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Customer Segmentation Models: Types, Benefits & Uses

TJ Kiely

May 3, 2024

Choosing the right customer segmentation model helps you reap all of the promised benefits of segmentation. Customer segmentation is like organizing a library by genre, making it easier for readers to find the books they are interested in. You want to be the go-to brand or business your customers choose when they need what you offer, and to do this successfully, you need to know how to connect with customers in ways they’ll respond to.

Let’s face it — no two customers are exactly alike. The more commonality you can find between them, the easier it is to speak their language and reach them in ways your competitors aren’t. Connecting begins with knowing the right way to segment your customers, and there are various models to show you how.

Let’s explore three common customer segmentation models and how to choose the right one (or combination of models) to fuel your marketing strategy.

Table of Contents:

Types of Customer Segmentation Models

Customer segmentation models

In previous articles, we covered the basics of customer segmentation as well as examples of customer segmentation done right and the top customer segmentation tools. But knowing what segmentation is and seeing it in action aren’t enough; brands also need to understand how to apply segmentation to their own strategies.

Let’s look at three different customer segmentation models that can inspire your next steps:

Demographic segmentation

Demographic segmentation refers to grouping audiences by surface-level factors like age, income, education, or geographic location. You might apply several demographic criteria to segment your audiences, for example, a luxury car campaign targeting married individuals in California with a household income of $500,000 or more.

This type of segmentation is particularly useful for:

  • Understanding your customer base. Knowing the composition of your customer base (e.g., age, gender, income, education, and other demographic factors) creates the foundation for targeting marketing campaigns.
  • Developing products. Get insights into specific needs, preferences, and purchasing behaviors, which can inform new products and how to price and market them.
  • Identifying new market possibilities. Businesses can identify new market opportunities by pinpointing demographic segments that are currently underserved or overlooked.

However, demographic segmentation alone isn’t always enough to develop impactful marketing campaigns. It neglects the psychographic and behavioral elements (more on these in a moment) that shed light on buying patterns, preferences, interests, and decision-making.

In many cases, you’ll need to combine demographics with other market segmentation data to craft a well-rounded campaign.

Psychographic segmentation

Psychographic segmentation refers to learning and understanding consumer behavior. These might be:

  • Lifestyle characteristics: Life choices, interests, or hobbies
  • Personality traits: introverted vs. extroverted, adventurous, etc.
  • Values: Beliefs, attitudes, or priorities

Psychographic segmentation can be useful in marketing in several ways, including:

  • Personalizing marketing messages. Marketing campaigns that speak directly to the interests, personalities, and values of the audience have a better chance of standing out and being remembered. Marketing becomes more relevant and effective, which can lead to a healthier marketing ROI.
  • Positioning and differentiating your brand. Companies can position brands in ways that resonate with the target segment, such as infusing shared values, lifestyle aspects, or personality traits in their branding efforts. This can help companies differentiate from competitors and build deeper connections with customers.
  • Innovating products. Learning about your segment’s unmet needs and desires can lead to product improvements or new products and services.

Similar to demographic segmentation, psychographic segmentation alone isn’t always enough for marketing success. Once you understand who your customers are, you can segment further by learning how they live, what and why they buy, and the values that are important to them.

Behavioral segmentation

Behavioral segmentation refers to grouping customers based on actions. These actions may include purchasing behaviors, usage rate, loyalty status, buying motivations, or the types of marketing messages customers respond to, for example.

This type of segmentation fills in several of the missing pieces of a marketing campaign. Using demographic and psychographic segmentation models, you learn who your customers are and what they like. But ultimately, you also need to know what will make them buy from you. This is arguably the biggest value that behavioral segmentation offers.

You can use behavioral segmentation to:

  • Understand purchase behavior. Behavioral data helps businesses analyze how customers interact with their products or services, including their purchasing frequency, spending habits, product usage patterns, and brand loyalty.
  • Market across the customer lifecycle. Watching your customers’ needs evolve over time, you’ll be in a good position to nurture relationships, encourage repeat purchases, and turn customers into loyal brand advocates.
  • Customize product recommendations. You can improve recommendations based on actions customers have taken in the past. This takes into account the offers they’ve responded to, what they’ve purchased, the channel(s) they used to find you, and more.
  • Predict customer churn. Behavioral data (e.g., declines in purchase frequency, lower engagement) can help identify at-risk customers so you can intervene and potentially save the relationship.

These three customer segmentation models together are greater than the sum of their parts. It’s essential to gain a holistic understanding of your customers so you’ll know how to approach them and stay connected.

Benefits of Customer Segmentation Models

leads magnets for each customer segment

You wouldn’t market to a 60-year-old grandmother the same way you would a 25-year-old mother of a newborn. While both might purchase the same product, they have different priorities and lifestyles, and you’ll probably approach them in different ways.

That’s the beauty of customer segmentation — you don’t have to settle for one-size-fits-all marketing.

Using one or more of these customer segmentation models can benefit your business in several ways:

  • Targeted marketing. You can offer products and services that are relevant to each customer’s needs, preferences, and behaviors, leading to higher conversion rates.
  • Higher revenue. Meeting customers where they are can increase sales and revenue, helping your business gain clearance for take-off.
  • Competitive advantage. Segmenting customers can help you find unique value propositions that will differentiate your business from competitors.
  • Greater customer loyalty. Giving customers what they need when they need it will keep them coming back for more (because they know you “get” them!).
  • Optimized resources. Focus on the most promising opportunities to save time, money, and effort.

As you get better at segmenting customers, you might find more benefits to add to this list!

How To Choose the Right Customer Segmentation Model

representation of customer segments

Using one or more of these customer segmentation models will likely yield multiple segments. Ideally, you’ll want to choose the segments that hold the most potential value and avoid wasting time on segments that don’t drive growth.

Easier said than done, we know.

Technically, you can create as many segments as you want, in as much detail as you want: Female customers ages 21-27 who live in Arkansas and drive a Mercedes, have a master’s degree, earn $100K per year, are married, and prefer bubble tea over coffee is a highly specific segment. But just because it's detailed doesn't that it will help you achieve your goals.

To start, make sure you match your segment with your business goals. Maybe you’re launching a new productivity app for iOS. In this case, your segment should include potential customers who have iOS devices, like to try new apps, and have jobs or lifestyles that require them to stay organized or productive. You can dig deeper to learn more about these personas, such as the job titles or industries that might benefit from a productivity app, and then add those details to your segment.

Think about segments that offer actionable opportunities for targeted marketing campaigns. Every criteria you choose in your segment should somehow relate to your marketing goal and help you measure their actions (e.g., boosting sales, retaining customers).

Meltwater Consumer Intelligence Dashboard

You can also tap into third-party customer segmentation platforms like the Meltwater consumer intelligence suite to learn more about customers beyond surface-level details. Meltwater helps you tap into hidden customer segments you might not have known to look for.

Personalized Experiences for Increased Engagement

The overarching benefit of customer segmentation models is that marketers can personalize campaigns and messages in ways that resonate. Segmenting removes much of the guesswork, allowing you to build deeper connections based on your audience’s demographics, psychographics, and behaviors.

With segmentation, you can:

  • Avoid one-size-fits-all messaging
  • Understand the diversity of your customer base
  • Customize product offerings and pricing
  • Use the most effective marketing channel for each customer
  • Increase customer engagement
  • Stop guessing what your customers want and need from you

Meltwater customers are using segmentation to achieve all of the above. Take Brut., for example. By tapping into social media data, Brut. tailored its editorial choices to resonate with conversations their audience was already having.

The Economist took a similar approach to grow their readership. In a vast digital landscape, it used Meltwater data to deliver the right content to the right people at ideal times to meet the demands of 24-hour media availability.

Companies can also use this approach to find new influencer segments like Vans did in a recent campaign. Not just limited to celebrities, the brand connected with bloggers and influencers to help promote its content and grow brand affinity.

Customer segmentation models lay the foundation for personalized marketing. They deliver messages and experiences to customers in ways that are meaningful to them, creating a clear path to growth and loyalty.

Leveraging Customer Segmentation Models for Business Growth

Let’s look at some specific ways you can use each of these customer segmentation models to improve your customer journey.

Identify new market opportunities

Segmentation can surface niche or underserved markets you haven’t thought to connect with but could prove profitable. Coupled with third-party data, you can find and analyze these opportunities and tailor your strategy accordingly. 

Stanley is the perfect example, with its classic stainless steel Quencher cups that the company started marketing to women. 

Design new products and services

Use customer segmentation insights to develop new products, services, and features. Segmenting allows you to understand how specific types of customers are using your products, the problems they want to solve with your product, and whether the product alleviates their pain points.

Improve customer retention and loyalty

Segmentation helps you identify customers at risk and develop outreach campaigns to try to keep them. This might be offering a coupon to encourage a purchase, a discounted rate, or an exclusive offer that requires quick action.

Unlocking the Power of Customer Segmentation Models with Meltwater

Meltwater helps you segment your customers in ways that go beyond surface-level insights. You can discover what your audience is talking about and how they’re talking about those topics, giving you insights into their interests and values. Dig deeper into their buying triggers and behaviors so you can discover what they need, want, and feel. 

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