Skip to content
logo
A 3D illustration of a pie chart representing customer segmentation

What Is Customer Segmentation? Definition & Strategy 2024


TJ Kiely

Feb 13, 2024

Have you ever seen an ad or received an offer that felt like it was made just for you? That’s not by accident — that’s what happens when a company gets customer segmentation right.

Understanding your customer journey is essential for your success. It’s how you anticipate their needs, know their unique preferences, and meet them where they are. These are the things that make a brand memorable and give customers a reason to choose you over a competitor.

Let’s explore the power of customer segmentation and how to create a customer segmentation strategy that gets results.

Contents:

What Is Customer Segmentation? (Customer Segmentation Definition)

Image of a magnifying glass hovering over customer icons as an image for the customer segmentation definition

Customer Segmentation Definition: The act of dividing customers into distinct groups based on shared characteristics, such as demographics, buying behaviors, and communication preferences.

Customer segmentation allows businesses to tailor their marketing efforts to better meet the needs of each segment. By doing so, companies ultimately improve customer satisfaction and retention.

This strategic approach comes with multiple benefits:

  • Better use of resources
  • Personalized experiences
  • Stronger customer connections
  • Improved marketing campaign outcomes

From a marketing perspective, customer segmentation trades the one-size-fits-all approach in favor of personalization. Understanding your audience on a deeper level allows brands to create highly targeted messaging, new products and services, and effective campaigns. It creates opportunities to reflect their needs, wants, and values and align with their lifestyles and preferences.

When businesses get customer segmentation right, they have an easier time breaking through the noise and attracting the right people at the right time.

What Are the Different Types of Customer Segmentation?

Brands can segment customers in different ways. Let’s review three options:

  1. Demographic Segmentation
    • Age
    • Gender
    • Geographic location
    • Job title
    • Income
    • Household size
  2. Psychographic Segmentation
    • Interests
    • Personalities
    • Values
    • Attitudes
  3. Behavioral Segmentation
    • Tendencies
    • Habits
    • Product usage

Tip: Learn more about the different types of customers there are.

Demographic segmentation

One method for customer segmentation is to separate customers based on basic demographic details, such as age ranges, geographic locations, job titles, income levels, or household sizes.

For example, a wealth management firm might run a marketing campaign targeting people living in a particular upscale neighborhood.

By analyzing demographics, businesses can effectively target their marketing efforts, develop personalized messaging, and create offers that resonate with their audience.

Psychographic segmentation

Psychographic segmentation takes into account your customers’ personalities, values, and interests. Businesses can tap into the psychological and emotional aspects of how your audience makes decisions. This is an ideal option if you offer multiple products or services.

Imagine a car manufacturer who wants to target environmentally conscious customers for their new electric vehicle. With psychographic segmentation, the company can target prospects who are passionate about reducing their carbon footprint and living a sustainable lifestyle.

Behavioral segmentation

Behavioral segmentation refers to grouping customers based on past actions or behaviors, such as items they’ve bought in the past or marketing campaigns they’ve responded to.

For example, you might market to customers who haven’t bought from you recently to try to win back their business. Or you might create targeted campaigns when your audience has shown interest in a specific product.

This option works well when you can track customer data. Analyze past purchases, website buyer journeys, and marketing funnels to find specific segments (e.g., bargain hunters, high spenders, occasional shoppers) and build campaigns around those groups.

Tip: Learn more about customer data management (CDM), how to use a customer data platform, and how to do customer profiling.

Why Is Customer Segmentation Important?

the importance of customer segmentation

Segmenting customers serves several purposes, including:

  • It helps you create tailored marketing messages that resonate with customers’ needs and interests.
  • It informs new products and services based on what matters to your buyers.
  • It lets you personalize communications to improve outcomes.
  • It helps you deliver the best customer service because you “get” your customers.

Your customers experience your brand in different ways. They choose you to fulfill different needs. And they have unique values and interests. That’s why promoting the same messaging across the board isn’t always the most effective solution.

Instead, successful companies use customer segmentation to meet their customers where they are. They uncover pain points and aspirations so they can cater to different needs.

By learning what these “segments” are, you can have more productive interactions with your audience based on what they need.

How to Do a Customer Segmentation Analysis

To leverage the benefits of customer segmentation, brands first need to identify the various segments within their audience. That’s the purpose of a customer segmentation analysis. 

Here’s how to do it.

1. Collect and analyze customer data

team analyzing team data

Your customer data holds valuable information about how, when, what, and where your customers buy. Accessing and reviewing this data can help you find patterns and common denominators, giving you new ways to segment your customers.

You can find a treasure trove of data from your CRM, social media pages, purchasing history, loyalty programs, and customer intelligence data from third-party customer intelligence platforms like the Meltwater consumer intelligence suite.

2. Identify key customer attributes

This next step requires brands to dig deeper into the customer data to uncover patterns. 

Here are some examples of what you might look for.

  • Average buying cycle for a particular item (e.g., every two months, every three weeks)
  • Specific pain points
  • Brand-specific shoppers
  • Buying triggers (e.g., price, quality)
  • Geographic areas
  • Shared values or interests

Utilizing customer intelligence analytics by using customer segmentation tools like the Meltwater customer intelligence suite can help you review large volumes of data at scale and help you find patterns that might otherwise go overlooked. You can find more ways to segment your customers than you initially thought.

3. Create customer personas

Once you’ve identified distinct groups and shared connections, you can build customer personas around these aspects. These personas represent fictional characters that embody the characteristics of each segment.

Customer persona description

Image Source

Typically, businesses use customer personas to develop marketing campaigns that speak directly to those customers. Customer segmentation adds a layer of reality and tangibility to personas, allowing you to speak to representations of real people.

These personas can be as detailed as you like. Ideally, they’ll reveal as much unique information as possible so you can tailor your messaging effectively.

Tip: Take a look at our guide to market segmentation and personas, and learn more about customer profiling, and persona mapping.

How to Create a Customer Segmentation Strategy

Customer segmentation isn’t a one-and-done activity. As your business evolves and customer preferences and buying habits change, you'll need to make customer segmentation an ongoing activity to ensure you continue speaking to the right audience.

Let’s review some customer segmentation best practices to prioritize segmentation in your marketing strategy.

Continuously monitor and update customer segments

Implementing your customer segments is only half the battle. The real challenge lies in continuously monitoring and updating these segments.

Customer behavior is dynamic, and their preferences can change rapidly. With ongoing monitoring, businesses can stay ahead of these shifts and ensure their segments remain relevant.

Ongoing monitoring also allows for the opportunity to identify new segments or niche markets that may have been overlooked. This might warrant the need to develop new products or services, pursue new markets, or position your brand in new ways.

Integrate customer segmentation with other marketing strategies

Customer segmentation isn’t meant to be a standalone activity. Think of it as a smaller slice of the much larger marketing pie — it’s more filling when you combine it with other initiatives.

For starters, segmentation forms the basis of personalized marketing experiences. After identifying your segments, you can tailor messages and campaigns to the segments you want to pursue, which can lead to higher engagement rates, conversions, ROI, and profits.

Take email marketing, for example. Rather than blasting your entire customer list, you can segment your messaging based on a specific attribute, such as customers who opted in to your lead magnet but have not yet made a purchase. Customer segmentation can increase open rates and click-throughs because it speaks directly to those customers’ needs and circumstances.

The same idea applies to social media advertising. With Facebook, for instance, you can narrow your focus by a variety of filters, such as demographics and behaviors. If you’ve developed your customer personas, choosing these filters should be easy — just align them with your persona characteristics.

You can also rely on your customer segments to choose your marketing channels. Decide where your target audience spends the most time so you have the best chance of connecting with them.

Leverage customer segmentation for improved customer experiences

The value of customer segmentation isn’t relegated to marketing; segments might also inform your customer service and product development.

Let’s say you surface new pain points in your customer intelligence analysis. You could pass those pain points along to development teams, who can implement new features that address those challenges.

If you’ve segmented customers who have churned, you can continue marketing to that segment to flex your customer service muscles and reignite the relationships.

Tip: Learn more about social media customer service best practices and take a look at social media customer service examples.

Ultimately, customer segmentation is about understanding your customers as much as possible so you can deliver on their expectations. When they see that you get them in ways your competitors don’t, they’ll have one more reason to keep coming back to you.

Supporting Your Customer Segmentation Strategy with Data

Meltwater Consumer Intelligence Dashboard

Accurate, effective customer segmentation starts with having the right data. Meltwater’s consumer intelligence platform puts comprehensive data in your hands, helping you get inside the minds of your customers. Learn their preferences, interests, and what drives their decisions, with data translated into context and action steps.

Learn more when you request a demo by filling out the form below:

Loading...