When it comes to customer segmentation models, there is no one-size-fits-all solution. Every business is different, and each has its unique customer base.
That’s why it’s so essential to create a customer segmentation model that works for you. In this blog post, we’ll talk about how to do just that. We’ll discuss the different types of customer segments, and we’ll give you tips on how to create a model that will help you reach your target customers.
So, what are customer segments?
In a nutshell, customer segments are groups of customers who share common characteristics. These characteristics can be based on demographics (age, gender, location), psychographics (lifestyles, interests), or behavioral data (purchasing habits, engagement levels). Segmenting customers is a great way to target your marketing efforts and create a more personalized experience for your customers.
What Is Customer Segmentation?
Businesses have long been aware of the importance of segmenting their customers. After all, not all customers are created equal! By segmenting your customer base, you can create more targeted marketing campaigns and improve your overall ROI.
But what is customer segmentation, and how can you go about doing it? If you want to make your business thrive, then you must understand the concept of customer segmentation.
Customer segmentation refers to the process of dividing your customers into specific customer segments or groups based on factors like demographic data, interests, and spending habits. By segmenting your customers in this way, you can create more targeted marketing campaigns and improve your chances of success.
Customer segmentation analysis
Before segmenting your customer base, it’s important to remember that this process is all about creating strategies.
As such, segmentation strategies should always be based on a particular goal or set of goals. For example, a segmentation strategy may focus on finding customers who are early adopters and have the potential to become brand ambassadors. While this is just one possible segmentation strategy, there are plenty more that you can choose from.
Implementing customer segmentation in your marketing campaigns is a great way to improve the overall ROI of your business. To segment your customers, you first understand their unique characteristics and traits. After all, not every segmentation model works for every business – what might work for a startup clothing boutique won’t necessarily work for a big-box retailer.
As a business owner, segmenting your customer base is all about trial and error. You have to keep segmenting your customers until you find a segmentation model that works for your business.
With that being said, segmenting your customer base is a simple process that can set your business up for success. You need to know how to go about it! Let’s take a closer look at why customer segmentation is important.
Why Is Customer Segmentation Important?
Customer segmentation is one of the most important aspects of customer relationship management. There are many reasons why you should use customer segmentation as a business strategy. Here are some of them:
#1 Improve customer satisfaction
You can improve the quality of service by better understanding your customers’ needs and offering them what they want. With this, you will deliver products or services that meet their needs more efficiently and effectively. This is one way for your business to establish long-term relationships with its target customers. Marketing efforts are then focused on customers who are most likely to buy from you again.
#2 Improve customer loyalty
It is easier for businesses to retain current customers than attract new ones. If you know what a specific group of people need, then it would be easier for you to offer them products or services that could make them stay loyal to your company instead of looking elsewhere when they have similar problems in life again in the future.
Customer retention is more cost-effective compared to acquiring new customers. Segmenting customers allows you to customize communication efforts to maximize customer retention. The result is that you save money and resources to focus on other aspects of the business.
#3 Builds customer engagement
Segmentation applied to marketing strategies allows marketers to determine the best communication and engagement strategies that would be most effective for a specific group of customers. This makes it easier for them to control their communication efforts and prioritize only the people who benefit from their messages.
They also measure how successful their communication efforts are in engaging customers towards achieving business goals. With positive customer engagement comes to a good customer experience, making it easier for them to sell a product or service. Improving customer experience and engagement should be the top priority of every company.
#4 Increases customer value
A better understanding of your customers will lead you to identify which products, services, and opportunities they need the most. With this knowledge at hand, your business can prioritize its selling efforts on areas with higher profit margins or more potential customers. This ensures that you are maximizing the return on investment for each customer.
You also have an idea of what customers are spending money on, so it becomes easier for you to recommend other products or services they might be interested in purchasing from you in the future. Customer lifetime value is therefore increased.
#5 Improve marketing ROI
Customer segmentation helps marketers analyze customer segmentation data from customers’ purchase history to identify which products or services they purchased most frequently. You can also determine which offers your target audience most likely responded to, which customers are worth keeping, and those who would benefit from a product or service offer.
It is easier for you to measure how successful your marketing efforts were in achieving specific goals if you focus on a particular group of people rather than the whole market. Customer segmentation analysis helps improve future marketing efforts.
So, you see? Your customers’ needs should be your top priority as a business owner because you will benefit from them in the long run. Ensure that you prioritize customer engagement and satisfaction to build and maintain strong relationships with your customers.
It would be best to focus on building customer loyalty to stay with you for a long time. Lastly, improve your marketing ROI by focusing on customer engagement and satisfaction. Customer segmentation is vital for all types of businesses because it benefits them in many ways.
#6 prepare for new markets and forms of competition
Customer segmentation allows companies to discover market opportunities and potential threats posed by emerging competitors. When you know what a specific group of consumers wants, it would be easier to offer them products or services that they will surely appreciate – ones that could give your business a competitive advantage over others in the industry.
> Discover how to acquire and retain customers profitably for your eCommerce business.
Customer Segmentation Models
There are many different customer segmentation models that businesses can use. Which one is the best fit for your company? That depends on your customer journey and the types of customers you target.
Demographic customer segmentation models group people based on their demographic information, such as age, gender, income level, or education. This type of customer segmentation is used by companies that offer products and services to different types of customers (e.g., men vs. women).
For example, a company may want to target men ages 18-35 who have an annual household income between $30K-$50K. This customer segment has the highest purchasing power for its product/service offerings. A business would then use demographic customer data to create marketing campaigns tailored specifically for those groups with relevant content about how their brand can help them achieve what matters most in life – spending more time with family members or getting out there and doing things they love.
Geographic customer segmentation models group people based on their location. This type of customer segmentation is used by companies that offer products and services to different types of customers (e.g., local vs. international).
For example, a company may want to target customers in the United States interested in outdoor activities because they have identified this as an important market niche. A business would then use geographic customer data to create marketing campaigns tailored specifically for those groups with relevant content about how their brand can help them enjoy the outdoors within their own country or region.
Psychographic customer segmentation models group people based on their psychological characteristics, such as personality traits, values, and interests. This type of customer segmentation is used by companies that offer products and services to different types of customers (e.g., introverts vs. extroverts).
For example, a company may want to target creative people who love traveling because they have identified this customer segment as having the highest purchasing power for its product/service offerings. A business would then use psychographic customer data to create marketing campaigns tailored specifically for those groups with relevant content about how their brand can help them express themselves creatively while exploring new destinations worldwide!
Behavioral customer segmentation models group people based on their behavior, such as purchase history or engagement with your website or social media channels. This type of customer segmentation is used by companies that offer products and services to different types of customers (e.g., customer loyalty program members vs. non-members).
For example, a company may want to target people who have purchased from them before because they have identified this customer segment as having the highest purchasing power for its product/service offerings. A business would then use behavioral customer data to create marketing campaigns tailored specifically for those groups with relevant content about how their brand can help them achieve what matters most in life – whether finding ways to stay fit or saving money on groceries every month through our rewards program!
RFM customer segmentation models group people based on their recency, frequency, and monetary value (RFM) of purchases from your company. This type of customer segmentation is used by companies that offer products and services to different types of customers (e.g., high-value vs. low-value).
For example, a company may want to target people who have made recent purchases because they have identified this customer segment as having the highest purchasing power for its product/service offerings. A business would then use RFM customer data to create marketing campaigns tailored specifically for those groups with relevant content about how their brand can help them save money or get rewarded for their loyalty!
> Discover this Simple Guide to RFM Segmentation that will change the way you analyze, approach, and value your customers.
How to choose the right customer segmentation model(s)
If you want help in deciding on a specific segmentation model to group your customers, you must first decide what type of customer data can bring the biggest impact on your revenue. This way you can get a clearer vision on the data you already have and the data you lack, then take the required steps to bridge the gap.
To do so, define your marketing goals and see which segmentation model can best help adapt your strategies to the desired market segment.
For example, if your goal is increasing monthly purchases, you will look at behaviour segmentation and identify shoppers who are ready to repeat their purchases. On the other hand, if you want to decrease retention rates, you might want to segment your customers using the RFM model and set up prevention campaigns for “about to dump you” segments.
Customer Segmentation Strategy
Customer segmentation strategy is a business strategy where businesses divide their customer base into separate and distinct groups (segments). The company then determines each group’s different needs/wants and tailors its products or services to meet those specific needs.
Customer segmentation strategy is often used to uncover customer insights that would not become clear from analyzing total market data.
To understand your customers’ needs, you need to undertake a customer segmentation analysis. This is the first step towards understanding the specific groups that exist in your marketplace and their different needs.
A more complex structure can be made by dividing your market into two or three main types of groups, e.g., low cost, medium cost, and luxury. However, this degree of complexity will depend on the size of your market and your segmentation strategy.
A more precise structure can be made by dividing your leading group into several subgroups based upon their characteristics. For example, you could create a high value/high volume customer segment, medium value/medium volume, etc., or group them according to similar income levels.
> Discover the RFM based marketing strategies for customer segments and design the best treatment for each segment!
Customer Segmentation Examples
The first step in a marketing strategy is to identify your target market. You have to figure out who your customers are and what factors affect their behavior. Whether your company is a startup or an established enterprise, defining the customer base for each of your products or services will give your marketing team a direction to follow. Here is a list of customer segmentation and profiling examples that may help you define your customer profile.
1. Baby Boomers
In the United States of America alone, about 77 million individuals have reached retirement age, which also makes them baby boomers. This considerable customer segment is quickly becoming one of the most sought after and lucrative in all types of marketplace.
Boomers with time and money to spend, but with “empty nests,” are migrating back into the workforce in record numbers- often starting their businesses. These individuals have strong buying power within their fields of expertise. If you’re looking at launching a startup in any industry, this is one customer segment that carries a lot of clouts.
2. College Students
Like boomers, college students also possess an overwhelming buying power that marketers are eyeing every passing day. With tuition fees continuously climbing up the charts, young Americans today can’t wait to land their first jobs and start earning big bucks. This means they want all the goods and services they haven’t been able to afford yet. So the next time you see a trendy new product or service, don’t be surprised if it’s targeted at this consumer segment.
3. Suburban Housing Market
If you’re looking for a great example of customer segmentation and profiling that goes beyond demographics, then consider the case of the fast-food market. Fast-food chains have been strategically placed in front of malls and suburban housing areas so that you can find one on almost every corner. With a population boom in the suburbs, this area represents a new frontier for the fast-food industry to conquer.
4. Luxury Brands
Anyone with enough money to buy luxury brands probably has their staff to attend to their daily needs. This means that the customer base for these products and services are considered high net-worth individuals. If you’re looking at launching a startup in any industry, this is one customer segment that carries a lot of clouts.
Customer Segmentation using Machine Learning
Machine Learning tools like Omniconvert Reveal can look at your first-party data, find insights, patterns, and anomalies, then use this data to segment your online store’s customers into segments.
Using an artificial model can help decision-makers to make quick, on the spot data-driven decisions that can benefit their business.
You should definitely entertain the idea of using segmentation tools to divide your customer base into smaller segments.
> Read about the shortcomings of manual customer segmentation in eCommerce and why it’s bad for your business!
The process of segmenting customers into specific groups is something that most marketers do, whether they know it or not. Customer analytics tools are a great way to learn more about your customer’s demographics and behavior to make better decisions when developing marketing strategies for them.
These models will also help you find out which customers are worth the time and energy spent on sales pitches, as well as those who would be best served with coupons or other incentives. Have you tried any of these techniques? Let us know how they’ve worked for you!
Frequently asked questions about customer segmentation models
What is a customer segmentation model?
A customer segmentation model is a data-driven representation of existing and potential customers. It is designed to help you understand and target different types of customers based on specific characteristics and behaviors.
What are the 4 types of segmentation?
There are four primary types of customer segmentation models derived from the different ways that customers can be classified. These types include demographic, behavioral, geographic, and psychographic/lifestyle segmentation.
What are the different types of customer segments?
There are many types of customer segments, including:
– By demographics (e.g., age, gender, marital status)
– By behavior (e.g., buying habits and response to marketing campaigns)
– By where they live (e.g., by state or zip code)
– By psychographics (which includes lifestyle, personality, and values).
What are the 5 customer segments?
The following are the five primary types of customer segments:
Demographic segment; These are groups of customers that share common characteristics. For example, married or parents might be interested in different products or services than single, childless adults.
Behavioral Segment; People with certain behaviors are more likely to respond to marketing campaigns. For example, someone browsing the internet on their mobile phone is more likely to respond to mobile adverts than someone browsing on their laptop.
Geographic segment; People in different locations are more likely to need or desire other products and services. For example, people living in northern states might be looking for snow blowers, while those in southern states might be looking for lawnmowers.
Psychographic segment; People who share similar thoughts, opinions, lifestyles, and values are grouped into psychographic segments. For example, people with children under the age of 14 might be interested in different products than those without young children.
Firmographic segment; This demographic segmentation is based on a person’s background. For example, someone born in the 1990s will have experienced different life events than someone born in the 1950s