In today’s data-rich but time-restrained environment, brands face tremendous pressure to convey relevance amidst an overwhelming sea of choices. Simply offering a revolutionary product is no longer a winning strategy.
The only way for businesses to stand out in a crowded marketplace is to understand and serve the needs of their target market keenly. A valuable approach is leveraging customer segmentation analysis to identify and cater to specific consumer demands.
Discover what makes customer segmentation crucial and how organizations can make the best of this essential business exercise.
Customer Segmentation 101
Customer segmentation involves dividing a wide target market into subsets of customers with common needs, priorities, behaviors, and attributes. Segmentation aims to allow companies to focus their marketing efforts and brand messaging on consumer groups that have the highest potential to drive revenues. For example, customer segmentation for banks will differ from retail stores because they serve clients with different needs.
This key activity enables brands to speak directly to the motivations and values of each defined group, making them more effective. It provides the foundation to offer tailored solutions to the problems that specific customers care most about.
Major Types Of Customer Segmentation
In saturated markets, fine-tuned segmentation may deliver the competitive difference that propels sustainable growth. Any company selling products or services needs to deeply understand the right segments to target before developing their marketing and sales strategies.
Companies generally categorize based on variables that indicate common links between sets of ideal customers.
Some of the most utilized ways to group audiences include:
1. Demographic Segmentation:
This type provides quantifiable ways to compare groups. It divides markets by characteristics like age, income, education level, gender, occupation, ethnicity, family size, generation, nationality, and more. For example, a boot brand may target younger urban professionals or middle-aged suburban families.
2. Psychographic Segmentation:
Psychographics reveals why customers make purchasing choices. It separates consumers by attitudes, personality, values systems, aspirations, motivations, priorities, interests, lifestyles, and behaviors. For instance, an e-commerce company may group shoppers as price-conscious bargain hunters versus high-end quality seekers.
3. Geographic Segmentation:
This involves classifying consumers by physical factors related to countries, regions, cities, neighborhoods, states, climate, population density, and more. For example, real estate brokers may segment buyers by state, while a hotel may target customers by drive distance. Geographic differences can impact buying needs and preferences.
4. Behavioral Segmentation:
This type categorizes customers by how they utilize products, respond to messaging, spending habits, usage rate, loyalty, product benefits sought, channel preferences, decision-making, and buying occasions. Cafe owners, for example, may segment by weekday versus weekend dining occasions. Identifying behavioral patterns aids conversion.
While a mix of attributes generally informs segmentation, focusing on the one or two most relevant traits is recommended.
Leveraging Customer Segmentation
Here’s how you can further use segmentation to your advantage:
A. Let Your Research Light the Way
The first step towards actionable customer segmentation is dedicating time to understanding your existing and potential customers. While it may be tempting to make assumptions, the most successful companies rely on in-depth qualitative and quantitative research to reveal customer insights. Surveys, interviews, focus groups, and analyzing past purchase behavior can illuminate what different groups value and how they make decisions.
This analysis allows you to spot patterns among distinct needs, behaviors, demographics, psychographics, attitudes, motivations, and priorities. Customer research should identify segments that are substantial enough to serve profitably. While labels aren’t critical, naming groups appropriately allows easier targeting.
B. Refine and Identify New Segments
With the wealth of customer data available today, leveraging information to refine segments and spot new groups is easier than ever. Analyzing web traffic, purchase history, review sites, survey data, social media conversations, and demographics can uncover emerging consumer niches.
For instance, below are less common and emerging segmentation types that are useful in certain industry niches:
- Technographic segmentation: This entails grouping an audience based on their technology usage, devices, tech preferences, tech comfort level, and degree of tech savviness. Tech brands can use this to target groups from laggards to early technology adopters.
- Firmographic segmentation: This type divides organizations rather than consumers by factors like industry, number of employees, location, job function roles, tech infrastructure, firm revenue, and other organizational attributes that impact needs. Business-to-business (B2B) firms commonly leverage firmographic segmentation.
- Socialgraphic segmentation: This categorizes buyers by their social networking behaviors, such as engagement levels, influence within their networks, platform preferences, recommendation patterns, and more. Socialgraphic insights can help amplify a brand’s marketing messages.
- Generational segmentation: This divides markets into groups based on age ranges that align with generations like Baby Boomers, Generation X, Millennials, and Generation Z. This approach acknowledges that each has unique experiences and historical events that often inform perspectives.
To develop a segmented strategy, it is crucial to make sense of trends and patterns in an unbiased and quantifiable manner. This involves looking beyond surface-level attributes to uncover subtle commonalities that can guide decision-making. By combining first-party data with third-party data from marketplaces, any gaps can be filled, and hypotheses can be verified. Ultimately, it is essential to prioritize high-intent segments that exhibit a strong interest in relevant offerings.
While not always immediately intuitive, exploring additional ways to view customer groupings can uncover meaningful segments that offer growth potential. Testing new variables is key.
C. Address Pain Points to Craft Personalized Messages and Experiences
Armed with a clear understanding of key customer segments, companies can develop customized brand messaging and experiences. This differentiation in marketing and messaging helps segments feel understood. It then makes it easier for your brand to present relevant, valuable offers.
Rather than taking a one-size-fits-all approach, it’s critical to emphasize the specific pains each segment wants to be resolved and the gains they wish to achieve. Content and tone should also resonate based on emotional appeal and the channels preferred. Lastly, creative formats, offers, and even business model variations should match what matters most to each group of customers.
D. Don’t Be Afraid to Test
Once target customer segments are defined, developing personas, messaging frameworks, and tailored offers is essential. While research should inform strategy, nothing replaces real-world testing.
A/B testing different segment-specific messaging across various platforms lets organizations see what resonates best. By trying varied products, pricing, promotions, and experiences with sample groups, businesses can gain clarity. Moreover, analyzing performance metrics can give direction to what’s working or needs retooling.
E. Constantly Track, Evaluate, and Iterate
Segmentation strategies require continual optimization and agility to succeed. After all, customer motivations rapidly evolve. What appealed to a segment yesterday may not work tomorrow.
That said, be flexible to add, eliminate, or combine segments to meet customers’ needs better. For example, leading companies continually assess their customer segmentation models to detect shifts in needs or behaviors. They also monitor the impact of tailored strategies by measuring the reach, conversion, and retention rates for different groups.
By consistently analyzing metrics, businesses can determine which adjustments can make their messaging or offers more compelling. This involves innovating and testing revised segment profiles, refreshed content, and new approaches to ensure profitable growth.
Run Your Segmentation Like A Well-Oiled Machine
While mass marketing to a general audience used to be popular, it’s increasingly ineffective given the media fragmentation and the ability to take a more personalized approach.
Meanwhile, targeted segmentation can empower businesses to maximize revenue opportunities through messages that resonate. However, businesses must understand their market’s diverse needs and strategically act upon these insights.
The art and science of intentional customer segmentation delivers the foundation for sustaining advantage. By taking an organized, empathy-driven approach, companies can unlock growth in an increasingly crowded space.