What is Customer Segmentation?

In business, customer segmentation is grouping customers together based on certain characteristics or traits. Doing so not only helps businesses better understand who their customers are, but it also allows them to develop unique messaging for specific segments. This strategy ensures that marketing and ad spend are optimized to their fullest potential.

Depending on the type of business, there are different ways to approach customer segmentation. For businesses selling to other businesses, segmentation is likely to include:

  • the industry
  • size of the business
  • physical location
  • past purchases

In the case of businesses selling directly to customers, segmentation looks quite a bit different. For example, customer segmentation for these B2C brands would look at factors like:

  • gender
  • age
  • relationship status
  • general location

To get even more technical, customer segmentation can be approached in three different ways:

  1. Priori Segmentation. This type of customer segmentation is the simplest because it uses information that is available to the public. One of the concerns with Priori Segmentation, however, is that the information gathered doesn’t always segment customers practically, which means its flaws can lead to costly misunderstandings.
  2. Needs-Based Segmentation. Unlike Priori, which lacks a certain amount of validation, Needs-Based segmentation uses validated needs that actually drive customers’ purchases. Going deeper than the superficial, Needs-Based segmentation gets to the heart of why certain customers buy.
  3. Values-Based Segmentation. Another way to segment customers, Values-Based sorting takes the specific characteristic of economic value into consideration and then sorts customers accordingly.

Segmenting customers continues to be an important part of business success because it creates focus for marketing efforts, ensuring that money isn’t given to the wrong area, or a segment that won’t get the maximum returns.

Some of the biggest benefits of customer segmentation for businesses online include:

  • Clearer, more concise marketing messages tailored specifically to the needs and desires of a certain segment
  • More confident decisions in terms of which marketing medium to use for best results, specifically email campaigns, social media posts, print advertisements, radio spots, etc.
  • Understanding the smartest ways to make improvements to products and services based on customers’ needs
  • Creating higher quality revenues by identifying the best opportunities to convert sales and attract repeat customers

Although many companies never utilize customer segmentation, the businesses that do understand the dramatic impact this type of strategy can have on sales, as well as the overall company’s growth. By segmenting customers, businesses can develop smart and strategic marketing that isn’t just a shot-in-the-dark that drains time and energy.

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