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The 4 Types of Customer Segmentation: How to Correctly Apply Them and The Value They Add

No matter what your position is in the business world, the first thing you learn is the importance of understanding your customers. The various types of customer segmentation are crucial here.

Even if you’re a customer, it’s almost always better to find someone who specialises in what you need. The closer a business’ offering matches a customer’s needs, the better.

So what is customer segmentation? In the end, all businesses want to gain the trust of their customers. Having a clear picture of the different people who benefit from your products and services is a huge part of this.

What Is Customer Segmentation?

Customer segmentation, also known as market segmentation, is the practice of dividing consumers into subgroups. This makes it easier to target your messaging more closely to your customers’ needs.

All sorts of data can inform your customer segmentation. For example:

  • Social factors,
  • Economic factors,
  • Demographics,
  • Product uses,
  • Behavioural preferences.

Segmenting your market according to customers is sound practice. It empowers you to build up a more solid understanding of your clients and find what influences them.

When you’re conveying a message, it will be more compelling if it resonates with customers. Division is essentially a method for orchestrating your clients into littler gatherings as indicated by write.

Each segment should be described by specific traits.

4 Types of Customer Segmentation

Market segmentation is important when attempting to sell any kind of product, but it’s important to choose the right strategy.

There are a number of different types of customer segmentation. Some of these include:

1. Geographic

The 4 Types of Customer Segmentation: How to Correctly Apply Them and The Value They Add 1
The people connected with lines standing on a world map vector illustration. Social media and social network concept

The people connected with lines standing on a world map vector illustration. Social media and social network concept

Geographic segmentation is the act of dividing your market in light of where they are found. Sections can be as wide as a nation or a district, or as thin as one road of homes in a town.

Furthermore, geographic division is valuable for all kinds of companies. Large organisations with global markets may offer items to people in different areas.

For instance, you might specialise in selling skis and winter equipment. Introducing this promotion to hot regions, for example, would be pointless, and could even desensitise the public to future commercials.

Especially for independent companies, geographic division can be utilised to target particular clients without wasting resources on impressions that won’t transform into deals.

For instance, a neighbourhood cafe could exhibit their advertisement to just individuals inside the town they are located.

Geographic customer segmentation is one strategy that is easy to implement.

2. Demographic

The 4 Types of Customer Segmentation: How to Correctly Apply Them and The Value They Add 2
There are a number of important demographic factors.

Demographic division is sectioning the market in view of specific attributes of the gathering of people. Qualities frequently include:

  • Age,
  • Sex,
  • Religion,
  • Salary,
  • Occupation.

Additionally, genuinely simple to execute, demographic division can be helpful in countless ways. Luxury brands may market to a demographic who earn more than £100,000.

Universities may mainly market to 17-22 year olds.

Demographic segmentation is much more effective while focusing on different segments at the same time. Imagine you ran an email campaign focused on neighbourhood females, 25-50 years of age, with a family unit wage of under £50,000.

Basically, this means you employed multiple demographic criteria as age, sex, and income. Joining many customer segmentation criteria can possibly achieve an exceptionally greater outcome.

3. Psychographic

The 4 Types of Customer Segmentation: How to Correctly Apply Them and The Value They Add 3
Psychographic segmentation uses psychological characteristics to divide up the customer market.

Psychographic customer segmentation is far less concrete than both geographic and statistical client division, as the qualities used to section are less “substantial” than the last two.

Psychographics divides the market based on factors such as way of life, values, socioeconomic class, and identity.

This kind of client division is essentially more hard to execute than geographic or statistical division.

To appropriately portion the market in light of psychographics, advertisers should truly set aside the opportunity to become more acquainted with their present and past clients.

This means identifying the perfect purchaser persona for the item or administration and creating relationships with the client base.

A prime case of psychographic division is focusing on the individuals who are thrifty. These individuals esteem a decent arrangement and have a tendency to be brilliant customers.

Retail stores use this strategy more than anyone. Utilising marketing messages like “Amazing Prices” and “Best Online Specials” since it will resonate with the consumers they are trying to reach.

The 5 Factors of Psychographic Segmentation

Lifestyle

Lifestyle centres around how a consumer lives their life. It asks questions like are they married, have they children, what’s their daily routine. Consumers that live a healthy lifestyle would be attracted to fitness and wellbeing products and services.. For example, a business that sells vegan foods would target healthy lifestyle consumers as opposed to consumers who heavily drink and smoke.

Social Status

Social status considers where a consumer is placed in society and what social class they belong to. Take an expensive jewellery brand for example, they will target the upper class as they know they will buy luxury items whereas the middle class are more likely to look for affordable products at the best value.

Attitudes

A consumer’s attitude and personality have a great impact on their buying decisions. Attitudes are formed by ones social class and cultural background. People will have different attitudes based on how they were brought up. Continuing with the social status example, a consumer who grew up in the upper class may prefer going to expensive restaurants instead of fast food diners as this is what they are accustomed to.

Activities and Interests

Activities and Interests are closely linked to a consumer’s buying habits. Someone who is very adventurous will spend their money on hiking boots if they like to go hiking similarly, someone who has an interest in fashion might invest their money in vintage pieces of clothing. We all have different hobbies we are interested in and they can directly impact how we purchase.

Opinions

Learning what your consumers think about your product or service is important in understanding what they want and need. For example, a consumer might be of the opinion that businesses should use more eco friendly packaging for their products therefore, they won’t buy from businesses who use a lot of plastic in their packaging as this would be against their views.

4. Behavioural

Behavioural segmentation is the act of isolating buyers into groups as per any of the accompanying characteristics:

  • Utilisation,
  • Loyalties,
  • Mindfulness,
  • Events,
  • Learning,
  • Purchase intents.

Behavioral customer segmentation can be utilized as a part of an assortment of ways.

Behavioural division enables advertisers to be more applicable and create information that will resonate well with their target audience. We see behavioural segmentation used a lot by streaming services. They use algorithms to track consumer behaviours while on the service in order to customise the content they show to them. Every time you watch, rate or skip a movie or show, it gives the streaming service more information on your behaviour and allows them to make recommendations for you.

Unlike Demographic and Geographic Segmentation, Behavioural and Psychographic segmentation get to know the consumer themselves and can tell a lot about them, rather than seeing a customer in every individual they can see the individual in every customer.

Why Is Customer Segmentation Important?

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Customer segmentation boosts the ROI of all kinds of marketing and sales activities.

Creating a corporate strategy without first employing an effective customer segmentation strategy would be a shot in the dark. You’re unlikely to have much success if you don’t know who you’re targeting.

There are many benefits of customer segmentation, one being it helps you to spend money efficiently. This is because segmentation helps you to decide which marketing strategies deserve different allocations of resources.

Furthermore, a lack of an effective customer segmentation plan can cause uncertain product development strategies. Together, all of those variables can slow or stop a company’s progression.

When customer segmentation is done well, the business benefits are huge. For instance, a customer segmentation strategy can unmistakably affect your working outcomes in the following ways.

Improving Your Product

Customer segmentation helps you to improve your product, through a better understanding of who uses it. Ultimately, this will lead to more sales. The advantages likewise stretch out past your core product offering.

Any bits of insight into your best clients will enable you to offer better customer care, administration, and whatever other offerings that make up their experience with your brand.

Focusing Your Promoting Messages

Along with product changes, customer segmentation can enable you to craft more engaging messages. Allowing each segment to receive customised messages brings about higher quality enthusiasm for your brand and also allows for better communication between you and your target audience.

A huge benefit of customer segmentation is that it leads to customer retention. When customers are targeted with messages and products specified to them and are made to feel that their needs and wants are understood and met by the business, they are more likely to stay.

Seeking New Sales Opportunities

Segmentation allows you to focus resources on the channels and customers who provide the best return on investment. This way your business group will have the capacity to expand its win rate, make more progress, and better revenues.

Gain Competitive Advantage

Market Segmentation allows you to stay in front of the competition by providing personalised products and services to customers. The more accurate your customer segmentation the better you will be able to meet customers expectations and build brand loyalty.

Economies of Scale

When you know what market to target with your product and service you will no longer waste time and resources on markets that you will not be profitable in. Accurately allocating your assets across your markets with help you acquire economies of scale.

Other Types of Market Segmentation

Market Segmentation doesn’t just stop at the 4 main types we have looked at. There are many different varieties of segmentations that you can use to target your market. Lets have a look at a few more.

Value-based Segmentation

Value Segmentation, also known as Transactional Segmentation, groups together customers who have similar spending patterns. Customer segmentation models are often used by businesses to target audiences.

Transactional Segmentation uses a RFM Modelling-Recency, Frequency, Monetary- to source the businesses most valuable customers.

Take an online clothing brand for example, if a customer spends on average £100 ever time they shop online with them then the clothing brand will target this customer with their more expensive clothing.

Likewise, if a customer likes to save money and will only spend £40 when they shop online then the clothing brand may target them with discounts and offers to entice them onto their website.

Being able to analyse customers spending habits can lead to price optimisation as it allows you to price your products to match your target audience accurately.

Firmographic Segmentation

Firmographic Segmentation looks at segmenting Business-to-Business (B2B) consumers. It can group its consumers by industry type, location or company size. Firmographics is used for other businesses the same way demographics is used for customers.

Needs-Based Segmentation

This type of segmentation looks at why customers need a specific product or service. It asks the question why does a customer want to purchase a certain item? Needs based segmentation groups consumers needs from functional to emotional.

A functional need is a product or service needed by the consumer in order to perform a task. For example, a consumer may begin working from home therefore, they may need to buy a computer in order for them to do their job.

An emotional need refers to how a customer wants to feel by using your product or service. An emotional need would be a need for security. A consumer with this need may buy a security alarm or install a peephole in their door in order to satisfy their need to be safe and secure.

Usage Rate Segmentation

Usage rate segmentation focuses on how much the consumer uses a product or service. It allows you to see how much consumers are interacting with a product at a certain time. User segmentation works well with seasonal segmentation.

An example of this would be the demand for BBQs and parasols increasing during the summer as more consumers are using these products at this time of the year. A store will know this purchasing habit from looking at the past usage rate and will be prepared by having extra stock.

Applying Customer Segmentation Efficiently

Knowing the customer segmentation criteria is only half the equation. The next step is to fully integrate your own customer segments in your business. However, first you need to gather data specific to your company with a customer segmentation strategy, this can be done by:

Identify the Target Market & Expectations

Identify the target market by finding a common interest, goal or value among the target audience and dividing your customers up based on these categories. Targeting the market aids in the planning and organization of marketing strategies based on the market size and preferences of the target audience.

It’s essential to figure out the target markets needs and expectations in order for you to meet these requirements.

Set Marketing Segmentation Objectives

It’s important to set customer segmentation objectives to ensure you stay on track. The SMART framework is very useful to make sure you stay aligned with your objectives. An example of using the SMART framework for customer segmentation would be the following;

  • Specific: A clothing business wants to increase the traffic of students on its website.
  • Measurable: The goal is to increase the traffic from this target group by 10%.
  • Achievable/Agreed: Traffic increased in this age group during Black Friday Sales, showing this target group prioritises value for money. Having a student discount will make this goal achievable.
  • Relevant/Realistic: Increasing traffic on the website will create brand awareness and increase competitive advantage.
  • Time-Bound: 3 months

Read more on how to set objectives and goals for you business.

Choosing Which Data is Relevant

Among all the many types of customer segmentation you need to figure out which are most relevant to your business.

Furthermore, you need to figure out which criteria from each will offer the most insight on your targeted customer. For example, which age group and gender in demographics? Which spending patterns and shopping locations in behaviour segmentation?

Gathering Information

After choosing which data to collect, you’ll need to find the best way to collect this data. The internet is your number one source for data collection on potential clients.

Facebook ads are a perfect way to research customer segmentation data. Google Analytics is another great pool for client data. Surveys can also be used to provide direct data from the clients. Read more about Google Analytics: Here!

The past numbers of the business itself, from all departments are the best indicators for developing new segmentation methods.

Establishing a Line of Communications with All Departments

The purpose of a successful customer segmentation strategy is to enhance the overall performance of a business. This is why it’s critical to relay all customer investigations and findings to and from all the departments within a business.

The marketing department, for example, can give data on the outreach and interactions of an ad campaign, as well as, utilise information from the newest customer segmentation research in creating more effective campaigns.

Leverage Different Types of Customer Segmentation

The difference between an average business and a leader in the industry, is that a leader never stops growing. The truth is there is no one magic recipe to finding the best customer segmentation for life.

What the customer wants or needs is an ever changing game and the key is to always be ahead. The only way to do that is to mix and match all segmentation types in order to find the perfect customer.

However, it doesn’t stop at that, you need to keep researching and perfecting your image of the target client forever. Investing time and money in your customer profiling and segmentation will provide the best results.

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