number of prospects in the segment, or the prevalence of prospects in the segment, to come to a reasonable understanding of the size of the segment.
• Segment growth: A rough indication of future trends relative to the size and attractiveness of the segment.

Typically, given the limited number of segments analyzed, and the distinction you have identified and sharpened in your analysis and synthesis of the segmentation scheme, the choice of the best segment is quite obvious. However, the feedback process might result in slight prioritization changes, as new factors are uncovered or incorporated into the prioritization process.

Furthermore, given that you should be primarily concerned with the most important segments, you should also focus your synthesis on defining the few segments that form a big part of your best customer groups. The number of segments depends entirely on the scope of the project and the way the results pan out. However, the segments you target probably should not represent more than 25 to 50 percent of the total customer base, so as to help you meaningfully narrow your sights on the more attractive targets.

Typically, this means really focusing on just two or three top segments in your final recommendations.

Our guide to customer segmentation concludes with tips for successfully presenting your findings to stakeholders and translating your data into action.

The last step in the best current customer segmentation process is to apply the customer quality measurement discussed in the first step to the aggregate customer set in each of the identified segments. Doing so will allow you to ensure that the customer segment(s) with the best overall customer quality is/are identified.

You are then ready to present your findings to your stakeholders.

Building your final presentation Creating a final presentation is a significant undertaking, but it’s important for a couple of reasons:

• It facilitates the delivery of the insights—paired with the analysis results that support them—to the stakeholders and encourages them to rally behind its recommendations.
• It is a reference document to be used in the propagation of the segmentation insights in other teams/departments, particularly in the implementation of the segment focus strategy throughout the company.

An effective presentation typically has the following sections:

• Agenda: One slide to frame the content of the presentation.
• Executive summary: No more than two to three slides that summarize the key findings and recommendations.
• Additional summary for stakeholders: A recap of the original project goals, the agreed-upon methodology, and the main milestones that have been achieved in the project, as this information will help stakeholders quickly catch up and be comfortable with the next sections of the presentation. If possible, limit the time spent explaining the intricacies of the methodology, as this level of detail is not necessary for your stakeholders.
• Key insights: This should constitute the meat of the presentation. First, review the segments you selected in order of prioritization. Then, show how much better they are in aggregate than the general population of customers. Finally, show that focusing on these segments will generate fewer misses, but that the benefits of not targeting lower-value customers far outweigh any meaningful lost opportunities. You can use two sets of charts to illustrate this point:
• A chart showing how the top 25 percent (or any suitable percentage) of customers are dominated by the customers in the identified and prioritized segments (see the example below).

• A chart showing how each of the segments comprises a disproportionately high percentage of high-quality customers. For example, more than 40 percent of the customers in segment X are in the top 25 percent of all customers by quality score (see the example below).

• To further illustrate the segment definition, provide examples and give the segment a catchy, easy-to-remember name.
• Methodology: After your message is clear, explain how you arrived at your results. Discuss the account score and show the top 10 and bottom 10 accounts, and explaining why they are scored that way. Additionally, cover the hypotheses you tested, and discuss the ones that you found out were not relevant. Very briefly, talk about gaps in the data or possible biases, and the results of your regression analysis.
• Next Steps: List out key next steps that will help ensure the impact of the project.

You first need to highlight the immediate next step, which is for stakeholders to give feedback to segmentation recommendations and approve/adopt the recommendations after the feedback has been satisfactorily addressed.

The steps that follow should be actions your organization can take to implement the segmentation recommendations delivered here. You may want to explain how each of the stakeholders can use the conclusions of your analysis. This may include aspects of whole  product strategy, go-to-market strategy, sales, marketing, and even customer service. The object is to get all facets of your organization aligned to the target segments, and to make absolutely sure that existing customers in the segments are well served. You also want to ensure there is good coverage of prospective companies in the space on the part of your marketing and sales teams.

Gathering feedback After giving your presentation, the stakeholders will likely have questions and feedback concerning the segments that you examined. Some of them will have had certain preconceptions about the business that may conflict with your conclusions, so anticipate the weaknesses in your argument and be ready to address them honestly and thoroughly. Too many un-resolved concerns about your methods can undermine the entire project.

If these concerns require adjustments to your data set in order to win the support of your stakeholders, it may be worth adjusting your methodology slightly to ease these reservations. Keeping track of your data files and strictly following the best practices in data versioning and management will allow you to go back to your files and make adjustment to respond to the feedback and questions without redoing a lot of work.

Ultimately, the project will only succeed if it gets broad-based support from the stakeholders, so the project may require several iterations before receiving such support.

Translating information into action After completing the five steps laid out in this chapter, your business should have the critical best current customer segmentation data it needs to begin focusing on more productive—and profitable—segments. That data is only helpful if you put it into action immediately, however.

Like almost anything in business, the information you cull from this process has a shelf life, largely because any number of factors both within your company and your target market segment—can impact which companies constitute your “best” customers. As a result, it is important to implement the results of your best current customer segmentation research as quickly as possible, and measure their impact over time. As things change, it is a good idea to reconsider your best current customer segments and, if necessary, re-execute the process outlined above to adapt to those changes.

While this guide provides a step-by-step process for identifying, prioritizing, and targeting your best current customer segments, simply following it does not guarantee success. To be effective, you must prepare and plan for the various challenges and hurdles that each step may present, and always make sure to adapt your process to any new information or feedback that might change its output.

Plus, you can’t force-feed this process on your business. If the key stakeholders that will be impacted by the best current customers segmentation process do not fully buy-in, then the outputs produced from it will be relatively meaningless.

If you properly manage the best current customer segmentation process, however, the impact it can have on every part of your organization—sales, marketing, product development, customer service, etc.—is immense. Your business will possess stronger customer focus and market clarity, allowing it to scale in a far more predictable and efficient manner.

Ultimately, that means no longer needing to take on every customer that is willing to pay for your product or service, which will allow you to instead hone in on a specific subset of customers that present the most profitable opportunities and efficient use of resources. That is critical for every business, of course. But at the expansion stage, it can often be the difference between incredible success and certain failure.

Editor’s Note: This post was originally published on September 1, 2016.

Chief Business Officer at UserTesting

Tien Anh joined UserTesting in 2015 after extensive financial and strategic experiences at OpenView, where he was an investor and advisor to a global portfolio of fast-growing enterprise SaaS companies. Until 2021, he led the Finance, IT, and Business Intelligence team as CFO of UserTesting. He currently leads initiatives for long term growth investments as Chief Business Officer at UserTesting.

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What Is Customer Segmentation? Definition and Guide (2024)

Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately.

Understanding your customers is critical to success. It allows you to create messaging and offers that resonate with your audience, rather than guessing about their preferences and needs.

And taking it a step further, segmenting customers into groups based on similarities helps you develop a deeper understanding of those groups. You can then build targeted campaigns addressing each segment’s specific needs. Pretty cool, right?

So, what exactly  is  customer segmentation and how do you do it? Let’s take a look.

What is customer segmentation?

Customer segmentation is the process of dividing a company’s customers into groups based on common characteristics so companies can market to each group effectively and appropriately.

In business-to-business marketing, a company might segment customers based on a wide range of factors, including:

• Number of employees
• Products previously purchased from the company

In business-to-consumer marketing, companies often segment customers according to demographics that include:

• Marital status
• Location (urban, suburban, rural)
• Life stage (single, married, divorced, empty-nester, retired, etc.)

Why segment customers?

Segmentation allows marketers to better tailor their marketing efforts to various audience subsets. Those efforts can relate to both communications and product development. Specifically, segmentation helps a company:

• Create and communicate targeted marketing messages that will resonate with specific groups of customers, but not with others (who will receive messages tailored to their needs and interests instead)
• Select the best communication channel for the segment, which might be email, social media posts, radio advertising, or another approach, depending on the segment
• Identify ways to improve products or new product or service opportunities
• Establish better customer relationships
• Test pricing options
• Focus on the most profitable customers
• Improve customer service
• Upsell and cross-sell other products and services

How to segment customers

Customer segmentation requires a company to gather specific data about customers and analyze it to identify patterns that can be used to create groupings.

Some customer data can be gathered from purchasing information—job title, geography, or products purchased, for example. Some of it might be gleaned from how the customer entered your system.

An online marketer working from an opt-in email list might segment marketing messages according to the opt-in offer that attracted the customer, for example. Other information, however, including consumer demographics such as age and marital status, will need to be acquired in other ways.

Typical information-gathering methods include:

• Face-to-face or telephone interviews
• General research using published information about market categories
• Focus groups
• Loyalty program data
• Sign-up forms on an online store
• In-person conversations
• Customer reviews
• Customer support interactions
• Purchase history
• Online analytics

With  Shopify’s segmentation tools , you can collect this data directly from your online store traffic. Discover powerful insights about your customers by creating unique segments and then reach out with personalized campaigns to drive sales.

Shopify also includes  some default customer segments and templates to help you get started. You can refine, add, or even remove customer segments over time as your business evolves. Build your customer segments in the editor on the Customers page by  adding filter names, operators, and values .

Using customer segments

Common characteristics in customer segments can guide how a company markets to individual segments and what products or services it promotes to them.

A small business selling handmade guitars, for example, might decide to promote lower-priced products to younger guitarists and higher-priced premium guitars to older musicians based on segment knowledge that tells them younger musicians have less disposable income than their older counterparts. Similarly, a meals-by-mail service might emphasize convenience to millennial customers and “tastes like mother used to make” benefits to baby boomers.

Once you’ve identified your segments, list their shared characteristics, paying careful attention to pain points and desires. Lean into those commonalities when developing your segmented marketing strategies and promotions. You don’t have to offer every promo to every customer—send your promos only to those who will be interested. A discount on dog food surely isn’t going to drive any sales from your customers who don’t own dogs, for example. So consider creating a segment of dog owners and only send those promos to them.

The main idea behind a customer segmentation strategy is you don’t need to send every promotion to every person all the time. Instead, send targeted promotions to relevant audiences.

Additionally, you can put customers into multiple segments—you don’t have to pigeonhole everyone into just a single group. For example, people in your dog owner segment may also be in your parents’ segment.

The customer segmentation model can be used by all businesses regardless of size or industry and whether they sell online or in person. It begins with gathering and analyzing data and ends with acting on the information gathered in a way that is appropriate and effective.

Learn more :  Know your audience to grow it with Shopify Segmentation

Customer segmentation examples

Examples of  customer segments to build  include:

1. Demographic customer segmentation

Demographic segmentation involves grouping customers together based on facts about their life. It can include factors like:

• Household income

For example, if you run a bookstore you can create a segment for parents and advertise children’s books to them. Or, you might create segments based on age to advertise appropriate books to the right people.

Candle brand Otherland could create a segment of millennials who were born in the 90s to advertise their 90s-inspired product line to. 

2. Geographic customer segmentation

Geographic segmentation involves dividing customers by location or region. It can also include:

• Preferred language
• Cultural factors

For example, you might market bathing suits to your Florida-based customers year-round, whereas advertising winter coats for your New York–based customers might be more appropriate during the colder months. Segmenting customers by location also means you can deliver messages in their preferred language if you’re selling internationally or include relevant pop culture sentiments based on where they live. 

Allbirds serves different messaging to its different audiences based on their location. To UK customers, it spotlights the lightweight material of its shoes—perfect for summer. 

To Australian customers, it focuses on its cozy merino wool line—perfect for winter in the Southern Hemisphere. 

3. Behavioral customer segmentation

Behavioral segmentation involves grouping your audience together based on their online behavior—most notably, previous purchases, how often they buy from you, and what products they show the most interest in. 

Group customers based on: 

• Purchase behavior
• Usage patterns
• Customer loyalty

For example, a hair care brand could create a segment of customers who have only purchased shampoo and not conditioner and create promos around conditioners for that segment. Or they might group together customers who buy the same product each month and create exclusive offers for them if they continue that purchasing cadence. 

Accessories brand Caraa sends its VIPs exclusive discounts and offers as a thank you for being loyal. 

4. Psychographic customer segmentation

Psychographic segmentation involves dividing your audience by attitudes, values, lifestyles, and interests. Here are some ways you can segment customers: 

• Interests and hobbies
• Lifestyle and values
• Personality traits

Use previous product purchases, survey responses, and shopping behavior to determine what kinds of lives your customers live, what they enjoy, and what they value the most. For example, if you run a well-being supplement brand, you might segment customers who spend their weekends hiking and create another segment of people who prefer to go to the gym before work. 

House plant brand The Sill has created subscriptions based on its customers’ interests and lifestyles. There’s a pet-friendly subscription for those who live with animals and an easy-care option for those who have busy lives and little time for plant upkeep. 

5. Technographic customer segmentation

Technographic segmentation involves grouping customers together based on what technology and apps they use, how they find your brand online, and what channels and devices they choose to engage with you on.

This can include: 

• Online behavior
• Technology adoption
• Preferred devices

For example, you can send customers that prefer to receive text messages an SMS when you have a new product line drop. Or, you can send tailored messages to customers who found you via Instagram or TikTok. 

Igloo sends price drop alerts to customers who have chosen to communicate via text message. 

Start segmenting your customers today

Customer segmentation is a great way to kickstart your personalization strategies and develop promotions and campaigns that directly relate to your target audience. And it’s easier than ever with Shopify’s native customer segmentation tools.

With these tools, you’ll understand your data better and be able to act on it for free from the same secure platform you use to run your business. Check out the endless possibilities with  Shopify’s segmentation tools .

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Customer segmentation FAQ

What does customer segmentation mean, what are the 4 types of customer segmentation.

• Demographic segmentation: This type of segmentation divides customers into different groups based on shared characteristics such as age, gender, income, occupation, education level, marital status and location.
• Psychographic segmentation: This type of segmentation divides customers into different groups based on their lifestyle, interests, values and attitudes.
• Behavioral segmentation: This type of segmentation divides customers into different groups based on their purchase history, usage patterns, brand loyalty and response to marketing campaigns.
• Geographic segmentation: This type of segmentation divides customers into different groups based on location, such as country, region, city or neighborhood.

What is customer segmentation example?

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What Is Customer Segmentation?

Improve the efficiency and focus of every department in your business with customer segmentation.

Table of Contents

Your business serves a wide range of customers with unique interests and needs. One message will not appeal to everyone, but businesses can’t personalize marketing campaigns for each customer. Instead, marketers group their customers into segments. Customer segmentation allows businesses to prioritize and engage with their most important customers through marketing differentiation. 

Editor’s note: Looking for the right email marketing software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

What is customer segmentation?

Customer segmentation is the division of an audience into targeted groups with shared buying characteristics. Each customer segment purchases your product to fulfill the same needs and often communicates through similar channels. Their purchase drivers shape product, sales and marketing decisions. 

Personalizing your message to target groups can significantly affect your bottom line. McKinsey & Company’s Next in Personalization 2021 Report found that 76 percent of customers are more likely to consider purchasing from a business that personalizes, and 78 percent are more likely to make repeat purchases. Moreover, the report found that 76 percent of consumers are frustrated when messages aren’t personalized. And, according to the Twilio Segment State of Personalization 2021 Report , 45 percent of those disappointed customers will spend their money elsewhere.

Segments give context to a customer base, and that context explains how audience segments can best be engaged. Customer segments can be:

• Binary and wide: For example, you can divide customers who are subscribed to an email newsletter and those who are not. Whether or not a customer is subscribed to your newsletter can indicate a communication disconnect. 
• Focused and narrow: For example, you can split up single and married subscribers. Perhaps unmarried subscribers are likely to make multiple purchases, but married subscribers rarely complete a second digital transaction. That data would suggest that a new strategy might better convert married subscribers. 

Michael Solomon, professor of marketing at Saint Joseph’s University and author of The New Chameleons: How to Connect with Consumers Who Defy Categorization , suggests current marketing trends are adapting to search for narrower, more accurate segments.  

“When you think about media, with the exception of the Super Bowl and Olympics, you’ll never have a huge number of people tuning in to the same thing,” Solomon explained. “Consumers don’t really want to be hemmed in to these categories anymore.”

Ideally, your marketing team creates a plan that optimizes customer engagement for every individual as their own segment. The best plans pinpoint your best customers and personalize their customer journeys as much as possible.

“You have to choose your sweet spot if you’re a small business and really figure out who is your ideal customer,” Solomon advised.

Why should you segment your customers?

Proper customer segmentation increases revenue through differentiation, according to Steffen Schebesta, CEO North America and vice president of corporate development at Brevo.

“Segmentation and personalization go hand in hand,” Schebesta explained. “You want to make sure you create segments that are relevant and actually different from one another.”

Businesses that tailor their offerings to customer segments generate, on average, 10 percent to 15 percent higher revenue than those that fail to personalize their messaging, according to the McKinsey & Company report – a rate that goes up to 25 percent for direct-to-consumer brands. 

Segments identify the best customers and where they are most accessible, and they can always scale in scope as your business grows. Segmenting can help you connect to your target customers in various ways that affect marketing, sales, product development and customer service.

• Segmentation and messaging: A focused message is not static. It retains your brand voice while resonating with different customers. Ideal market differentiation stands out because only your business can deliver that exact message to a customer. Additionally, customer segments inform which marketing channels should be prioritized for each group. For example, specific customer segments may never see an email but will always engage with your Facebook business page . Segments that engage with one channel may be driven to purchase a specific color, signaling that channel-specific marketing should highlight that color.
• Segmentation and product development: Product development teams can tailor the product to better suit customer desires. If their most profitable segment purchases for one feature, the product development team can enhance or prioritize that feature to expand its largest revenue market.
• Segmentation and lead qualification: Some segments don’t provide enough revenue to offset their required resource investment. Sales and marketing teams can shift their focus to more profitable sectors by qualifying leads that will spend more and segmenting them, cutting back on costs and increasing profit.
• Segmentation and new customer discovery: Research might offer surprising results. A feature that was an afterthought for you might be the largest purchase factor across several segments. New segments may emerge as loyal customers who were not the product’s intended audience, potentially redirecting your entire business in a more profitable direction.
• Segmentation and experimentation: Experimenting with different strategies could drive away customers – or generate record revenue. For example, friendlier email subject lines could improve email open rates or drive recipients to the “unsubscribe” button. Instead of taking risks across your entire audience, implement changes across smaller segments. A sweeping overhaul will rarely succeed everywhere, but improvements in multiple segments will enhance overall efficiency.
• Segmentation and precise forecasting: Studying your target audience lets you and your other analysts better forecast upcoming business trends . This enables more precise planning that wouldn’t have been possible without research-backed confidence.
• Segmentation and customer loyalty: Your customer service team can leverage a deeper understanding of your customers to assist with their specific pain points. Improving the customer experience will build customer loyalty and overall customer satisfaction.

What are the types of customer segmentation?

All customer segments can be categorized by answering basic questions about your target consumer. These are any audience’s guiding factors: who, what, when, where and why.

Who: Demographic (B2C) / Firmographic (B2B)

Demographics provide basic customer identifiers – simple snapshots of a consumer through their individual, factual attributes. Although not the sole indicator of buying interest, demographics are the foundational segmentations you will always use. They identify your customer base in the broadest sense. Common demographic attributes include occupation, age, gender, income, ethnicity and education level.

Companies specializing in B2B sales replace individual demographics with company firmographics. Firmographic data covers the same concept – the core attributes of a company, such as its industry, number of employees and revenue.

Where: Geographic

Geography is sometimes considered a demographic component. However, experts often analyze it separately because of its many subdivisions. Every business will be limited in the geography it can serve, but location can often lead to unique products that could not exist elsewhere. 

Climate and local customs govern what products consumers need, and seasonal changes can inspire sales and special opportunities. Federal laws and responses to public threats such as COVID-19 can also alter buying habits and consumer practices.  

What and when: Behavioral

Behavioral segments define what customers do with your product and when they use or read about it. Here are some examples of behavioral segmentation areas:

• Audience engagement: Marketers are especially interested in what a customer is doing when they see an advertisement and how they interact with a brand. They track audience engagement across multiple marketing channels and social media interactions. Several subdivisions dive further into specific patterns.
• Transactional behavior: Transactional behavior measures what a customer purchases and where that purchase occurs. Loyalty programs and customer feedback measure repeat purchase drivers. Marketers evaluate these transactional behaviors to determine where different audience segments communicate with the brand; for example, in-person, online or on social media.
• Online behavior: Technologic segments track customers’ behavior when they use online platforms. Website analytics can track website visitors and report how long a customer spends on your website, when they access it, if they are a new or first-time visitor, and if any other website serves as a referral agent.

All behavioral segments provide a more complete picture of the customer journey. Whether or not a consumer makes a purchase, this information can help you tailor your brand’s message and product to align with consumers’ expectations. 

Why: Psychographic

Behavioral segments prompt more questions than they answer. Psychographic segments attempt to answer the “why” behind those questions.

All other segment data is rooted in fact, outlining your buyer persona. Emotion and feeling define psychographics and provide the color to that image, allowing your business to inject personality into its messaging. 

Psychographics consider a consumer’s lifestyle and the values and opinions that inform their decisions. They personalize the data you gather, allowing you to connect your brand with the people in your audience, not just their statistics.   

How to define your customer segments

One of the most challenging elements of customer segmentation is selecting the data that will create the most valuable segments. Marketers research segments through questions, which often stem from your overall marketing plan . Certain strategies will help you focus those questions and ensure the effectiveness of your segmentation process.    

1. Perform a product analysis.

Assess your product. Define its function, target audience and unique selling points. You should already have an idea of who will purchase it and why, but a more detailed analysis will provide more specific segments. Consider a SWOT analysis to fully explore your market share and branding opportunities. 

Solomon suggests using the market as an impetus for creating a product. “Identify an unmet need that people you can reach [have], and then work backward to develop the offering that’s going to fit their needs,” Solomon advised.

2. Craft your buyer persona.

Your ideal customer can’t be everyone . Create a buyer persona with as many specifics as possible to guide your segmentation questions. Do any groups among your audience already fit its description? Reconsider your product’s purpose and messaging if the original persona doesn’t represent your customer segments.

Supplement your buyer persona with additional targets. Ask questions and write several hypotheses. Who else benefits from your product? On what social media pages do most customers see your product? Which channels provide the highest engagement rates? Use the variables to guide the data you collect and the segments you expect to develop.

3. Collect market data.

Leverage the primary customer segment types to create detailed customer profiles. Combine public records and general research with customer profiles and purchasing information you already have to compare demographics and geography. Conduct customer surveys , focus groups and interviews to ascertain behavioral and psychographic data.

4. Compile segments.

Compile your data into segments. The original hypotheses should serve as a guide to finding relevant differentiating factors. Segments should be organized by buying characteristics – the drivers that most influence a sale among those groups – and actionable elements you can incorporate into your marketing plan.

Start broad and avoid too narrow of an initial focus. You can focus and increase your segments when you have the time and staff to study those micro-purchasing decisions.

5. Focus on your current customers.

All this actionable data will leave you with a storm of possibilities for reaching new customers in different markets . You’ll likely even develop more measurable questions to address in future segmentation research. But before focusing on new possibilities, remember to account for the lifetime value of the customers you already have.

Prioritize ways to keep your current customers . “One of the biggest mistakes a lot of companies make is that it’s much more expensive to acquire a new customer than to keep an old one,” Solomon explained. “If I acquire a customer, it’s not just what [they are] going to buy from me today, but what they will buy over a lifetime.”

Customer segmentation leads to successful businesses

Consumers are inundated with messages about new products and services via email, TV and social media. Customer segmentation is crucial for businesses that want to ensure they create relevant products and target the right audience in the right places. Misplaced advertising or efforts to reach customers who won’t be interested in your product are as good as pouring money down the drain.  

Take the time to conduct thorough research to segment your customers into ideal target groups, which will help all aspects of your operations make better-informed decisions. When you prioritize personalizing the consumer experience, customers respond by choosing your company and remaining loyal to it, helping your business grow . 

Tom Anziano contributed to this article. Source interviews were conducted for a previous version of this article.

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The 4 Types of Customer Segmentation: How to Correctly Apply Them and The Value They Add

No matter what your position is in the business world, the first thing you learn is the importance of understanding your customers. The various types of customer segmentation are crucial here.

Even if you’re a customer, it’s almost always better to find someone who specialises in what you need. The closer a business’ offering matches a customer’s needs, the better.

So what is customer segmentation? In the end, all businesses want to gain the trust of their customers. Having a clear picture of the different people who benefit from your products and services is a huge part of this.

Table of Contents

What is customer segmentation.

Customer segmentation, also known as market segmentation, is the practice of dividing consumers into subgroups. This makes it easier to target your messaging more closely to your customers’ needs.

To further refine your marketing strategies, consider leveraging big data analytics services . These services can provide valuable insights into customer behavior, preferences, and trends, enabling you to make data-driven decisions that enhance your overall marketing effectiveness.

All sorts of data can inform your market segmentation. For example:

• Social factors,
• Economic factors,
• Demographics,
• Product uses,
• Behavioural preferences.

Segmenting your market according to customers is a sound practice. It empowers you to build up a more solid understanding of your clients and find what influences them. When you’re conveying a message, it will be more compelling if it resonates with customers. The division is essentially a method for orchestrating your clients into smaller gatherings as indicated by write. Each segment should be described by specific traits.

Customer Segmentation Meaning

Customer segmentation refers to dividing customers into groups that share similar characteristics, needs, interests, or behaviours. It is a key strategic marketing concept that allows companies to better understand their customers and tailor products, services, and messaging to resonate more effectively with different segments.

Some key things to know about customer segmentation:

• It groups customers based on common factors like demographics, geography, psychographics, buying preferences, etc.
• Key segments are identified through market research and data analysis.
• It allows personalized marketing rather than a one-size-fits-all approach.
• Companies can develop targeted products, offers, and communications for each segment.
• It helps determine better product positioning and pricing strategies.
• Common bases for segmentation include age, gender, location, income level, lifestyle, values, usage rate, etc.
• Benefits include improved customer satisfaction, increased conversions, and higher profitability.
• Examples could include segments like “budget-conscious moms”, “affluent retirees”, “fitness enthusiasts” etc.

Customer segmentation is a crucial process that allows organisations to divide customers into distinct groups with common needs and behaviours so marketing can be tailored for greater relevance, engagement and impact with each segment.

4 Types of Customer Segmentation

Market segmentation is important when attempting to sell any kind of product, but it’s important to choose the right strategy.

There are a number of different types of customer segmentation. Some of these include:

• Geographic segmentation ,
• Demographic segmentation ,
• Psychographic segmentation ,
• Behavioural segmentation .

1. Geographic

Geographic segmentation is the act of dividing your market in light of where they are found. Sections can be as wide as a nation or a district, or as thin as one road of homes in a town. in other words, it divides customers into regions, countries, states, cities, and neighbourhoods, which is useful for localisation strategies.

Furthermore, geographic division is valuable for all kinds of companies. Large organisations with global markets may offer items to people in different areas. For instance, you might specialise in selling skis and winter equipment. Introducing this promotion to hot regions, for example, would be pointless, and could even desensitise the public to future commercials.

Especially for independent companies, geographic division can be utilised to target particular clients without wasting resources on impressions that won’t transform into deals. For instance, a neighbourhood cafe could exhibit its advertisement to just individuals inside the town they are located.

Geographic customer segmentation is one strategy that is easy to implement.

2. Demographic

The demographic division is sectioning the market in view of specific attributes of the gathering of people. Qualities frequently include:

• Occupation.

Additionally, genuinely simple to execute, demographic division can be helpful in countless ways. Luxury brands may market to a demographic who earns more than £100,000.

Universities may mainly market to 17-22 year olds.

Demographic segmentation is much more effective while focusing on different segments at the same time. Imagine you ran an email campaign focused on neighbourhood females, 25-50 years of age, with a family unit wage of under £50,000.

Basically, this means you employed multiple demographic criteria such as age, sex, and income. Joining many customer segmentation criteria can possibly achieve an exceptionally greater outcome.

3. Psychographic

Psychographic customer segmentation is far less concrete than both geographic and statistical client division, as the qualities used to section are less “substantial” than the last two.

Psychographics divides the market based on factors such as way of life, values, socioeconomic class, and identity.

This kind of client division is essentially more hard to execute than geographic or statistical division.

To appropriately portion the market in light of psychographics, advertisers should truly set aside the opportunity to become more acquainted with their present and past clients.

This means identifying the perfect purchaser persona for the item or administration and creating relationships with the client base.

A prime case of psychographic division is focusing on the individuals who are thrifty. These individuals esteem a decent arrangement and have a tendency to be brilliant customers.

Retail stores use this strategy more than anyone. Utilising marketing messages like “Amazing Prices” and “Best Online Specials” since it will resonate with the consumers they are trying to reach.

The 5 Factors of Psychographic Segmentation

Lifestyle centres around how a consumer lives their life. It asks questions like whether are they married, have children, and what’s their daily routine. Consumers that live a healthy lifestyle would be attracted to fitness and well-being products and services. For example, a business that sells vegan foods would target healthy lifestyle consumers as opposed to consumers who heavily drink and smoke.

Social Status

Social status considers where a consumer is placed in society and what social class they belong to. Take an expensive jewellery brand for example, they will target the upper class as they know they will buy luxury items whereas the middle class are more likely to look for affordable products at the best value.

A consumer’s attitude and personality have a great impact on their buying decisions. Attitudes are formed by one’s social class and cultural background. People will have different attitudes based on how they were brought up. Continuing with the social status example, a consumer who grew up in the upper class may prefer going to expensive restaurants instead of fast food diners as this is what they are accustomed to.

Activities and Interests

Activities and Interests are closely linked to a consumer’s buying habits. Someone who is very adventurous will spend their money on hiking boots if they like to go hiking similarly, someone who has an interest in fashion might invest their money in vintage pieces of clothing. We all have different hobbies we are interested in and they can directly impact how we purchase.

Learning what your consumers think about your product or service is important in understanding what they want and need. For example, a consumer might be of the opinion that businesses should use more eco friendly packaging for their products therefore, they won’t buy from businesses who use a lot of plastic in their packaging as this would be against their views.

4. Behavioural

Behavioural segmentation is the act of isolating buyers into groups as per any of the accompanying characteristics:

• Utilisation,
• Mindfulness,
• Purchase intents.

Behavioural customer segmentation can be utilized as a part of an assortment of ways.

Behavioural division enables advertisers to be more applicable and create information that will resonate well with their target audience. We see behavioural segmentation used a lot by streaming services. They use algorithms to track consumer behaviours while on the service in order to customise the content they show to them. Every time you watch, rate or skip a movie or show, it gives the streaming service more information on your behaviour and allows them to make recommendations for you.

Unlike Demographic and Geographic Segmentation, Behavioural and Psychographic segmentation get to know the consumer themselves and can tell a lot about them, rather than seeing a customer in every individual they can see the individual in every customer.

Why Is Customer Segmentation Important?

Creating a corporat e strategy without first employing an effective customer segmentation strategy would be a shot in the dark. You’re unlikely to have much success if you don’t know who you’re targeting.

There are many benefits of customer segmentation, one being it helps you to spend money efficiently. This is because segmentation helps you to decide which marketing strategies deserve different allocations of resources.

Furthermore, a lack of an effective customer segmentation plan can cause uncertain product development strategies. Together, all of those variables can slow or stop a company’s progression.

When customer segmentation is done well, the business benefits are huge. For instance, a customer segmentation strategy can unmistakably affect your working outcomes in the following ways.

Improving Your Product

Customer segmentation helps you to improve your product, through a better understanding of who uses it. Ultimately, this will lead to more sales. The advantages likewise stretch out past your core product offering.

Any bits of insight into your best clients will enable you to offer better customer care, administration, and whatever other offerings that make up their experience with your brand.

Focusing Your Promoting Messages

Along with product changes, customer segmentation can enable you to craft more engaging messages. Allowing each segment to receive customised messages brings about higher-quality enthusiasm for your brand and also allows for better communication between you and your target audience.

A huge benefit of customer segmentation is that it leads to customer retention. When customers are targeted with messages and products specified to them and are made to feel that their needs and wants are understood and met by the business, they are more likely to stay.

Seeking New Sales Opportunities

Segmentation allows you to focus resources on the channels and customers who provide the best return on investment. This way your business group will have the capacity to expand its win rate, make more progress, and better revenues.

Gain Competitive Advantage

Market Segmentation allows you to stay in front of the competition by providing personalised products and services to customers. The more accurate your customer segmentation the better you will be able to meet customers expectations and build brand loyalty.

Economies of Scale

When you know what market to target with your product and service you will no longer waste time and resources on markets that you will not be profitable in. Accurately allocating your assets across your markets with help you acquire economies of scale.

Other Types of Market Segmentation

Market Segmentation doesn’t just stop at the 4 main types we have looked at. There are many different varieties of segmenting that you can use to target your market. Let’s have a look at a few more.

Value-based Segmentation

Value Segmentation, also known as Transactional Segmentation, groups together customers who have similar spending patterns. Customer segmentation models are often used by businesses to target audiences.

Transactional Segmentation uses an RFM Modelling-Recency, Frequency, Monetary- to source the business’s most valuable customers.

Take an online clothing brand for example; if a customer spends on average £100 every time they shop online with them then the clothing brand will target this customer with their more expensive clothing.

Likewise, if a customer likes to save money and will only spend £40 when they shop online then the clothing brand may target them with discounts and offers to entice them onto their website.

Being able to analyse customer’s spending habits can lead to price optimisation as it allows you to price your products to match your target audience accurately.

Firmographic Segmentation

Firmographic Segmentation looks at segmenting Business-to-Business (B2B) consumers. It can group its consumers by industry type, location or company size. Firmographics is used for other businesses the same way demographics is used for customers.

Needs-Based Segmentation

This type of segmenting looks at why customers need a specific product or service. It asks the question why does a customer want to purchase a certain item ? Needs-based segmentation groups, consumers need from functional to emotional.

A functional need is a product or service needed by the consumer in order to perform a task. For example, a consumer may begin working from home therefore, they may need to buy a computer in order for them to do their job.

An emotional need refers to how a customer wants to feel by using your product or service. An emotional need would be a need for security. A consumer with this need may buy a security alarm or install a peephole in their door in order to satisfy their need to be safe and secure.

Usage Rate Segmentation

Usage rate segmenting focuses on how much the consumer uses a product or service. It allows you to see how much consumers are interacting with a product at a certain time. User segmentation works well with seasonal segmentation.

An example of this would be the demand for BBQs and parasols increasing during the summer as more consumers are using these products at this time of the year. A store will know this purchasing habit by looking at the past usage rate and will be prepared by having extra stock.

Applying Customer Segmentation Efficiently

Knowing the customer segment criteria is only half the equation. The next step is to fully integrate your own customer segments into your business. However, first, you need to gather data specific to your company with a customer segmentation strategy, this can be done by:

Identify the Target Market & Expectations

Identify the target market by finding a common interest, goal or value among the target audience and dividing your customers up based on these categories. Targeting the market aids in the planning and organization of marketing strategies based on the market size and preferences of the target audience.

It’s essential to figure out the target market’s needs and expectations in order for you to meet these requirements.

Set Marketing Segmentation Objectives

It’s important to set customer segmentation objectives to ensure you stay on track. The SMART framework is very useful to make sure you stay aligned with your objectives. An example of using the SMART framework for customer segmentation would be the following;

• Specific: A clothing business wants to increase the traffic of students on its website.
• Measurable: The goal is to increase the traffic from this target group by 10%.
• Achievable/Agreed: Traffic increased in this age group during Black Friday Sales, showing this target group prioritises value for money. Having a student discount will make this goal achievable.
• Relevant/Realistic: Increasing traffic on the website will create brand awareness and increase competitive advantage.
• Time-Bound: 3 months

Read more on how to set objectives and goals for your business.

Choosing Which Data is Relevant

Among all the many types of customer segmenting, you need to figure out which are most relevant to your business.

Furthermore, you need to figure out which criteria from each will offer the most insight on your targeted customer. For example, which age group and gender in demographics? Which spending patterns and shopping locations are in specific behaviour segments?

Gathering Information

After choosing which data to collect, you’ll need to find the best way to collect this data. The internet is your number one source for data collection on potential clients.

Facebook ads are a perfect way to research customer data. Google Analytics is another great tool for client data. Surveys can also be used to provide direct data from the clients. Read more about Google Analytics: Here!

The past numbers of the business itself, from all departments, are the best indicators for developing new segmentation methods.

Establishing a Line of Communication with All Departments

The purpose of a successful customer segmentation strategy is to enhance the overall performance of a business. This is why it’s critical to relay all customer investigations and findings to and from all the departments within a business.

The marketing department, for example, can give data on the outreach and interactions of an ad campaign, as well as, utilise information from the newest customer segmentation research in creating more effective campaigns.

Customer Segmentation Analysis

Conducting customer segmentation analysis is relatively simple if you know what you’re doing. Check out these steps to help guide you through the process.

• Identify Your Goal

First, clarify what you hope to achieve through customer profiling and segmenting. Do you want to improve targeting? Craft personalised messaging? or identify new opportunities? Understanding your objectives will help inform how you conduct your analysis.

• Gather Data

Collect relevant customer data from your CRM systems, web analytics, social media insights, surveys, and other sources. Demographic, behavioural, psychographic, purchase history, and channel use data will prove valuable. Make sure your data is accurate and recent.

• Identify Key Segmentation Criteria

Review your data to determine what parameters would make sense as segment criteria. Common factors include demographics, location, purchase behaviour, channel usage, motivations, etc. Choose criteria that relate best to your goals.

• Perform Statistical Analysis

Use data mining techniques and statistical analysis methods like cluster analysis to group customers based on common characteristics. Tools like R and Python can help analyze large datasets.

• Develop Customer Profiles

Analyse and document key attributes of each resulting customer segment. Create detailed profiles highlighting demographics, behaviours, motivations, interests, and segment size.

• Evaluate and Refine the Segments

Assess the quality of your current solution. Look for identifiable, substantial, accessible, stable, and useful segments. Don’t be afraid to refine if needed to arrive at distinct groups.

• Apply Insights

Use the segmentation insights to guide marketing, products, and communication strategies tailored to your high-value customer groups. Continually refine through testing and measurement.

Leverage Different Types of Customer Segmentation

The difference between an average business and a leader in the industry is that a leader never stops growing. The truth is there is no one magic recipe for finding the best customer segmentation for life.

What the customer wants or needs is an ever-changing game and the key is to always be ahead. The only way to do that is to mix and match all segmentation types in order to find the perfect customer.

However, it doesn’t stop at that, you need to keep researching and perfecting your image of the target client forever. Investing time and money in your customer profiling will provide the best results.

Customer Segmentation Template

In order to help you segment audiences more clearly, check out this template below. You can customise it further depending on your target group.

Segment Name / Description: Briefly summarise key attributes of this segment.

Key Demographic Attributes

• Location/Geography:
• Income level:
• Education level:
• Occupation/Profession:

Psychographic Profile

• Values/Attitudes:
• Motivations:
• Challenges/Pain Points:

Behavioural Attributes

• Product/Service usage rate:
• Purchasing habits:
• Channel preferences:
• Brand preferences/loyalty:
• Price sensitivity:
• Buying stage:

Fill out a template like this for each key customer segment identified through your analysis. Tailor the attributes and strategies based on your business and update as you gather more data on each segment over time.

Customer Segmentation Using Machine Learning

Customer segmentation using machine learning is a powerful approach to categorising customers into distinct groups based on their behaviours, preferences, or characteristics.

Traditional customer segmentation is often based on demographic data such as age, gender, and income. While this approach can be effective, it doesn’t always capture the nuances of customer behaviour or preferences. Machine learning, on the other hand:

• Can handle large datasets and uncover patterns that might be missed by human analysts.
• Can segment customers based on a combination of features, including purchasing behavior, browsing history, and more.
• Continuously learns and adapts to new data, ensuring that customer segments remain relevant over time.
• Natural language processing can analyse customer surveys, reviews, and social media to identify sentiments, interests, and behavioural patterns for segmentation.
• Anomaly detection flags outlier customers that don’t fit segmentation models. This helps identify opportunities or issues.
• Unsupervised learning algorithms like cluster analysis can identify groups of similar customers in data. Algorithms group customers based on behaviours, attributes, demographics etc.
• Supervised learning models can classify customers into predefined segments using training data. For example, predictive modelling can determine key attributes of high-value customers.

The main benefits of using machine learning include finding segments in complex data, continual refinement of models, and automation of analysis for optimal results. Segmenting customers using machine learning offers a data-driven way to understand and cater to the diverse needs of customers. By leveraging the power of machine learning, businesses can make more informed decisions and enhance customer satisfaction.

Customer Segmentation Analysis with AI

Customer segmentation with Artificial Intelligence has become increasingly popular due to its ability to analyze large datasets and identify patterns that might be difficult for humans to discern. Here are some user-friendly ways to achieve this using AI:

• K-Means Clustering : This is one of the most popular methods. It divides customers into a predetermined number of clusters based on their attributes.
• Hierarchical Clustering : This method creates a tree of clusters. It’s useful if you want to understand hierarchical relationships between clusters.
• DBSCAN (Density-Based Spatial Clustering of Applications with Noise) : This method creates clusters based on the density of data points.
• These are simple, visual tools that can help sort customers based on specific criteria. They can be easily interpreted and are often used in conjunction with other methods.
• Self-Organizing Maps (SOMs) : These are a type of neural network that can be used for feature detection. They’re particularly useful for visualizing high-dimensional data.
• Autoencoders : These neural networks can reduce the dimensionality of data, making it easier to segment.
• RFM stands for Recency, Frequency, and Monetary value. Traditional RFM analysis segments customers based on these three attributes. By incorporating AI, you can fine-tune this segmentation to be more accurate and reflective of subtle patterns in the data.
• If you have textual data from customers (like reviews or feedback), NLP can be used to segment customers based on sentiment, topics of discussion, or other textual patterns.
• Using historical data, AI can predict the future behaviours of customers. This can be used to segment customers into groups like “likely to churn” or “likely to purchase.”
• While traditionally used to recommend products, these systems can also be used to segment customers based on their preferences and buying habits.
• Tools like t-SNE (t-distributed Stochastic Neighbor Embedding) can be used to visualize high-dimensional data in two or three dimensions. This can help in visually identifying clusters or segments.
• There are many platforms that offer AI-powered customer segmentation as a service. These platforms often come with intuitive dashboards and visualization tools. Examples include IBM Watson, Salesforce Einstein, and Adobe Analytics.
• Ensemble Methods :

Combining multiple AI models can often lead to more accurate segmenting. For instance, you might combine the results of a clustering algorithm with a decision tree to get a more nuanced understanding of your customer segments.

When implementing any of these methods, it’s crucial to:

• Understand the business context and objectives.
• Regularly validate and update the segmentation model as customer behaviours and market conditions change.
• Ensure that the data being used is clean, relevant, and unbiased.

Lastly, while AI can provide powerful insights, it’s essential to combine these insights with domain knowledge and human intuition for the most effective customer sorting.

Customer Segmentation Python

Python is a widely used high-level programming language, using this to segment your audience is a bit more advanced if you’re not used to working data analysis software. It is an interpreted, object-oriented, open-source language with a clear and readable syntax. It is designed to be simple, easy to learn and highly readable, and can be used for a wide range of purposes, including customer segmenting.

Here are some ways to approach customer segmentation using Python:

Import libraries: Import NumPy, Pandas, Scikit-learn, Matplotlib, Seaborn etc. for data operations and modeling.

Load dataset: Import customer dataset CSV into a Pandas DataFrame. Check for data quality issues.

Data preprocessing: Handle missing values. Encode categorical features. Standardize data.

Feature engineering: Derive new features like customer lifetime value, frequency of purchases etc. that aid segmentation.

Apply algorithms: Use Scikit-Learn libraries like KMeans clustering or decision tree classifiers to segment data.

Model evaluation: Evaluate segmentation quality by metrics like silhouette score. Visualize clusters using Matplotlib.

Profile segments: Analyze and document key attributes of each segment – demographics, behaviours etc.

Optimization: Fine-tune model hyperparameters like the number of clusters using techniques like grid search.

Prediction: Develop a model to predict customer segment membership for new data points.

Key Python libraries used include Pandas, Scikit-learn, NumPy, Matplotlib, and Seaborn. The workflow involves exploratory data analysis, feature engineering, application of ML algorithms, and profiling of customer segments. The output provides actionable insights for tailored marketing results.

Customer segmentation dataset

If you plan on getting down to the nitty-gritty details of market sorting using raw data, you first need to access the datasets – but where can you get them? There are several publicly available datasets that you can use to practice or implement market segmentation techniques. Here are some popular dataset sources:

• The UCI repository is a collection of databases, domain theories, and datasets that are used by the machine learning community. There are several datasets related to market segmentation, such as the “Online Retail” dataset, which contains transactions occurring between 01/12/2010 and 09/12/2011 for a UK-based online retail.
• Mall Customer Segmentation Data
• E-commerce Data
• Credit Card Dataset for Clustering
• This is the U.S. government’s open data site, and while it might not have datasets explicitly labelled for market segmentation, there are many datasets related to consumer behaviour, finance, and other areas that could be repurposed for segmentation exercises.
• For telecom: The “Telco Customer Churn” dataset.
• For finance: Datasets related to credit card usage or bank transactions.
• For retail: Purchase history datasets.
• If you’re just looking to practice or demonstrate a technique, you might consider using tools to generate synthetic data. This way, you can create a dataset tailored to your needs without any privacy concerns.

If you plan on using datasets frequently, it may be worth purchasing a membership for one of the above platforms, however, you can usually access good datasets for free on Kaggle.

How often should market segmentation be done?

There is no set rule on how often market segmentation should be done. However, here are some general guidelines for reviewing and revising your strategy:

An annual re-evaluation of market segments is common, especially if entering a new fiscal year or aligning with annual planning cycles. Look for significant shifts over the past year.

More frequent quarterly reviews allow you to spot emerging trends and changes in the market. Adjusting and pivoting if needed.

Major events

Evaluate after events like product launches, acquisitions, expansions into new markets, new competitive entries, or macroeconomic shifts.

Customer or market changes

If you notice changes in customer behaviours, new customer attributes, new data availability, or new market opportunities, re-assess segments outside the normal cycle.

Campaign launches

Examine the effectiveness of existing segments prior to major campaign launches or marketing spending decisions.

The optimal frequency depends on the industry, business model, and market dynamics. But annual or quarterly reviews are common. The goal is to balance the effort required versus keeping segments aligned with the market. Monitor for changes warranting re-segmentation, and don’t hesitate to reevaluate if segments grow stale.

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How to Write a Customer Analysis Section for Your Business Plan

Free Customer Analysis Template

• July 12, 2024

A customer contributes significantly to building a winning brand.

Understanding your target consumer, their needs, the problems they face, and the way they behave assists you in creating products and services that can satisfy your customer needs.

Customer analysis is a quintessential part of your business plan. Writing it accurately will help you make informed decisions for other aspects of business planning, i.e. product development and business strategies.

So let’s get started. This blog post describes the process of creating customer analysis in a business plan and guides you with a customer persona example.

What Is Customer Analysis?

Customer analysis is an important section of your business plan offering a comprehensive and in-depth understanding of your potential customer. It is a study of their behavioral, psychological, and demographic patterns to help you make sound business decisions.

Such analysis assists in developing products and services addressing the pain points of your customers and in determining your pricing, marketing, and customer retention strategies.

Why conduct a customer analysis?

A thorough and insightful customer analysis offers a plentitude of benefits. Here are a few you should know of:

• Helps optimize product development by offering insights into customer behavior, needs, and pain points.
• Helps gain a competitive advantage by identifying the pain points that are unaddressed by competitors.
• Helps tailor your marketing efforts to cater to specific customer segments.
• Increases customer retention by giving you a thorough insight into what the customer needs and what drives their decision.

If you think of it, customer analysis forms the basis for designing your products and services, devising your marketing and sales strategies, determining your pricing point, and driving your business growth.

How to Write a Customer Analysis Section

Writing a customer analysis includes extensive research and collecting data from various sources. This data consists of qualitative and quantitative aspects which help you write an accurate customer analysis for your business plan.

Let’s now understand a step-by-step process to write your customer analysis.

1. Identify your customers

The first step of customer analysis is to identify your potential customers and collect information about their special characteristics. Such information comes in handy when you want your product and marketing strategies to align with your customers’ needs.

However, what details should you collect and how should you segment it? Well, segmenting in the following manner can help you get a headstart.

• Demographic: Age, gender, income
• Geographic: Location, type of area (Rural, suburban, urban)
• Psychographic: Values, interests, beliefs, personality, lifestyle, social class
• Technographic: Type of technology the buyer is using; tech-savviness
• Behavioral: Habits, frequent actions, buying patterns
• Industry (For B2B): Based on the industry a company belongs to.
• Business size (For B2B): Size of the company

Customer database can help capture the above data for existing businesses. However, for additional details, you can retort to surveys and forums.

If you are a startup, conducting an audience analysis might seem impossible as you don’t have an existing customer base. Fortunately, there are numerous ways through which you can study your potential customers.

A few of them are:

• Identifying who would benefit from your product/service
• Analyzing your competitors to understand their target customers
• Using social media to prompt potential buyers to answer questionnaires

2. Define the needs of your Customers

Now that you have identified your customers, the next step is to understand and specify their needs and challenges. This is the step where you need to go hands-on with your research.

Getting to know your customers’ needs helps you determine whether or not your product or service hits the mark.

You can adopt one of these approaches to understand the needs of your customers:

Engage directly with potential Customers

A very reliable way to get to know your customers is to simply engage with them, either in person or on a call. You can reach out to your customers using one of the following ways:

• One-on-one interviews
• Focus groups
• Beta testing (invite users to test your products).

These techniques can help you collect adequate data for your analysis.

However, before approaching your customers, set up a systematic survey that can get you structured data for analysis. To ensure that your questionnaire isn’t just covering surface-level information but a deep interrogation of customers’ problems, use the technique of five whys .

Collect data from your customer support

Customer support is the place where you can find raw and unfiltered feedback given by your customers. Analyzing this data helps you understand the pain points of your customers.

You can further gather direct customer feedback by contacting the customers who had issues with your products. This will help you understand the pain points and gaps in your products more vividly.

Run surveys and mention statistics

Talking to your customers helps you get qualitative information that can be used to alter your product or services according to your customers. The next part is to attain quantitative information, in other words, presenting numbers to support the previous data.

Conducting surveys is one of the commonly used methods for quantifying information. You can conduct in-app surveys, post-purchase surveys, or link surveys in email and apps, etc.

You can also collect statistical data to support your conclusions from the interviews. These include stating studies related to customer choices, results from popular surveys, etc.

Want to create a Customer Persona in Easy Steps?

Generate valuable customer insights in minutes with Free Customer Persona Generator .

3. Create a Customer Persona

It is now time to present your collected data using a customer persona.

A customer persona represents a segment of customers with similar traits. It outlines the psychological and demographic features of your potential customer group and thereby assists you in making important strategic decisions.

Consider it as a tool that will make your data analysis process easier and more efficient.

Now, you can either use customer persona templates or an AI tool to generate your buyer’s persona. However, to get a more thorough insight check how a customer profile looks.

Customer Persona Example

This is a customer persona example of an internet service provider(ISP) to help you get a more practical overview.

• About: A lot of customers remain at home and have a minimal and easy-going lifestyle. They need high-speed, interruption-free internet access.
• Demographics: Age is between 30 and 40, has a laid-back lifestyle, lives in suburban areas, and the income range is between $10,000 to $40,000.
• Professional role: Shop owners, employees, freelancers, etc.
• Identifiers/Personality traits: Introverts, like routines, make schedules, prefer online shopping, and stick with the companies they trust.
• Goals: Wants easily available service, and 24×7 customer support, prefers self-service technologies and chatbots over interacting with representatives.
• Challenges: Fluctuating internet connection while working or consuming media. Not enough signal coverage.

4. Explain the product alignment to the Customer’s Needs

You’ve gathered info and created customer personas. The final step is to explain how your product or service caters to the needs of your customers.

Here, you specify the solution you offer to tackle the challenges faced by your customers.

Mention the USPs of your product and its features, and clarify how they benefit the customer. Also, mention how your offerings make the customers’ lives better.

Continuing the previous example of an ISP provider, this company can show how its high-speed Internet plans cater to the needs of individual working professionals. They can focus on aspects like customizable plans, cost-effectiveness, and coverage in remote areas to attract users.

And there you have it—a guide to writing your customer analysis. Just ensure that you maintain accuracy while making assumptions and predictions to make this section useful for making further decisions.

Build a solid business foundation with customer analysis

Understanding you r customers inside out assists you in making profitable decisions for your business. But remember, it is an ever-evolving and continuous process. You need to analyze your customers as often as possible to stay updated about their ever-changing needs.

After all, understanding what your customers need and what they prefer will help you devise strategies that ensure maximum customer satisfaction.

Now quickly create customer profiles for your business with Upmetrics’s AI SWOT analysis generator. However, once you do that, use this tool to streamline your entire business planning process.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

What key components should be included in customer analysis.

Here are the key components of a sound customer analysis:

• Market segmentation
• Customer behavior analysis
• Customer profiling
• Customer journey mapping
• Trend analysis and future customer behavior

How can I gather data for my customer analysis?

Here are a few ways for you to gather data for your customer analysis:

• Gather customer feedback using surveys, forums, and questionnaires.
• Use secondary methods to gather industrial data, competitors’ data, and data from publications.
• Use the collected data till data (i.e. social media analytics, customer support data) to form your analysis.

Can customer analysis help in forecasting future trends?

Absolutely, yes. A detailed customer analysis helps you to understand the emerging shifts and patterns in consumer behavior, thereby helping you optimize your product offerings and marketing strategies.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Customer Segmentation: How to Divide and Conquer Your Market?

By ChartExpo Content Team

Ever feel like you’re throwing darts in the dark with your marketing efforts? You’re not alone. Many businesses struggle with this. They’re trying to appeal to everyone, and in the process, they connect with no one.

This is where customer segmentation can change the game. By breaking your audience into specific groups, you stop wasting time and start reaching the right people with the right message.

Customer segmentation isn’t just a fancy term—it’s a practical solution to one of the biggest pain points in business: irrelevant messaging. Imagine knowing exactly what your customers need and speaking directly to them.

That’s the power of segmentation. You can tailor your approach, boost engagement, and watch your conversion rates climb.

But let’s not sugarcoat it. Ignoring customer segmentation can lead to missed opportunities, wasted resources, and frustrated customers. The good news? It doesn’t have to be this way. By focusing on customer segmentation, you’re setting your business up for smarter strategies and stronger relationships.

So, why keep casting a wide net when you can zero in on what truly matters?

Table of Contents:

Why customer segmentation is essential for your business, laying the groundwork: core concepts of client segmentation and customer segmentation, crafting segments that matter: the art and science of customer segmentation, turning insights into action: implementing customer segmentation strategies, measuring success: evaluating the impact of your customer segmentation efforts, staying agile: adapting customer segmentation to changing customer behaviors, overcoming internal resistance: driving organizational change with customer segmentation.

First…

What is Customer Segmentation?

Customer segmentation is the process of splitting your customers into groups. These groups are based on shared characteristics like age, behavior, or spending habits. It helps you understand your customers better. When you know who’s in each group, you can talk to them in a way that resonates.

Think of it as making playlists. You don’t put every song into one list. You sort them by mood, genre, or even the activity you’re doing. That way, when you hit play, it matches exactly what you need. Customer segmentation works the same way for your business.

By segmenting, you can craft a marketing report that sends the right message to the right people. If you’re trying to sell winter coats, you won’t pitch them to people living in warm climates. Instead, you’d focus on areas where it’s cold. This targeted approach makes your marketing more effective.

Understanding Customer Segmentation: A Business Imperative

Think of customer segmentation as the blueprint for your business strategy. It’s not just a tactic—it’s the foundation. By dividing your customers into distinct groups based on similar characteristics, you’re able to craft personalized experiences that resonate.

This isn’t about throwing spaghetti at the wall and seeing what sticks. It’s about knowing which plate you’re serving and exactly how they like their spaghetti. In a crowded marketplace, standing out is tough. But with solid segmentation, you’re not just another voice; you’re the voice that speaks directly to what your customers care about.

The Evolution of Customer Segmentation: From Strategy to Success

Customer segmentation didn’t start as the powerhouse tool it is today. In the past, businesses took a broader approach, casting wide nets and hoping for the best. But over time, the approach shifted. Now, segmentation is about precision—like upgrading from a flashlight to a laser pointer.

The better you understand your segments, the more you can refine your strategies. Today’s successful businesses don’t treat their customers as one-size-fits-all. They dig deep, understand the nuances, and tailor their strategies to fit each segment like a glove. And that’s how segmentation transforms from a strategy into a pathway to success.

Demystifying the Basics: What You Must Know About Customer Segmentation and Consumer Segmentation

Let’s start with the basics. Customer segmentation is all about dividing your audience into smaller groups that share similar traits. This isn’t just for fun—it helps you understand your customers better so you can serve them better.

Think of it as sorting your laundry. Whites go in one pile, colors in another. By separating them, you know exactly how to handle each one. The same goes for customers. When you group them based on certain criteria, like age, buying habits, or interests, you can tailor your approach to meet their specific needs.

But wait, what’s the difference between customer segmentation and consumer segmentation? It’s pretty simple. Customer segmentation usually refers to businesses and organizations, while consumer segmentation is more about individuals. It’s like splitting hairs, but in some cases, the distinction matters. Whether you’re dealing with companies or individual shoppers, the goal is the same—know who you’re talking to so you can communicate in a way that clicks with them.

Selecting the Right Customer Segmentation Criteria: Aligning With Your Goals

Choosing the right criteria for segmentation is like picking the right ingredients for a recipe. You wouldn’t put sugar in a salad, right? The same goes for your business. You’ve got to choose criteria that align with your goals. Are you looking to boost sales, improve customer retention, or reach a new market? Your segmentation should reflect that.

Start by looking at the basics—demographics, geography, and behavior. But don’t stop there. Dive deeper. Consider psychographics, which looks at lifestyles, values, and opinions.

For example, a fitness brand might target health-conscious individuals who value sustainability. The more specific you get, the more effective your segmentation will be. Remember, the goal is to create segments that are distinct enough to target differently but similar enough within to ensure consistency in messaging.

Mastering Data Collection and Cleaning: Overcoming the Hurdles of Customer Segmentation

Now, onto the nitty-gritty— data collection and cleaning. This is where things can get tricky. Good segmentation relies on good data, and that means you need to collect and clean your data like a pro. Imagine trying to paint a picture with muddy water. It’s not going to look great, right? The same goes for segmentation based on dirty data.

First, make sure you’re collecting data from reliable sources. This could be anything from purchase history and website behavior to social media interactions. Once you’ve got the data, it’s time to clean it up. Remove duplicates , correct errors, and fill in the blanks. Think of it like grooming a pet—nobody wants to pet a dog covered in mud. Clean data leads to clear insights, which in turn, leads to better segmentation.

Customer segmentation isn’t about splitting hairs; it’s about getting down to the basics of who your customers are. You want to group them in a way that makes sense for your business, and more importantly, for them. The art lies in understanding your customers beyond surface-level data. The science is in the data analysis that backs up those insights. Let’s break it down.

Integrating Data for a Unified Customer Segmentation View: No More Silos

Ever felt like your data’s scattered all over the place? That’s because it probably is. Data silos are your enemy when trying to get a full picture of your customers. To craft segments that work, you need to integrate data from every corner of your business. This means pulling together everything from sales data to social media interactions. Once it’s all in one place, you’ll start to see patterns that were hidden before. That’s when the magic happens.

Uncovering Actionable Customer Segments: Techniques That Deliver Results

Now that you’ve got your data sorted, it’s time to find those golden nuggets—actionable segments that make a difference. One of the best tools for this is cluster analysis. Think of it as a way to group customers based on similarities.

But don’t stop there. Dive deeper into the data to find segments that are not unique but also valuable. These are the segments that will drive your business forward.

Managing Data Overload: Prioritizing What Matters Most in Customer Segmentation

Drowning in data? You’re not alone. But here’s the thing—more data isn’t always better. The trick is to focus on what matters. Start by asking yourself what questions you need to answer. Then, filter out the noise and zero in on the data that will help you get there. This way, you’ll avoid getting bogged down by irrelevant information and keep your segmentation efforts sharp.

Visualizing Customer Segments: Making Customer Segmentation Data Digestible

Do your segments? Great. Now, let’s make sense of them. Visualization tools like ChartExpo can turn your data into easy-to-read charts that highlight key insights. Instead of staring at rows of numbers, you’ll see clear patterns and trends. This not only helps you understand your segments better but also makes it easier to share your findings with others. And when everyone’s on the same page, taking action becomes a breeze.

Optimize Customer Engagement with Expert Segmentation Insights in Microsoft Excel:

• Open your Excel Application.
• Install ChartExpo Add-in for Excel from Microsoft AppSource to create interactive visualizations .
• Select the required chart from the list of charts.
• Select your data.
• Click on the “Create Chart from Selection” button.
• Customize your chart properties to add header, axis, legends, and other required information.

Optimize Customer Engagement with Expert Segmentation Insights in Google Sheets:

• Open your Google Sheets Application.
• Install ChartExpo Add-in for Google Sheets from Google Workspace Marketplace.
• Fill in the necessary fields.
• Click on the Create Chart button.
• Export your chart and share it with your audience.

Crafting Targeted Strategies: Personalized Marketing for Each Customer Segment

So, you’ve got your customer segments, but now what? It’s time to put that data to work. The goal here is simple: tailor your marketing to hit the sweet spot for each group. Think of it like finding the perfect gift for someone. You wouldn’t give the same present to your mom and your best friend, right? The same goes for your customers. Each segment wants something a little different, so give it to them.

Start by digging into what makes each segment tick. What are their needs, preferences, and habits? Once you know that, you can create messages that speak directly to them. And don’t worry, you don’t need to reinvent the wheel every time. A few tweaks to your existing strategies can go a long way. The key is to make each segment feel like you’re talking right to them.

Optimizing Communication Channels: Reaching Your Target Customer Segments Effectively

You’ve got your message, now how do you get it out there? Not every customer hangs out in the same places, so you need to figure out where each segment is spending their time. Are they on social media, checking emails, or browsing blogs? Find out and focus your efforts there.

Once you’ve nailed down the right channels, it’s time to fine-tune your approach. Maybe one group responds better to short, snappy emails, while another prefers in-depth blog posts. Experiment with different formats and see what sticks. The goal is to make sure your message doesn’t just get out there—it gets noticed.

Testing and Refining Strategies: Continuous Improvement in Client Segmentation Action

Here’s the truth: no strategy is perfect from the start. That’s where testing comes in. Try out different approaches and see what works best. Pay attention to the results and be ready to make changes. The beauty of this process is that it’s never really over. There’s always room for improvement.

Testing isn’t about finding flaws—it’s about finding opportunities. Maybe one segment isn’t responding as expected. That’s okay. It’s a chance to tweak your strategy and get better results next time. Keep refining, keep testing, and keep improving. Your customers—and your bottom line—will thank you.

Key Metrics for Customer Segmentation Success: What to Track and Why?

To know if your customer segmentation is working, you’ve got to track the right numbers. Some metrics stand out in showing whether you’re on the right path or need to adjust your approach. Here’s what you should keep an eye on:

• Customer Retention Rate : This tells you how well you’re keeping customers. If a segment sticks around longer, it means your segmentation is resonating with them.
• Customer Lifetime Value (CLV) : CLV shows the total worth of a customer over time. A higher customer lifetime value in a segment means they’re spending more and staying longer.
• Conversion Rate : Check how many people in each segment are buying. A higher conversion rate shows your offers hit the mark for that group.
• Engagement Metrics : Look at how segments interact with your content—emails, social media, and your website. Strong engagement means you’re speaking their language.
• Churn Rate : This metric shows how many customers leave. A lower churn rate in a segment suggests that your strategies are effective in keeping them satisfied.

Tracking these metrics gives you a clear picture of what’s working and where to tweak your strategy.

Using Visualization Tools to Track Customer Segment Performance: Insights at a Glance

Numbers can be overwhelming, but visualization tools such as ChartExpo help you see patterns and trends quickly. Here’s how to make the most of them:

• Dashboards : Set up dashboards that show key metrics for each segment in real time. It’s like having a bird’s-eye view of your entire strategy.
• Heatmaps : Use heatmaps to see where customers spend the most time on your website. This helps identify what each segment finds most interesting.
• Customer Journey Maps : Visualize how each segment moves through the buying process using a customer journey map . Identify the spots where they drop off or what nudge them to buy.
• Segment-Specific Reports : Generate reports that focus on individual segments. This breaks down data in a way that’s easy to digest and act on.

ChartExpo turns complex data into simple, actionable insights, letting you make data-driven decisions with confidence.

Refining Your Strategy with Data-Driven Insights: Adapting Customer Segmentation to Change

Customer behavior isn’t static—it evolves. To keep your segmentation effective, you’ve got to adapt. Here’s how to use data to stay ahead:

• Monitor Trends : Regularly check how each segment’s behavior shifts over time. If one group starts buying less, it’s time to dig into why.
• A/B Testing : Experiment with different approaches for each segment. Small changes can lead to big wins when you find what clicks.
• Feedback Loops : Collect feedback directly from your segments. This real-time input can guide tweaks to your strategy.
• Re-Segmenting : Don’t be afraid to re-segment based on new data. Sometimes, customers change, and your strategy should too.

By keeping a close eye on data and being willing to adjust, you’ll ensure your customer segmentation stays effective, no matter how the market shifts.

Keeping Up With Customer Segmentation Shifts: Staying Relevant

You can’t afford to stand still when your customers are on the move. Their preferences shift, and if you don’t keep up, your segmentation strategy falls behind. That’s why staying ahead of these changes is vital. Pay close attention to trends and feedback.

Regularly review your segments to ensure they reflect the current customer landscape. If you spot a shift, don’t hesitate—adjust your approach quickly. This keeps your segmentation sharp and your marketing efforts on target.

Embracing Agile Customer Segmentation Practices: Flexibility in Strategy

Being agile means being ready to pivot whenever necessary. Build flexibility into your segmentation strategy. Create smaller, more adaptable segments that can be easily adjusted as new data rolls in. Don’t stick rigidly to old categories—allow your segments to evolve with customer behavior. Use tools that let you update and test segments in real-time. This kind of agility ensures you can respond to changes fast, keeping your strategy effective and your messaging relevant.

Ensuring Consistency across Departments: Breaking Down Silos in Customer Segmentation

Silos are the enemy of effective customer segmentation. If your teams aren’t on the same page, your messaging can get messy, and your customers will notice. To prevent this, encourage collaboration between departments. Hold regular meetings where teams share insights and updates on customer behavior .

Develop a unified segmentation strategy that all departments can follow. This not only streamlines your approach but also strengthens your overall marketing efforts. When everyone’s working together, your segmentation strategy becomes a powerful tool for driving results.

Fostering a Data-Driven Culture: Gaining Buy-In for Customer Segmentation Efforts

Building a data-driven culture isn’t a walk in the park. It takes grit, determination, and a clear plan. First things first—start with leadership. When leaders embrace data, the rest of the team follows. Make data the star of the show in meetings, decisions, and strategies. Share stories of how data has already driven success in other areas. This isn’t about numbers; it’s about showing how data impacts real outcomes.

Next, involve everyone. Don’t leave anyone out. From marketing to customer service, every department has a role in customer segmentation. Hold workshops, create interactive sessions, and let people see the value firsthand. When they understand how it ties to customer service metrics and benefits them, they’ll be on board.

Lastly, celebrate transparency. Share wins, losses, and lessons learned. The more open you are about the journey, the easier it is to bring others along. A transparent approach builds trust and makes the adoption process smoother.

Equipping Your Team for Success: Training and Support for Customer Segmentation

Change can be tough. But with the right training and support, your team will not only adapt—they’ll thrive. Start by offering hands-on training sessions that include insights into what a data analyst does . Keep it simple and relevant. People learn better when they can see how it applies to their work.

Create a buddy system. Pair up those who grasp the new tools quickly with those who need a bit more help. This builds a support network within the team and makes the transition smoother.

Regular check-ins are key. Don’t wait for problems to arise. Have weekly or bi-weekly sessions where team members can ask questions, share challenges, and get the help they need. This keeps everyone on track and prevents small issues from becoming big headaches.

Celebrating Early Wins: Building Momentum for Customer Segmentation Success

Nothing gets people on board faster than the success they can see. Start by identifying quick wins—those areas where customer segmentation can show results quickly. Maybe it’s a targeted campaign that drives more sales or a customer service tweak that improves customer satisfaction . Highlight these wins early and often.

Make it a big deal. Share these successes in company meetings, newsletters, or even a simple email. Let the team know their efforts are paying off. This isn’t about tooting your own horn; it’s about showing everyone that the hard work is worth it.

Finally, encourage feedback. Ask the team what worked, what didn’t, and what they need to keep the momentum going. Use this feedback to refine your approach and build on your success.

FAQs: Customer Segmentation

How to identify target customers.

Start by looking at who’s buying what you sell right now. These folks are your low-hanging fruit. They already like what you’re offering, so dig into their details. Check out their age, location, income, and what problems they’re trying to solve. Next, think about who else might need what you have. If you’re selling kids’ toys, parents and grandparents are key, right? Lastly, get feedback. Ask your current customers what they love and what they wish was different. This will help you spot more people just like them.

What are Consumer Segments?

Consumer segments are groups of people who share similar traits or behaviors. Imagine slicing up your audience like a pie, with each slice representing a different group. Some might be young professionals who love tech gadgets, while others could be retirees looking for hobbies. The idea is to group people so you can tailor your marketing messages to what they care about most. The more you understand each segment, the better you can meet their needs.

What is a Consumer Profile?

A consumer profile is like a character sketch of your typical customer. It’s a snapshot that includes their age, job, interests, and buying habits. Think of it as getting to know a new friend. The more details you have, the easier it is to predict what they want and how they’ll react to your products or services. Profiles help you make smarter marketing decisions by targeting the right people with the right message.

What is a Target Consumer?

A target consumer is the person or group you’re aiming to reach with your marketing. It’s not just anyone who might buy your product, but the people most likely to be interested in what you’re offering. Imagine you’re throwing a party—you wouldn’t invite everyone you know, just the folks who’ll have the best time. That’s your target consumer. Knowing who they are helps you craft messages that hit home.

What is Consumer Profiling?

Consumer profiling is the process of creating detailed descriptions of your ideal customers. It’s like building a blueprint that guides your marketing efforts. You look at demographics (like age, and income), psychographics (like interests, and values), and behaviors (like shopping habits). Profiling helps you see the bigger picture of who your customers are and what makes them tick. With this info, you can create products and marketing strategies that resonate with your audience.

Why is Customer Segmentation Important?

Segmenting customers helps businesses understand their audience better. By knowing who your customers are and what they need, you can create targeted campaigns that resonate, leading to higher engagement, loyalty, and ultimately, sales.

How are Customers Segmented?

You can segment customers using various criteria such as demographics (age, gender, income), psychographics (lifestyle, values), behavior (purchase history, brand loyalty), and geography (location). The key is to choose segments that align with your business goals and offer actionable insights.

What are The 4 Types of Market Segmentation?

The main types include 1) demographic, 2) geographic, 3) psychographic, and 4) behavioral segmentation. Each type focuses on different aspects of customer data, providing unique insights that can guide your strategy.

How Does Customer Segmentation Improve Marketing?

Customer segmentation improves marketing by allowing you to create more personalized and relevant messages. When your marketing speaks directly to the needs and desires of a specific segment, it’s more likely to grab attention and drive action.

Can Small Businesses Benefit From Customer Segmentation?

Absolutely! Small businesses can use segmentation to focus their limited resources on the most profitable segments. This targeted approach can lead to more efficient marketing and stronger customer relationships, even with a smaller budget.

How Often Should You Update Customer Segments?

Customer segments should be reviewed and updated regularly. As markets change and your business grows, your customer base evolves too. Regular updates ensure your segments remain relevant and actionable.

What are The Challenges of Customer Segmentation?

One of the biggest challenges is gathering accurate data. Without good data, your segments may not reflect reality. Another challenge is ensuring that the segments are actionable; you need to be able to develop strategies based on the segments you identify.

How Does Customer Segmentation Impact Sales?

By understanding the unique needs of different customer segments, sales teams can tailor their pitches more effectively. This leads to better customer interactions, higher conversion rates, and increased sales.

Wrap-Up: Your Roadmap to Mastering Customer Segmentation

Alright, let’s bring it all together. You’ve dug into customer segmentation, and now it’s time to highlight the key points. First, knowing your customers is everything. The more you understand who they are, the better you can serve them.

We also covered how to collect and analyze data. It’s about finding patterns that reveal what makes your customers tick. This isn’t a one-and-done deal; it’s ongoing. As your business grows, your customers evolve, and so should your segmentation strategies.

Finally, we discussed the importance of applying these insights to personalize marketing, improve customer experience, and drive sales.

Keep the momentum going. Use what you’ve learned to keep growing, adapting, and pushing forward. Your customers will thank you, and your business will keep thriving.

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Customer segments of a fintech company (with examples).

Get a watermark-free, fully customizable customer segmentation in our business plan for a fintech company

Grasping the diverse needs of your clients is essential for any fintech company aiming for success.

Let us walk you through the strategic approach of identifying and understanding your distinct customer segments to optimize your services and sharpen your marketing strategies.

By recognizing who your clients are and what they desire, you can ensure that your fintech solutions not only draw in a broad clientele but also meet their financial needs with precision.

And, if you're looking for a ready-made customer segmentation framework that's fully customizable, be sure to check out our business plan template designed specifically for fintech ventures .

What is exactly a "customer segmentation"? Should you make one for your fintech company?

Customer segmentation is the strategic practice of dividing your fintech company's potential and existing customers into groups that share common characteristics.

Think of it as crafting a precise blueprint of who your users are, from basic demographics like age and occupation to more specific attributes such as financial goals and technology usage patterns. The aim is to grasp the varied requirements and behaviors of your user base, enabling you to customize your financial products, user experience, and marketing strategies to resonate with each distinct segment.

Why do fintech entrepreneurs and marketers invest time in customer segmentation? Simply put, because customers have diverse financial needs and preferences.

Different segments may seek different features in a financial app or service. By pinpointing these segments, you can tailor your fintech offerings, such as mobile banking, investment platforms, or insurance products, to match the unique demands and expectations of each group.

For instance, a segment comprising tech-savvy millennials might prioritize a seamless mobile experience and innovative features, while a segment of small business owners might value robust accounting integrations and personalized financial advice.

The advantages of effective customer segmentation, akin to what you would discover in our business plan template designed for fintech companies , are significant and impactful. It leads to more precise marketing, potentially increasing user acquisition rates and optimizing marketing spend.

Customizing your fintech solutions to align with the specific needs of different customer segments can boost user satisfaction and retention. Plus, understanding your customer segments can inform product development, user interface design, and customer support improvements, positioning your fintech as the go-to choice for a variety of users.

Should you engage in customer segmentation if you're launching a new fintech venture? Undoubtedly.

Knowing your target users and their preferences from the beginning can provide a substantial advantage. It empowers you to shape your fintech offerings, user experience, and marketing campaigns with a sharp focus on fulfilling the needs of your intended segments. This strategic approach can help you swiftly build a dedicated user base and stand out in the competitive fintech landscape.

Is customer segmentation beneficial for you? Indisputably. Whether you're in the initial stages of concept development or aiming to expand an established fintech operation, understanding the different segments within your user base is crucial for making data-driven decisions. It affects everything from the features you develop to the customer service protocols you implement.

Furthermore, customer segmentation is not a static exercise; it's a dynamic process. As financial trends shift and your company grows, regularly reviewing and refining your customer segments ensures that your fintech continues to satisfy the evolving needs and preferences of your users.

How to segment customers for your fintech company?

To create customer segments for your fintech company, begin by diving into your user data to uncover patterns and commonalities, such as financial goals, transaction types, and usage frequency.

Next, categorize users into segments that reflect these shared attributes to customize your financial products, services, and marketing efforts to meet the distinct needs and preferences of each group.

To streamline the process for you, here's a 10-step action plan to develop a meaningful customer segmentation for your fintech company.

What are some examples of audiences and customer segments for a fintech company?

Below is a table with 10 examples of customer segments for a fintech company.

Examples of customer segmentation for a fintech company

Below are three different (very concise) examples of customer segmentations tailored for a Fintech Company that specializes in personal finance management, cryptocurrency trading, and peer-to-peer lending.

Personal Finance Management App Customer Segmentation

Cryptocurrency Trading Platform Customer Segmentation

Peer-to-Peer Lending Platform Customer Segmentation

You can also read our articles about: - how to fill a Business Model Canvas for your fintech company - how to study the competitors of your fintech company - how to elaborate a marketing strategy for your fintech company - how to launch a fintech startup (guide)

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