How Can Customer Segmentation Transform Your Business?

May 18, 2024 - Mike Hakob

Customer segmentation is a way for small-, medium- and enterprise-sized businesses to identify target markets and improve revenue sources and retention. Each customer a company has is slightly different, and you cannot market or cater to them similarly.

If you utilize customer segmentation in marketing, you can:

  • Pinpoint a customer’s unique needs
  • Align your strategies to address pain points
  • Generate more revenue

Throughout this in-depth guide, we’ll define what is customer segmentation, examine customer segment examples, B2B and B2C differences, and much more.

What Is Customer Segmentation?

While the concept of customer segmentation is broad and covers multiple areas, it’s as simple as logically grouping your existing and potential customers using things such as age, location, income, pain points, preferences, and more.

You want to segment your customers so that you can tailor your marketing to each customer segment to improve sales, increase loyalty, and convert leads at a much higher rate.

If you personalize your marketing based on customer segmentation analysis, it can completely transform your sales funnel.

customer segmentation impact on business

Customer Segmentation vs. Market Segmentation

Customer segmentation can be performed on the customer and market. And while similar, these two are drastically different:

Customer Segmentation

You may have guessed it, but customer segmentation is based on the personas you create. You’ll group customers using user-based categories based on very specific characteristics.

For example, imagine that your ideal customer is a dog owner with a pet that has IVDD.

You may have a segment for each long-back dog, such as a dachshund owner. If you create marketing material with this breed in mind and show it to owners of these dogs, it increases the odds of converting the lead.

Imagine if the owner saw a golden retriever instead of a dachshund. It would not hit their pain points on the same level.

Market Segmentation

You can segment entire markets, and this is beneficial when you have a product or service many people may want or need. For example, pizza places will be promoted to entire towns or a local pest company.

Grouping with market segmentation casts the widest net possible to attract new leads.

Market segmentation examples may opt to show electric company ads in one state or region only where the company is located. It wouldn’t make sense to show ads in an area where you don’t offer products or services.

customer segmentation vs market segmentation

What is Customer Segmentation for B2B and B2C

Are your customers businesses or consumers? You can segment your market for B2B and B2C. The main difference is that you’ll be marketing to either a company that you may sell items to in bulk or licenses instead of a customer.

You’ll market differently to a business because you’ll cater to the buyer’s agent.

Companies are looking for solutions that will ultimately make them money in some way. You’ll need to market to them based on these points, such as helping employees be more productive or supplying inventory faster than the competition.

You’ll segment customers in B2B through:

  • Size
  • Revenue
  • Employees
  • Sector or industry

If your company wants to seal larger deals, focusing on the B2B sector may be a smart option. Your customer segmentation strategy will vary depending on whether you’re selling directly to the consumer.

For both types of buyers, the benefits of customer segmentation remain relatively the same.

Benefits of Customer Segmentation

Businesses must find ways to hit on the pain points of their consumers – businesses or not – and it makes a lot of sense to use some form of customer segmentation. You’ll benefit from:

Personalized marketing strategies

Over 69% of business leaders were investing more in personalized marketing in 2023. Why? They know that it works to attract the right leads. Segmenting customers makes it effortless to increase marketing precision.

Improved customer relationship and brand loyalty

Consumers have multiple pain points, and you can touch on all of them with segmentation. If you’re able to solve multiple issues for the consumer because of the way you segment your customers, it will help you improve customer relationships and improve brand loyalty.

Improved customer experience

Your business’s customer experience is one of the most important metrics you can monitor. Segmenting your customers allows you to focus heavily on customer experience which comes with many unique benefits:

  • 72% of your customers will share the experience with as many as six people
  • 90% of businesses of competitors will lose customers if you focus on customer experience
  • 61% of your customers will pay up to a minimum of 5% more for your products or services if the customer experience is better

Customer segmentation analysis will empower you to offer better customer service, improve retention, and generate more revenue.

How?
Customer experience is directly linked to how you market and predict consumer needs. If you begin solving pain points before a customer even realizes that they need a solution, it can help turn a one-off buyer into a customer for life.

Improved lead nurturing

Nurturing leads is how your sales team turns a lead into a conversion. You’ll find many customer segment examples that achieve this goal by creating in-depth personas that identify a lead’s main pain points, concerns, and behaviors.

Depending on the type of customer segmentation that you use, you can find a wide array of information about leads.

When you know your customers’ pain points, you can begin solving them with video and written content, highly targeted marketing, and even better customer service. Nurturing leads through educational content is one of the most powerful ways to push a consumer through the buyer’s journey.

Reduced costs

Marketing to the wrong audience is a costly mistake. Imagine how much money is lost if you spend $100,000 on PPC marketing and don’t know your ideal customer. You may receive a lot of unqualified leads that have a very low conversion rate.

Through the power of customer segmentation, you can attract new customers for less and retain a higher percentage of customers.

Ad spend of $100,000 will generate far more leads if you use the proper customer segmentation to display relevant ads to the exact leads that need them.

benefits of customer segmentation

More retained customers and increased conversions

Customer segmentation leads to two revenue-centric results: higher conversion rates and higher retention. You can convert customers at a greater rate while lowering costs. It’s always cheaper to retain a customer than it is to attract a new one.

Types of Customer Segmentation

You can divide your customers – or the ideal ones – using multiple types, such as:

Demographic segmentation

Customer segmentation examples often include demographics, such as age, gender, income, and occupation. For example, if you’re selling a child’s toy, you may create a segment of males aged 3 – 5 from families with $50k income and no occupation.

This information alone will allow you to run hyper-targeted ad campaigns.

Geographic segmentation

Another way to divide customers is by geography, which may mean location or region. You can even include population as a form of geographic segmentation. Restaurants and eateries may use geographic information to ensure that their marketing dollars are being used in the most beneficial way possible.

Psychographic segmentation

Your consumers have their own set of psychology, which you can also use to your advantage when marketing to them. It’s possible to segment these leads by lifestyle, hobbies, interests, personality, and more.

Behavioral segmentation

Smaller groups can be targeted using behavioral segmentation. You need to have a firm understanding of your consumer to be able to target them by metrics, such as:

  • Brand loyalty
  • Birthdays
  • Past purchases
  • Usage
  • Etc.

types of customer segmentation

Needs-based segmentation

You’ll find needs-based segmentation focuses on the B2B sector, but it can also be applied to B2C. Company size, location, industry, challenges, regulations, finances, and other data can help you build out these segments.

In-depth persona analysis may be performed with needs-based customer segmentation.

If you can identify the main pain points of your ideal customer, it is much easier to develop strong needs-based segmentation.

Technographic segmentation

If you’re offering a tech-related service, you may use technographic information for targeting, such as preferred social media channels, online behavior, and device usage. You’ll find this form of customer segmentation is very popular for:

  • Software-as-a-service companies
  • App developers
  • Etc.

For example, you may have an iPhone, and a company may gather this data and show you specific ads because they know what type of device you’re using.

How to Segment Customers and Target Them Effectively

Now that you understand the different types of customer segmentation, you can start creating your segments. Here’s how:

Identify your segmentation goals and variables

The first step in the customer segmentation process is to identify your goals and variables. What do you want to achieve with segmentation? Do you want to increase sales, build awareness, or achieve another goal?

Once you have a clear understanding of your objectives, you can follow the steps below.

Collect contacts with signup forms

Sign-up forms are an effective and direct way to build your email list, but they can also be used to help you segment your customers.

Instead of just asking for an email, ask additional questions, like what types of marketing messages they’d like to receive.

Make sure that you’re offering leads something valuable in return for providing their information.
Do customer segmentation analysis
Customer segmentation analysis will play an important role in helping you segment and target customers more effectively.

There are several tools and resources you can use to perform your analyses, including:

Website analytics

When performing customer segmentation analysis, website analytics tools like Google Analytics can be a great source of quality, reliable information.

Online form monitoring

The forms on your site can also paint a picture of who your customers are and help you create more accurate, effective segments.

Tools like FormStory, for example, can help you track and monitor your site forms to ensure no leads are missed. But they also help you collect valuable data about these leads that you can use to segment customers more effectively.

Social media analysis

Social media is one of the most effective ways to gather information about customers and analyze your segments. Most people have an online presence, where they share information about themselves and their interests. They may join certain groups or follow certain individuals and businesses.

With this data in hand, you can create more accurate customer segments.

Surveys to improve customer relationships

Gathering data from social media and analytics tools can be challenging and limiting. One way to gather customer data to segment customers is to send surveys.

Surveys will help you better understand your customers on a deeper level. Best of all, they provide this data to you willingly.

The Importance of Data Analysis for Segmentation

In marketing, customer segmentation can only be successful and beneficial if you use the right data. Your data must be accurate, relevant, and up-to-date.

Otherwise, you risk creating segments that are not a true reflection of your audience.

Customer segmentation tools can be used for data analysis, and they can help you identify trends, patterns, and insights that you can use when building your segments.

Customer segmentation analysis

How Customer Segmentation Interplays with Other Marketing Strategies

Customer segmentation can integrate into your other marketing strategies to improve their effectiveness and performance.

Creating buyer personas based on customer segments

Customer segments can help you understand your target audience and their pain points. The segments you create can be used to craft buyer personas.

  • Demographic segmentation can provide data on customer ages, genders, and income levels.
  • Geographic segmentation can provide data on customer locations.
  • Psychographic segmentation can provide data on customer lifestyles, activities, values, and beliefs.

All of this data can be used to create buyer personas for each segment. These personas provide an overview picture of the ideal buyer in each segment.

Buyer personas can help you craft more targeted marketing messages that convert leads.

Personalized website and content marketing

The data you collect through customer segmentation can be used to create more personalized website experiences and content marketing strategies.

User preference, purchase history, and behavior data can be used to show product recommendations to different segments and create a more tailored browsing experience.

Successful customer segmentation can also benefit your marketing strategies in many other ways. In fact, many well-known businesses use segmentation to not only improve their marketing efforts but also create better user experiences.

Real-world Examples of Successful Customer Segmentation

Businesses of all types and sizes leverage customer segmentation strategies in their marketing campaigns. Here are some real-world examples of well-known brands that use segmentation.

Netflix: This on-demand streaming giant is well-known for using customer segmentation to offer ultra-personalized recommendations to users. Netflix analyzes user behavior and their preferences to suggest content that will appeal to each user.

Amazon: This e-commerce giant is known for its successful customer segmentation strategies. Amazon analyzes its customer data to provide hyper-personalized recommendations based on browsing history and purchase history.

Spotify: This music streaming platform also analyzes user preferences and behavior to create personalized music recommendations for users. Spotify uses data to identify the songs that users are most likely to enjoy.

These are just three examples of businesses that have successfully leveraged the power of customer segmentation to increase sales, loyalty, retention, and user engagement.

Frequently Asked Questions (FAQs)

What should be included in customer segmentation?

Customer segmentation should include relevant customer data, such as age, location, gender, pain points, interests, values and more.

What are the tips for successful customer segmentation?

To maximize the benefits of customer segmentation, make sure that you’re:

  • Setting goals for your segmentation.
  • Updating your segments regularly to ensure accuracy and effectiveness.
  • Creating segments that aren’t too small or specialized that they don’t provide a good marketing ROI.
  • Consistently checking for emerging segments, so you’re always appealing to customers.

What is customer segmentation analysis?

Customer segmentation analysis is the process of revisiting your segments to confirm that they’re still relevant and helping you reach your goals.

Through customer segmentation analysis, you can improve your product delivery, efficiency, pricing, customer relationships, brand awareness, and more. Feedback will play an important role in your segmentation analysis.

What are the limitations of customer segmentation?

Marketing customer segmentation has many advantages, but it’s not without its limitations. Some of the primary challenges include:

Obtaining reliable and accurate data on customers and the market. Data can easily be outdated, inconsistent, incomplete or even biased.

Identifying appropriate segments. Some variables are too specific, while others are too broad. Marketers must identify meaningful, measurable, and relevant segments.

What are the main types of customer segmentation?

The main types of customer segmentation include:

  • Demographic
  • Geographic
  • Psychographic
  • Behavioral
  • Technographic

These customer segments help group customers into meaningful categories that allow you to effectively target them and meet their needs. Using customer segmentation strategies, whether in email, PPC, or other forms of marketing, can help you generate higher revenue.

What companies use market segmentation?

Companies of all sizes and in all industries use market segmentation, including mega-corporations like Amazon, Netflix, and Sephora.

Why? Because market segmentation allows them to engage their audience and build customer loyalty effectively.

Customer segmentation is something that every business should leverage and master to boost their bottom line, build loyal customers, and improve the overall customer experience. Use this guide to segment customers effectively and achieve your goals.

Mike Hakob

Mike Hakob is a seasoned digital marketing maven with over 15 years of mastery, and the visionary Co-Founder of FormStory. As the driving force behind Andava Digital, he has dedicated his expertise to empowering small to medium-sized businesses, crafting tailor-made websites and pioneering innovative marketing strategies. With a graduate degree in Management of Information Systems, Mike seamlessly blends the realms of technology and marketing, consistently setting new industry benchmarks and championing transformative digital narratives.