The Savvy Marketer’s Guide to Customer Segmentation

Marketing is at the core of every business - it can mean the difference between a thriving business and an unprofitable one. You might have a great business concept, but without reaching consumers, that concept is useless. Marketing is the link between the producer and consumer; a link that needs to attract and keep the consumers’ attention.

Customer segmentation refers to the division of customers or clients into groups based on specific features to communicate with them in the most appropriate way. While a business might know their target market, a discerning marketing team understands that each consumer is an individual.

Customers are constantly bombarded with competing messages from companies proclaiming to have their best interests at heart. To win them over requires a direct line of communication that speaks to who they are.

To implement customer segmentation effectively, it’s necessary to understand how it works and why it’s so important. Attracting customers isn’t just a case of having the loudest voice. If your message doesn’t evoke a response in consumers, it’ll just blend into the background. 

This guide will help you master the art of marketing to the audience segments you want to target most.

Recognize the importance of customer segmentation

Dividing your customer base into segments based on distinct characteristics can help to calculate the profit potential of each group. Without specific and accurate data, it’s not possible to plan for the future in any business.

Knowing the details of a segment means that a company can communicate with them in the most efficient way possible. Selling a product or service isn’t a matter of luck or a happy accident - people buy for specific reasons, not just on a whim.

Understanding customer lifetime value

The most obvious and easiest approach to distinguishing customers is not necessarily the most effective. It's simple to plan marketing to direct at a specific age group, but getting the attention of that group might not be the most profitable strategy.

Customer lifetime value (CLV) refers to the total a customer invests in a business over their lifetime–i.e.: how much do they spend from their first encounter with the brand to the last? Customer segmentation targets not only various groups, it’s designed to keep customers once they’re engaged. Customer retention results in greater CLV, which makes marketing that much easier.

The five types of customer segmentation

There’s no one-size-fits-all approach to marketing. Different methods can complement one another and putting them into practice can reveal other facets of the target market worth investigating.

1.     Demographic segmentation

This method focuses on distinct features of customers such as gender, age, level of education or household income. It’s relatively easy to divide customers into separate groups based on these differentials. Asking for their details in an email survey or getting them to fill out a questionnaire at the till are both easy options for gathering data.

Knowledge of the family structure of consumers can be especially useful. Socioeconomic segmentation also falls under the demographic umbrella—marketing according to household income, occupation and level of education, for example.

2.     Geographic segmentation

Instead of focusing on customers’ gender or age, geographic segmentation looks at where people live. This will look different for every business.

Consumers may get separated by country, city, region or climate zones. A large, international franchise will market differently in each county, while a local business needs a more detailed approach.

3.     Behavioral segmentation

As its name suggests, behavioral segmentation concerns the way consumers behave: how they interact with a business and their decision-making processes.

This type of segmentation can overlap with others. Demographics, for example, can be interwoven with customer behavior. Younger customers can interact with a brand differently because of their needs and preferences, creating an intersection between demographics and behavior that marketers can use.

Some specifics to remember are:

• What do these customers need?
• How long do these customers spend shopping?
• How often do these customers shop?

Customers in the same age range might not all have the same shopping habits, which makes a behavioral approach more effective in those specific scenarios. Behavioral segmentation looks at general purchasing habits and things like customer loyalty.

4.     Lifecycle/customer journey-based segmentation

This segmentation method follows the understanding that every customer has a life cycle. This cycle follows the first time they interact with a brand, the last and all of the times in between.

Some consumers might first contact a business by visiting their website; others might have made a purchase in January but since then have only visited the store once. In both instances marketing needs to be tailored to the stage at which the customer sits.

5.     Psychographic segmentation

Psychographic segmentation is similar to behavioral segmentation in that it looks at the values and actions of customers. Instead of looking purely at behavior related to purchasing, however, it takes into account attributes within consumers, such as their opinions, personal habits, personality and interests.

This discernment can be very helpful in cultivating a brand personality that aligns with the attitudes of customers. It's also useful for creating marketing material, customized websites or personalized emails that speak directly to the intended target market. Every element of marketing is simply tailored to appeal to the segment that a brand wishes to align itself with.

Perfecting a segmented marketing strategy

At a glance it might seem most effective to distinguish customers by clear differences such as age, gender or location. But what really supports a business is the loyalty of customers who invest regularly and don’t jump ship.

Customer segmentation requires careful analysis: not making segments too narrow while also determining the best way to reach individuals. Consumers respond best to personalized messages.

Practicing effective customer segmentation is the best way to draw new customers and retain old ones, and doing so demands constant observation of consumer behavior and trends. Societal shifts demand that companies be ready to adapt and refine marketing methods. If done well, the rewards are plentiful.