Customers don’t want a one-size-fits-all solution from your business, and neither should business owners. Every customer wants something different from your brand, so by understanding and categorizing those differences, you can better cater to your customers in ways that they want.
That’s where customer segmentation comes in — organizing your customers into easily trackable and marketable segments will give you the power you need to level up your business success. Let’s dive into what exactly customer segmentation is, and how it can benefit your business.
What is Customer Segmentation?
Customer segmentation can be defined as dividing your customer base into unique groups that are similar to each other in specific ways that are important to your business. You can segment customers based on a variety of factors, but the most common are:
- Demographics: This includes gender, age, marital status, income, education, occupation, and any other trait or characteristic that can be relevant to your marketing.
- Psychographics: These are less quantitative, and more qualitative traits, like social class, lifestyle, personality, Facebook likes, etc.
- Geographical Location: This can include cities, counties, states, or even countries. Local businesses will care about smaller location pools, while larger multinational businesses focus on countries and continents more.
- Behavioral Data: This information goes beyond what a customer is, and focuses on the actions they take, including spending habits, product usage, desired benefits, shopping times and locations, the length of time they’ve been a customer, and more.
Types of Customer Segmentation
Also referred to as “a priori segmentation,” characteristics segmentation is based on general customer demographics and behaviors like age, gender, income level, or even engagement channel. This type of segmentation is typically the most basic and surface-level, being that the information used is freely available to many other parties. This makes characteristics segmentation a good first step towards making actionable segmentation, providing broad data that you can build off of with the next types of segmentation.
Once you understand who your customers are, you then need to determine what they’re looking for from your business. These are your customer’s pain points that your product can solve, shopping interests that your products align with, and other needs-based data. This information is typically gathered through both market research within your industry and interaction with customers. This is where customer feedback comes in handy — build a relationship with your customers and find out what they expect from your business.
Going beyond the characteristics and needs of your customers, you’ll need to segment based on the value of a customer to your business. This means that certain customers will be worth higher levels of investment because they are more likely to, or already have, contribute more profit to your online store. In order to determine who your most valuable customers are, and to divide those customers into boundaries based on that overall value, you’ll need to acquire data from customer interaction over an extended period of time. How much have existing customers, and potential customers, spent on your products or similar products, and how can you capitalize on that shopping behavior and interest?
How Can Customer Segmentation Benefit Your Business?
The practice of segmenting your customers isn’t just for organization’s sake; it can actually bring your business real, tangible benefits. Here’s some of the ways that you can expect to improve your business with customer segmentation.
Easier B2B Segmentation
B2B sellers are no strangers to customer segmentation, often dividing customers into several groups based on whether they’re representing businesses or are singular consumers, and several other factors that can get even more specific. Using those segments, B2B online stores can serve different customers alternate product catalogs, lower pricing and more, such as wholesale pricing, quantity discounts, membership discounts, etc. Because B2B audiences have different wants and needs than consumers in a B2C landscape, you can reliably separate these customer segments and target them appropriately.
Better Marketing Focus
With customers divided into segments, you’ll have an easier time zeroing in on what specific groups of customers want from your brand, products, and marketing. This gives you a better idea of who your ideal buyer persona is, and how they need to be targeted, ensuring that you’re always serving relevant content. Without segmentation, you may end up wasting marketing spend and serving advertisements to uninterested parties.
More Personalized Experience
Customers always appreciate personalized shopping experiences, but that’s especially true in eCommerce, wherein the impersonal nature of digital buying can turn off some customers from trusting and interacting with your brand. Using customer segmentation, you’ll have an easier time personalizing shopping experiences for your customer. Dividing customers into segments can help you cater to their specific wants and needs, target customers based on what they’re looking for on your store, show them how to solve their unique problems, and display that you’re listening to them. Not only will this boost customer satisfaction, but it also does numbers for customer loyalty.
Improved Customer Retention
According to Invesp, it costs 5 times as much to attract a new customer than to keep an old one. On top of that, existing customers are 31% more likely to spend more than new customers. Keeping these statistics in mind, it’s clear that you should focus marketing efforts towards maintaining the satisfaction of your current customer base. Thankfully, segmenting your customers makes it easier to determine who those existing customers are, which gives you the ability to approach those customers in personalized ways that satisfy their needs. If customers feel like they’re not being rewarded for their brand loyalty, then they may start to look elsewhere for that recognition.
If you’re retaining more customers with your personalized efforts, then you’ll naturally boost your business’s brand awareness due to word-of-mouth marketing — happy customers love to talk. But, customer segmentation doesn’t just help expand the awareness of your business; it can also give you the opportunity to expand into other areas of your market. Using the information that you’ve garnered from segmenting your customers, you’ll gain clear insight into areas that could benefit from expansion.
For example, certain segments of your customer base may hold more value than others, even though you’re not investing many resources into increasing or maintaining this segment. With this revelation, you can begin branching out further into that more profitable customer group and earn new profits.
How to Start Segmenting Your Customers
There’s a variety of ways that you can divide your customer base into usable segments. Whether you’re dividing customers on your own online store, or you’re targeting separately in your marketing efforts, you’ll want to take these following steps when developing your customer segmentation strategy.
1. Segment based on characteristics.
When you begin to segment your customers, you’ll want to start with the most broad and basic information available, and then build up from there. This is where characteristics segmentation comes into play: surface level information like age, gender, and geographical location is easily accessible and can give you some cursory insight into who is buying your products. Before you get started into segmenting customers in more specific areas, like needs and value, it’s beneficial to have the platform of characteristics to start on. This is because, more often than not, those characteristics will inform a large part of your marketing approach.
Once you start segmenting based on characteristics, you’ll need to decide on which demographics are more important for your business to pay attention to and separate. For example, if you’re running an online store that sells different products targeted towards specific countries, then you may want to segment customers from those countries into customer groups and show them content and/or products that are relevant.
On the other hand, If you’re selling products at specific age groups, then you can segment your advertising strategy so that the appropriate products are shown to the right individuals. This is especially useful if you’re running a store with a mixture of age-restricted products and products for general audiences; you can make it so that only users that have verified their age through an account on your site can see those restricted products.
Segmentation based on these characteristics is easy to do on both your online store and in your chosen marketing platform. Shift4Shop, as an example, comes built in with a customer groups feature that you can use to segment customers based on a variety of factors. In the realm of marketing, social media platforms like Facebook allow you to serve ads dynamically to certain users based on demographics and behavior.
2. Decide on the size of your segments.
You may notice, after doing some broad segmentation, that some segments may make up a higher percentage of your customer base than others. This realization may inform your customer segmentation strategy going forward, because these larger segments may be more important for you to focus on in your marketing strategies and ad placements.
But, alternatively, you may also want to focus efforts towards increasing your smaller segments by creating an outreach marketing strategy. For example, you may be running a clothing store that sells apparel for all genders, but you’ve noticed that substantially less men are buying clothes on your site then women. If you’d like to increase your hold over the men’s fashion market, then you can segment your customer base and start pushing more heavily on the male segment.
Throughout the segmentation process and the implementation of your various marketing strategies, you’ll want to monitor how these segments expand and decrease to measure each strategy’s success. This analysis will also help you determine what the future of your business may look like, and where to dedicate more efforts in the future.
3. Estimate your customer value and quality.
At this point, you’ll need to ask yourself exactly how much revenue and how many purchases are being made within each segment subsection. The answer to this question will determine each customer’s potential and actual value to your business. You may think that larger segments are more valuable, but that’s not always the case; in fact, a smaller segment may be your most profitable segment.
If we go back to our previous example on selling apparel, perhaps you notice that, although your male segment is much smaller than your female segment, your male customers actually spend much more per transaction than all others. To capitalize on this and boost your store’s overall AOV, or average order value, it would be profitable to work towards expanding that male segment.
By performing this value-based analysis, you’ll be able to understand which customers you should focus your marketing strategies on and which are more likely to be brand loyal.
4. Understand how segments connect.
This may seem obvious, but your customers aren’t defined by a single trait, behavior, need, or want. Customers are dynamic, and may fall under several segments at one time; your male customers aren’t just men, because they could be married men, high-income men, or college educated men (or even all three at once). By getting more detailed about each customer segment, and dissecting how many of these subsections cross over into other segments, you’ll be able to get a clearer picture of who your customers are and what they actually want and/or need from your business.
How would your marketing strategy differ if you’re marketing towards a married man in Australia who has searched for vintage shoe fashion, versus a female college student in America who belongs to a Facebook group about boho fashion? All of these traits, behaviors, wants, and needs change how your marketing strategy should behave, so take the time to determine what specific segments are important for your business to analyze.
5. Start personalizing content.
After you’ve narrowed down exactly who your customers are on the most specific level that you can, based on your business needs, then you can begin personalizing content to reach them. Using the segments that you’ve created, create content targeted towards those specific buyer personas based on how you’ve separated them and what you’ve come to understand are their wants and needs. Typically, you’ll be marketing based on specific customer pain points, hobbies, shopping behavior, and any other factors that you’ve analyzed. Customers will always appreciate and respond well to a personalized approach to marketing; according to Marketing Charts, website visitors who were exposed to three pages of personalized content had double the conversion rate of those who viewed only two.
Whether you’re launching a new product, or you’re looking to boost conversions on your online store, segmenting your customer base can make your marketing strategies clearer and easier to develop. By taking the time to analyze who your customers are and what they truly want from your business, you can take a smarter approach to both your marketing spend and business efforts while growing your customer base and success.