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Customer Segmentation: A Step-by-Step Guide for Growth
Feb 07, 2023
Customer segmentation is a crucial aspect of marketing strategy that helps businesses to identify and target specific groups of customers with tailored products, services, and messaging. By dividing their market into smaller, more homogeneous groups, companies can gain a deeper understanding of their customers’ needs, preferences, and behaviors, and create more effective and efficient marketing campaigns.
With the right approach to customer segmentation, businesses can increase customer loyalty, drive sales growth, and build a competitive advantage in their market. In this blog, we’ll explore the benefits of customer segmentation and provide an overview of the different techniques and approaches that companies can use to segment their market and target their customers more effectively.
What is customer segmentation?
Customer segmentation is the process of dividing a market into smaller groups of consumers with similar needs or characteristics, so companies can create targeted offers for each segment. This allows organizations to better understand and communicate with their target audience, leading to improved customer satisfaction and increased sales.
Why segmenting customers is important?
Segmenting customers is far more than just putting people into categories. Customer segmentation allows you to learn about your customers on a deeper level. With this information, you can tailor your content to each group’s unique needs and challenges. You’ll also be able to create targeted campaigns and ads that resonate with and convert certain segments of customers.
What are the Types of Customer Segmentation Models?
Successful customer segmentation is not a one size fits all approach. There are a number of different types of customer segmentation models to explore:
1. Demographic Segmentation
Demographics are population-related characteristics such as income, education level, gender, and age. The various demographic characteristics can be combined to create segmented customer groups, which is especially useful for brands that sell a variety of products.
For example, a company that sells both mid-range and luxury bath products for men and women may segment their customers based on gender as well as income. This allows them to create ads for women with an annual income of $150,000 and separate ads for men with an annual income of $70,000.
2. Geographic Segmentation
Geographic location is important to brands in a variety of industries. Real estate agencies, for example, want to connect with homeowners selling their homes, potential buyers, and people looking to relocate to a specific area.
Other businesses may sell products tailored to people living in specific climates. Understanding the needs and challenges of consumers living in different locations is a critical component of successfully marketing your products or services in those locations.
3. Behavioral Segmentation
Behavioral segmentation groups consumers together based on their habits and behaviors, rather than external demographic factors. For example, purchase history and preferred social media platform usage. You can target ads on a specific social platform and/or send reminders or sales emails to regular or repeat online buyers.
4. Technographic Segmentation
Technographic data indicates how familiar and at ease customers are with technology. It also shows which types of technology they prefer. Customer surveys are the most effective way to collect this information.
Technographic segmentation is especially useful for (SaaS) companies developing new products that can integrate with existing solutions.
5. Psychographic Segmentation
Psychographic segmentation delves even deeper into your customers’ internal workings by grouping them based on psychological characteristics such as personality, habits, beliefs, and interests.
Psychographics are ideal for lifestyle brands looking to connect with consumers who live or aspire to live the lifestyle that the brand promotes. Outdoor camping gear retailers, for example, want to connect with outdoor and travel enthusiasts.
6. Firmographic Division
Millennials versus Gen X’ers versus Gen Z versus Boomers – We’re becoming more at ease with the concept of generational divides. So much so that firmographic segmentation, or grouping your customers based on the decades or eras in which they were born, is on the rise.
And it makes sense: someone born in 1980 is in a different stage of life, with different needs and concerns than someone born in 2000.
7. Needs-based Segmentation
This type of customer segmentation starts with a simple question: Who is in need of what you have?
Divide your customers into groups based on their needs to keep your marketing messages focused on your products or services and how they meet those needs. A clothing company can target business professionals with office casual wear, yoga enthusiasts with athletic gear, and families with children’s clothing.
8. Value-based Segmentation
With this model, your brand is seen through a lens that is more sharply focused. Which client category is now offering the greatest value in terms of repeat business and ROI?
You may target your marketing messages to the customers who are your strongest supporters by using lifetime value as your yardstick, and you can concentrate on sustaining that loyalty and trust.
Benefits of customer segmentation
Customer segmentation models enable you to create increasingly targeted marketing messages that are tailored to the right person at the right stage of their customer journey. Not only does this increase brand trust by giving the impression that you understand your customers’ interests and concerns, but it also improves your overall ROI by reducing advertising waste.
Why waste time guessing when a segmentation strategy based on the right-for-you model allows you to target who needs what and when?
Other advantages of locating the best customer segmentation model include:
1. Helps in Improving your product
By dividing the market into smaller groups based on shared characteristics, companies can gain insights into the unique needs and preferences of each segment and use this information to improve the product and make it more appealing to target customers.
2. Helps in Focusing your marketing message
Running a customer segmentation project alongside product improvements can help you develop more focused marketing messages that are customized to each of your best segments, resulting in higher quality inbound interest in your product.
3. Allows Organization to identify High percentage Opportunities
Spending less time on less profitable opportunities and more time on your most profitable segments will allow your sales team to increase its win rate, cover more ground, and ultimately increase revenues.
Customer segmentation increases conversions by providing your audience with more relevant information. It also helps to streamline cross-team and communication efforts so that you can meet the specific needs of your customers.
With Xoopah you can effortlessly track your customers’ information, categorize them in groups, and greatly streamline your operations. Sign up now to keep a close track of your customer profiles and manage information collected.
Sara Khalid Digital Marketing Specialist
Sara Khalid is an experienced content marketing professional at Xoopah, a business growth platform for small businesses.
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