What Is Customer Segmentation?
Customer segmentation is the process of splitting your customers into groups based on their common characteristics in order to better tailor your services or products to their needs.
In this guide, you’ll learn about:
Benefits of Customer Segmentation
- Stay with you longer
- Recommend you to their friends
- Buy more from you
Ability to Better Tailor Your Offering
The more you know about your customers, the better you can adjust your product or service to meet their needs. Customer segmentation means the end of guesswork, the end of the one-size-fits-all approach.
You might discover that the same product is used differently by various user groups, for example, marketers and customer success managers.
This knowledge will allow you to create custom messaging for both target groups as you’ll know what aspects of your product/service to focus on.
Improving Customer Experience
81% of consumers say they get upset working with brands who fail to provide a good customer experience. Do you know what happens when you annoy your customers?
They verbalize their feelings on social media, in fact, 44% of unhappy customers do so. Providing a great customer experience must be your top priority and it cannot be done without customer segmentation.
If they’re not, ask them what you can do to improve it. Yes, sometimes all it takes is to ask. You can’t do customer segmentation effectively without surveys.
Adjusting Your Ideal Customer Profile
Not all prospects should become your customers. Sometimes it’s better to let some of your customers go. Having a segmentation will help you spot which segments are the most profitable and which bring nothing but trouble. You’ll be able to modify your ideal customer profile and focus on the customers that bring the most value.
Happy customers are less likely to churn. Segmenting your users will help you create a better experience. Think product recommendations, personalized communication, product updates based on customer needs, etc. all of which will have a positive impact on retention.
Improved Revenue (Higher Upsell Potential)
Run an NPS to identify promoters. Customers who are delighted with your brand are more likely to:
Promoters represent great upsell potential.
Using demographics to segment your users will help you with price optimization. It’s important to make sure you provide your product or service at a reasonable price.
You might be able to split your customers into 2 or 3 groups and offer 2 product packages priced differently. This way you’ll be able to reach a wider audience and keep both of the groups happy (hopefully).
Customer Segmentation Types for B2B and B2C
Below, we showcase the most popular customer segmentation criteria and tell you exactly how these (and other metrics) can help you achieve your goals.
We also give you a unique view of customer segmentation, along with ready-to-use tactics. All so you can take the path less trodden and make your strategy better than that of your competitors.
Regardless of whether you’re a B2B or B2C company, this will certainly send you off to a great start!
Customer Segmentation Types – Basics
For anyone just starting their adventure with customer segmentation, here’s the good news: you’re likely already tracking at least some necessary data!
Basic insights on your customers might be present in your Google Analytics, CRM, or data enrichment tool (if you have one).
These types of criteria can be broadly classified as:
Demographic – this is a huge group that includes your customers’ age, gender, ethnicity, and many others. We discuss their use and the types of demographic data to track for your business further on in this post.
Geographic – some examples include country, city, and timezone.
History of purchase – ever heard of purchase patterns? This group lets you classify customers based on when what, and how frequently they purchase.
Behavioral – examples include how often clients log in, update their wishlist, or whether they tend to abandon their cart.
Psychographic – examples include personal convictions, values, and beliefs. Read on to learn more about the separate approaches on psychographics recommended depending on their niche.
As you read on, you’ll see that these general customer segmentation types occur for both B2B and B2C companies. However, even within a group like “demographics”, there are completely different key metrics to consider.
You’ll notice that there’s also a more sophisticated way of categorizing your customers – asking them precise questions.
Let’s start off by taking a closer look at the recommended B2C customer segmentation approach!
B2C Specific Customer Segmentation Types
There are a lot of criteria that apply way more to B2Cs than business-to-business entities.
For instance, in B2C, emotion can be stronger than pragmatism (anyone who’s never found themselves buying an item within seconds, and just because it pressed all the right buttons – raise your hand!). This also means one thing – the sales cycle tends to be much shorter than if it were a business purchase.
If you’re selling to individuals rather than companies, here are the tactics and criteria we highly recommend:
Simply put: the more you know about your target customer as a B2C company, the better!
This means learning about things including, but not limited to:
- Age – ex. which beauty articles to sell based on skin maturity
- Income – ex. targeting your customer with luxury vs basic lines
- Marital status
- Family size – ex. targeting customers with content that reflects the children’s age
- Social status
- Religion – ex. respecting dietary restrictions of religious groups
- Ethnicity – ex. offering items for the right hair type and complexion
There is a simple way to get started. If this is of interest to you, we recommend that you run this free demographic survey.
Geographic location is also crucial for any B2C company – not only those working on multiple markets. For starters, knowing your customers’ location lets you target them with events or discount codes that can be redeemed at the closest offline store.
By knowing where your clients are, you can also go the extra mile and send them special offers that reflect their national holidays or specific seasons (for ex. summer in the northern hemisphere).
From a B2C perspective, you should track and segment your users based on:
- Personal values or beliefs – A very good example of making a good impression on your customers based on this data? Learning about one’s dedication to freeing the ocean of plastic and packing their order in recyclable materials.
- Consumer preferences (in short, what your customers expect when they buy from you – a great way to collect this data is running a consumer preference survey. You can also draw inspiration from how Sephora segments clients who want assistance vs those who prefer to stroll around the store themselves.
- Social media presence (for ex. segmenting via the social media channels your customers frequent, their activity on your profiles, their willingness to participate in giveaways, etc.)
- Customer satisfaction levels – segmenting your customers by their NPS & CSAT scores (you can run a survey to test their attitude towards your company and apply a different communication strategy for each group).
See how much you can do around B2C customer segmentation? Now, time for the recommended strategies for B2B!
B2B Specific Customer Segmentation Types
As mentioned before, there are some key differences in the way you should approach the customer segmentation of business clients.
Firstly, remember the impulse purchase example? Well, B2Bs aren’t equally driven by emotion (can’t see much space for an emotionally-driven purchase of a $5000/month enterprise software suite, can you?).
The sales cycle is also longer in B2Bs, plus there are definitely more people responsible for the decision-making process.
You can read more about the intricacies in our B2B customer segmentation best practices and examples article, but for the sake of this piece, let’s focus on the tips and types of data to use.
As you’ll see, there are more customer segmentation data groups compared to B2C:
This sort of customer information is also commonly referred to as “firmographics”. If you want to really ace your B2B customer segmentation efforts, you should focus on acquiring the following:
- Annual revenue
- The number of employees – are they a startup, SMB, SME, or maybe an enterprise?
- Years in business
- Product/services offered – this can impact the role your business plays for your clients. It will also help you segment customers who are B2C and B2B companies themselves.
- Specific users’ job titles and seniority levels – to learn about their decision-making authority. You can do this easily by using this business survey template.
Your customers’ interactions with your business, their personal values, and their expectations of your company matter here as well! We highly recommend you run a B2B customer satisfaction survey or an NPS survey. Segment your customers based on their satisfaction levels to create separate customer loyalty campaigns.
Unlike B2C clients where its enough to track purchase behavior and ask about their income, financial data in B2B segmentation means learning about the company’s overall stability. You certainly want to segment your business customers through checking their annual financial reports or funding data (if any are publicly available).
This is closely connected to…
Who does the business belong to? Is it a private company, a joint venture, or a public organization? These are all important customer segmentation groups to create!
Subscription plan data
Another group of insights that are mostly exclusive for B2B companies (to be fair, with the exception of subscription-based B2C services like catering or fitness memberships).
It’s highly recommended that you look into the plans your customers are on. If, for example, you have three plans – basic, standard, and pro – you can target each group differently.
Some ideas on how this can be used include upselling companies on lower plans by proving your higher plans’ worth or sending them separate email communication.
Which also relates to…
Payment preference data
Similarly to subscription plan data, you might benefit a ton by segmenting users who are on short and long-term plans. You can target them at the right time and with the right messaging adjusted to their renewal periods. Can you spot the opportunity for lowering churn rates? We certainly can!
Proven Customer Segmentation Techniques Worth Following
Some of your customer groups are more profitable than others and having the ability to identify this early and often will help you to become more successful as a company. Here are some of the best ways you can tailor your approach and discover new customer segmentation techniques that truly demonstrate results.
Here’s everything you need to know.
Identify their commonalities
The common characteristics are what your segments will be built on. Thus, the first step is to have a broad look at all of your customers.
You may choose to divide them based on demographic groups, location, purchase history, benefits or another common trait. Whatever it is you decide to do, identifying those common characteristics on which you can create segments is the very first step.
Define customer variables
The key to meaningful segmentation is to first define customer variables which can be attributed to your unique business. If you’re not selecting customer variables that are relevant to your business, then you’re probably not going to see a jump in your success or an increase in your profits, which is your goal.
Invest in your best customers
The 80/20 rule of marketing says that 80 percent of a business’s sales come from 20 percent of its customers.
By that same rule, 20 percent of a business’s products can be expected to make up 80 percent of its total sales. Here, you should be evaluating your customer’s lifetime value (CLTV) versus customer acquisition cost (CAC).
If you’re focused on that 20 percent segment that makes your 80 percent of sales, then it’s worth investing a little bit extra.
Create customer profiles
Detailed customer profiles can also help you identify new subsegments for existing products. They can also let you tailor your existing products to meet the needs of a particular customer segment.
Once again – the more you know about your customers, the better! You’ll find success when you’re able to reach out and be specific when marketing to them.
Use the right tools
Gathering solid data is key to this. Here are some of our favorite tools that you can utilize to your advantage:
- Google Analytics for demographics and traffic sources
- Mixpanel for product data (how features are used)
- Intercom for product insights
Use only one customer segmentation strategy or combine them correctly
Otherwise, you won’t get your desired results. For more on this, keep reading for our section below on commonly used customer segmentation models.
Go beyond the obvious
If you really want to be good at customer segmentation, you’ll have to run surveys among your customers. If all you’ve been discovering so far is data like location, income, and gender, then it simply might be time for you to get some new questions.
Search for more personal insights like relationship status, behavior, job or language. These can help you get to know your customers in ways other companies may not and give you a competitive edge.
Don’t overdo the number of segments
You want to create segments that work for you and your business, but creating too many segments can often result in unforeseen issues.
For example, what happens when those segments become too hard for you to keep track of?
What happens when one of your customers doesn’t fit into the many segments you’ve created because they’re so specific?
You want to make them broad enough that everyone has a category.
Keep your segmentation current
Just like everything else, segmentation may change. You want to make the relevant updates if they’re necessary at least once every year. And if you don’t make any changes? That’s okay too!
Make a plan to revisit your approach the next year and review it once again.
Customer Segmentation 5 Best Practices
- Google Analytics (for demographics)
- Intercom (for detailed customer feedback)
- Mixpanel (for data on product usage)
- Survey tool like Survicate
- What’s your position?
- What goal are you trying to achieve?
1. Start broad and get more in-depth over time
It’s perfectly normal you’ll have limited information on your customers initially, so don’t get discouraged. You can start with a few larger, broader segments based on the info that’s easily accessible like location, language, referral source – you can get if from Google Analytics.
With time you’ll be able to gather more information, provided that you use the right tools – we will discuss it later. When you have more data you can turn your segments into sub-segments to get more granular.
2. Remember about the segment size
Try not to make your segments too small. Marketing to a small group of customers is not worth the effort. Make the segments big enough to generate revenue but small enough to nicely tailor your offering so it feels personalized.
3. Take it Analytical. Don’t Base Your Customer Segmentation on Guesswork
Believe it or not, but some companies create their customer segmentation based on their personal convictions, and this approach is wrong. Always use data, never make assumptions.
Only by analyzing real data you’ll be able to create valid segments which in turn will enable you to tailor your product or service. All decisions which are not data-based are guesswork.
4. Draw Data From Multiple Data Sources
Going back to using “the right tools”. It’s important to draw data from multiple sources. No one tool is sufficient to create an effective customer segmentation, because it just doesn’t give you enough data. Make friends with:
Survicate will allow you to get feedback from your prospects and customers and this means access to tons of data, without which you won’t be able to make the most of your customer segmentation.
5. Your Job Is Never Done
When are you done with segmenting your customers? The answer is – never.
Customer segmentation is not a project, my friend, it’s a continuous process or a commitment even! You should put a process in place that will allow generating more customer data.
For example, asking your customers every three months how happy they are with your product (by using surveys of course). You can also include a couple of questions on the signup form, like:
The better the relationship with your customers the more information they will be willing to share. Just remember to keep the info nicely organized in your CRM.
Now that you know what customer segmentation is, use it as your weapon. Segmentation boosts the chances of targets becoming prospects, and prospects becoming customers.
If you get it right, everyone from your company is going to love you – trust me! C-level will be happy about the extra revenue, customer success will have less complaining customers, the product team will be proud they finally created something that brings customers value. And most importantly, your customers are going to be thrilled!
Sounds amazing, doesn’t it? Just remember, customer segmentation is a process, not a one-off project. If you don’t use surveys to supplement your data you’re really missing out on some fantastic findings – while your competitors might not be.
So, If you don’t have a survey tool yet, try Survicate – it’s FREE.
Enough talking, time to put all this knowledge into action! So off you go, start creating your first customer segments. Good luck & Have fun!