What is Customer Segmentation?
Customer segmentation is the process of separating customers into groups based on common characteristics so companies can market to each group efficiently and adequately.
In B2B marketing, a company might segment customers according to a wide range of factors, including:
- Products previously purchased from the company
- Number of employees
In B2C marketing, companies often segment customers according to demographics that include:
- Location (urban, suburban, rural)
- Life stage (single, married, divorced, empty-nester, retired, etc.)
- Marital status
Why Segment Customers?
Segmentation allows marketers to tailor their marketing purposes to various audience subsets better. Those efforts can relate to both communications and product development. Correctly, segmentation helps a company to:
- Create and deliver targeted marketing messages that will resonate with specific groups of customers, but not with others.
- Select the best communication channel for the segment, which might be email, posts, radio advertising, social media, or another approach, depending on the segment.
- Identify ways to improve products or new product or service possibilities.
- Establish better consumer relationships.
- Test pricing options.
- Focus on the most profitable customers.
- Increase customer service.
- Upsell and cross-sell other products and services.
Using Customer Segments
Standard components in customer segments can guide how a company markets to individual sections and what products or services it promotes to them. A small business selling hand-made jewelry, for example, might decide to encourage lower-priced products to younger buyers and higher-priced premium jewelry to older buyers based on segment knowledge that tells them that younger buyers have less disposable income than their older equivalents.
All businesses can practice customer segmentation despite size or industry and whether they sell online or in person. It begins with the collection and analyzing data and ends with acting on the information gathered in a way that is relevant and effective.
How to Segment Customers?
Customer segmentation requires a business to group specific information – data – about customers and analyze it to identify models that can be used to create segments.
Some of that can be gathered from buying information – products purchased, job title, geography, for example. Some of it might be learned from how the customer entered your system. An online marketer working from an opt-in email list might segment marketing messages according to the opt-in offer that attracted the customer, for example. Additional information, however, including consumer demographics such as generation and marital status, will need to be collected in other ways.
Typical information-gathering methods include:
- Face-to-face or telephone interviews
- General research using published information about market categories
- Focus groups
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