What is customer segmentation?
Customer segmentation refers to the segregation of customers into different groups based on certain characteristics and common factors for effective marketing. The segregation could be based on demographics, behavior, psychological factors, and so on.
All customers share the common need for certain products or services, but they are still distinct from each other and may have different perceived values towards the same product or services. And, it's still close to impossible for big brands to target & communicate with each customer in a unique or hyper-personalized way. Hence, they classify and divide customers into multiple groups based on shared values & characteristics or something called a "Buyer Persona".
Brands can strategize marketing campaigns and plans based on customer/buyer persona and effectively communicate or reach out to their customers.
The segmentation process also makes it easy to customize and personalize marketing communication, service, and sales efforts to the needs of specific groups. That helps boost customer loyalty, conversions, and customers to develop an emotional connection with the brand.
What are the types of customer segmentation? Or customer segmentation Models?
Following are 4 well-known models and types of customer segmentation.
1. Demographic Segmentation
Demographic segmentation is one the most famous and simple-to-understand types of segmentation. Most companies use it to get the right set of audiences using their products and services. Demographic segmentation generally divides a population-based on variables like age, gender, family size, income, occupation, religion, race, and nationality.
For example, Business Class & Executive Class airplane tickets/seats cater to two different segments of society, one with a relatively higher income group and another with general class. Aviation companies use demographic segmentation, in this case, to divide the audience based on their income.
2. Geographic Segmentation
Geographic segmentation is another widely used segmentation strategy as the consumption of products & services differs from place to place, region to region, and country to country. Under geographic segmentation, customers are divided based on their location, country, state, and city.
For instance, a company selling advanced cosmetic solutions like anti-aging creams, serums, or skin tighteners may not work in rural areas or even in small towns. They can only vouch on urban customers from metropolitan cities to buy & use their products.
3. Psychographic Segmentation
Psychographic segmentation is one of the most complex segmentation types compared to the other 3. It's somewhat close to behavioral segmentation but takes a deep plunge on the psychological aspect of customer buying behavior. More than accessing customers' past actions, it tries to understand why customers would be interested in an offering based on their lifestyle, activities, choices & like, and dislikes.
Niche brands like Louise Vuitton, Gucci & Armani use a mix of psychological & demographic segmentation as a part of their marketing strategy, targetting customers who are conscious about their social status and personal image.
4. Behavioural Segmentation
Behavioral segmentation divides the population or customers based on their behavior, usage, and decision-making pattern. Companies having multiple SBUs or product lines generally pick up this strategy to push all their brands to a different set of Behavioral-based on their behavior.
For example, Samsung Note caters to a premium set of customers who usually are working professionals or business people. Whereas, Samsung Galaxy targets students or commoners who want to use or access basic features.
There are a few more add ons to the list based on the changing dynamics of Marketing
5. Technographic Customer Segmentation
6. Value-Based Customer Segmentation
7. Needs-Based Customer Segmentation
What are the benefits of customer segmentation?
1. Marketing & promotion strategy
The segmentation process helps brands to formulate effective marketing and promotional strategies keeping the right target audience in mind. The brand can accordingly tailor & personalize the marketing communication and choose the right vehicle to promote the product that ultimately helps build customer loyalty and trust.
2. Develops consumer insights
Division of customers allows businesses to focus on individual groups, understand their dynamics, and develop customer insight. Each group/segment represents something or possesses certain qualities that can be considered while enhancing products or services or while altering the marketing plan.
3. Improves customer engagement & brand loyalty
Customization and personalization always pull customers closer to the brand. As humans, we like to hear and see things as per our needs and understanding. Segmentation help build that trust and emotional connection with customers by showing or communicating things that they want. t
4. Streamlines mass customization
As said earlier it's close to impossible to tailor or customize marketing communication as per every individual's need and understanding. But, what s a brand can achieve with segmentation is that they can streamline mass customization for different segments of the entire customer base.
5. Budget efficiency & resource management
Marketing takes away a huge chunk of companies' profit every year. It becomes easier for brands to run effective marketing campaigns & promotions if they are clear about their customer base and customer personas, which may help them save a lot on budget and other resources.
6. Product development
Based on customer insight and feedback of these segments, brands can work around the product development and match the requirement of their customers, which is an important factor for customer retention and loyalty.
7. Customers demand relevance
Segregation also helps understanding and gauging demand for different sets of customers. Based on their behavioral pattern, demographics, and geography, a brand can analyze the demand and accordingly plan the sales and marketing plans.
Customer segmentation examples
What is Customer segmentation analysis?
Customer segmentation analysis is a business process that groups customers according to certain traits & shared characteristics. There are four broad categories of customer traits commonly used. They are demographic, psychographic, customer journey, and behavioral traits.
Customer segmentation relies on customer data. Additionally, customer identification capabilities are essential to tie data to customer records.
There are a number of options when it comes to customer segmentation software that brands and companies can use.