V4B Business Finance

What Is Customer Segmentation And How Can It Help You?

customer segmentation

Businesses often have a wide range of customers with different needs and interests. This means that sending out a single message about the benefits of your products or services won’t resonate with everyone.

It’s impossible to personalise a marketing campaign for each customer. Instead, businesses divide their customers into subsections.

Customer segmentation, also known as market segmentation, enables businesses to connect with and prioritise their most important customers.

This focused strategy of tailoring your marketing efforts to specific groups of customers helps to consolidate brand loyalty and attract new business.

Types of customer segments

No two customers are exactly alike, and your business may serve a broad variety of people. While this can be good for business, it also presents a major marketing challenge.

The solution is marketing differentiation, which divides a business’s audience into targeted groups with similar buying behaviours.

Customer segments are based on different models that divide your customers into smaller subgroups defined by common characteristics.

Your overall customer base is divided into these subsections based on what your business does, and your customer segments can widen in scope as your business grows.

Typical marketing segmentation models focus on:

  • Demographics. Population-related characteristics such as age, gender, income, and education can be used to create segmented customer groups for businesses that offer a variety of products or services.
  • Needs. Needs-based segmentation focuses on how your products or services meet the needs of different consumers.
  • Generations. Generational segmentation – or firmographic segmentation – creates groups of customers determined by the decade they were born.
  • Behaviours. Behavioural segmentation groups potential customers together depending on habits and behaviours such as purchase history and social media usage.
  • Geographics. Geographic segmentation focuses on the needs of consumers living in different geographic locations.
  • Psychographics. Psychographic segmentation is based on lifestyle characteristics including interests, personality, and beliefs.
  • Technographics. Technographic segmentation creates customer profiles and subgroups according to the technology they use.
  • Value. Value-based segmentation targets groups of consumers who’re providing you with most return business and highest return on investment.

Benefits of customer segmentation

Customer segmentation gives context to your customer base, and this informs how you can best connect with your audience and optimise customer engagement.

It enables marketing strategies that reach and engage consumers in a way that helps increase market share and return on investment.

Each customer segment buys the types of goods or services you offer in order to fulfil the same needs. And they often communicate through similar channels.

These shared behaviours help you create customer profiles that facilitate increasingly personalised marketing messages to guide customers through their buying journey. And personalising your message in this way can significantly improve your bottom line.

Segmenting your customers also helps with decisions on product development, marketing, and customer service.

Personalising your message

Segmentation goes hand in hand with personalisation. And business surveys have shown various benefits for companies who deliver personalised messages.

  • Personalised messaging results in an average 10 to 15 percent increase in revenue – a figure that rises to up to 25 percent for direct-to-consumer brands.
  • Over three-quarters of customers are more likely to consider using a business that sends them a personalised message.
  • 78 percent are more likely to make repeat purchases.

On the other hand:

  • 76 percent of consumers are irritated by non-personal messages.
  • 45 percent of these disappointed customers will spend their money elsewhere.

Product development

Customer segmentation can help you tailor your products to better suit customer desires.

It allows you to identify and prioritise features and designs that appeal to specific groups of customers. This helps you develop products that better meet customers’ needs and stand out in the market place.

Marketing strategies

Customer segmentation enables you to tailor your marketing strategies to better suit the needs and desires of each sector.

And if some segments are underperforming in terms of return on investment, you can shift your marketing focus to more profitable sectors where customers are spending more.

Customer service

Segmentation gives you a deeper insight into what your various customers expect in terms of service.

You can then tailor your customer service interactions to each segment’s specific requirements. This customised customer service can increase customer satisfaction and loyalty.

How to get started with customer segmentation

To formulate a customer segmentation strategy, you first need to ask yourself five basic but important questions:

  • Who are your customers?
  • Where are your customers located?
  • What are your core products or services?
  • How can you market these products or services to your target audience?
  • Which types of customer segments are interested in your products or services?

You’re then ready to carry out a segmentation analysis.

Customer segmentation analysis

Effectively dividing your customers into subsections requires an in-depth customer segmentation evaluation.

The initial step is to identify your customers by gathering as much research as possible about them, including:

  • Geographic location.
  • Gender and age.
  • Values and interests.
  • News channels they use.

Surveys and other outreach efforts can help in this research and allow you to hear from your customers directly. You can also use customer relationship management (CRM) data and sales summaries.

Armed with your research, you can then begin the process of audience segmentation.

Dividing customers into groups

Audience segmentation entails determining and distinguishing commonalities of certain groups within your market share.

Looking at consumer groups can help you create segments with marked differences. You can also use your customer data and market knowledge to create customer profiles.

These customer personas should include details such as their background, family size and responsibilities, and professional history. This will help you come up with marketing content tailored to your individual segments.

How customer segmentation helps you constantly improve your business

Data-driven customer segmentation is an ongoing process that requires a combination of different sources and methods.

Constant customer segmentation analysis enables you to improve your strategies, focus your efforts, and expand on systems that are effective.

Monitoring sales and developing new strategies allows you to target new audience segments, experiment with marketing on different platforms, compare past efforts with current ones, and identify effective marketing approaches to improve your strategies.

This enables you to continually improve and grow your business, outperform the competition, stay connected to your customers, and consistently drive sales.

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