How to Segment Customers

If you have just started your business, this question may not be relevant for you yet, as the main task at this point is not segmenting customers but acquiring them. As your client base grows, you may find that satisfying the needs of everyone becomes harder day after day. This issue can be easily illustrated: imagine that you came across an interesting ebook store and subscribed. Since then, you regularly receive their newsletters with the last arrivals, top-rated literature, and discounted books. Indeed, you have preferences, if you like ancient literature, you may not be interested in modern bestsellers. Hence, you unsubscribe from updates from the ebook site. It's great when you can manage your preferences regarding the content that you receive. This way, you only get relevant information and offers. But, what if a store doesn't offer content preferences? The store will lose a client because it didn't segment its customers.

Customer segmentation is a grouping of customers into segments by carrying out data analysis according to different criteria. The information for analysis is chosen depending on the type of business you operate.

Benefits of Customer Segmentation

  • Customer engagement and satisfaction. By segmenting your clients, you can finely adjust your interactions with your subscribers. It provides an individual and personalized marketing approach for every customer. Thus, you meet their needs and increase the chances that they will constantly interact with your brand, in turn providing you more information data for future segmentation.

  • Client analysis. To carry out segmentation, one needs to do client analysis. It will not only help you discover customers' interests, preferences, and needs but also identify their solvency. You will be able to group your clients into most and the least profitable for you and plan your actions accordingly — either concentrate on customers who are more likely to buy from you or deal with those who have doubts. 

  • Loyal clients. If your customers are satisfied with your products and customer service, they will regularly use it and recommend it to their friends. Thus, they turn into loyal clients — who are extremely valuable for every business.

  • Better service and goods quality. To get the data for segmentation, you should maintain permanent communication with your customers. If they realize that their opinion plays a role in your business, customers will be more open with their ideas and wishes. Engaged clients will encourage you to increase the quality of the work. They will give you ideas about what can be improved in your service or what lacks.

  • Superiority over competitors. If your competitors have larger client bases than you, they surely work harder and put in the effort to improve the interaction. The more precise your segmentation is — the more chances you have to be a fierce competitor.

  • High email deliverability. Segmentation is a must for email marketing. If you send the same email to the entire mailing list, your email deliverability will suffer. If subscribers do not open your emails or mark them as spam, it will significantly influence your reputation. Your newsletters risk going into the nasty spam folder. So to maintain high email deliverability and right sender's reputation, carry out mailing list segmentation.

    To carry out segmentation, you should know the main customer segmentation strategies and their characteristics.

Customer Segmentation Strategies

Geographic

Applying this strategy, you will divide your customers according to their location as it plays an important role. For example, if you sell surfboards, you will have more buyers from the USA than from Canada. This strategy includes the following information:

  • country
  • region
  • town
  • rural or urban area
  • climate
  • cultural peculiarities
  • economics

Socio-demographic

This strategy creates the segments according to:

  • age
  • gender
  • nationality
  • marital status
  • education
  • occupation
  • income level

Psychographic

This strategy unites customers, according to:

  • lifestyle
  • interests
  • values
  • personal traits

Behavioral

This strategy is based on dividing customers into segments according to their need for your product or service. 

It can be determined by the following:

  • buying motivation
  • loyalty to the brand 
  • readiness to order a product
  • repeated purchases
  • frequency of using a product or a service

This is one of the most effective strategies as it is easy to measure. 

For your segmentation to be useful and practical, it should meet the following requirements:

  • the identified segments should be measurable. Besides, you should be able to define the segment's share in the total potential volume of the market and estimate the effectual demand;
  • the segments should be significant, introducing a large part of the market (volume of every segment is to be enough for the production and realization of the goods to be commercially viable);
  • the segments should be relevant for your company to do sales successfully (inform the customers about your product's benefits and take care of its delivery);
  • the segments should allow your company to develop, i.e., have a chance to influence the consumer demand the way that you can be able to increase the market volume in every segment, attracting new customers.

In addition to meeting your requirements, you should know the criteria according to which you will define segments for your business. Criteria are the method to estimate your choice relevance regarding the segments.

Behavioral segmentation allows marketers to craft relevant campaigns based on user engagement. Marketing services like SendPulse provide this feature.

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The Most Important Segmentation Criteria

The size (volume) of the segment

The volume of the segment can be identified based on different data: the total number of goods sold during a concrete period (month, year), total sales volume expressed in terms of costs during a concrete time period, the segment's share in the total volume of the market expressed in terms of interest, the total number of potential consumers. 

Segment's potential for the company

The degree of a segment's potential for the company is characterized by the company's possibility to get the necessary channels to promote and sell goods with favorable delivery terms.

Segment's perspectivity

The chosen segment needs to introduce a significant part of the market for a long time. Management of the company should get to know: whether a particular segment develops, is sustainable or decreases in volume, whether it is relevant or not to spend money on it. The target segment can be only a prosperous one that is continuously increasing.

Profitability and efficiency of the segment

This criterion is determinative as it gives an idea of the work on a chosen segment will be profitable for the company. The following metrics are taken into account: net income, return on investment, an increment in profit. Everything depends on the company's specificities.

Protectability of the segment from competitiveness

If the main competitors are concerned with the promotion of your good within a chosen segment and make efforts to protect it, you should be ready to bear extra charges while working with the same segment or find another one, less interesting and attractive for your competitors, where their press will be weaker.

Answer the following questions:

  • Who can become your competitor within a chosen segment in the future?
  • What are the strengths and weaknesses of your competitors?
  • In case the competitiveness is not high, will the segment be preferred as a target one?
  • Which areas of activities should you work harder to develop your strengths and eliminate weaknesses?

Working efficiency within a chosen segment

You should make sure that your company has the necessary experience for working in the selected segment, whether the staff can update and improve the goods according to the needs and preferences of the consumers, and if the product is ready for competition.

Besides, one should decide if the company has enough resources for working in the segment.

Now, when you are acquainted with the customer segmentation strategies, requirements, and criteria, it's high time to learn how to perform it step-by-step. 

Eight Steps to Perform Segmentation

Choose the segmentation strategy

We have introduced the four most popular strategies. Do not try to combine them all at once. It's better to concentrate on one particular approach, depending on your type of business.

Look for market niches

Identify your target customers, analyze the key competitors, your strengths and weaknesses in comparison with them.

Describe all the segments

Characterize your audience according to every criterion, specify the number of competitors in the niche, describe the behavior model of a customer when choosing, buying, using a product, define price sensitivity.

Estimate every segment's size

Define the potential, available, and the actual volume of every segment.

Estimate segments' perspectivity

Analyze potential demand in the niche, the number of sales, income, competitive conditions.

Identify the target segments

Choose the groups with the highest priority that are likely to bring the maximum profits to the company.

Develop the positioning strategy of the product

Positioning is the marketing process that allows defining the profitable competitive position of the company in the market. It helps to discover direct and indirect competitors. Positioning is essential for markets where the product's characteristics are a reason while making a choice.

It helps to explain a consumer the following:

  • Who is this product-oriented toward?
  • Which client's needs can the product satisfy?
  • How does your company's product differ from the competitors' one?
  • Why is it profitable for a consumer to buy your product?
  • When should a customer use your product?

You have a distinct positioning strategy in case a customer can answer all these questions while examining your product or its advertisement.

Create a marketing plan for every target segment

Create a step-by-step plan for every segment that will realize your business tasks. Your plan should be real to achieve and predict possible difficulties. 

You can easily segment your mailing lists in SendPulse. Segmentation is available for free. Create and save as many segments as you wish.

Do not miss a chance to send highly personalized emails! Read this step-by-step guide on how to segment customers in our service

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