Why does my business need a customer segmentation strategy? 

As a marketer, you’ve probably heard the phrase ‘customer is king’ countless times. And the saying rings true - your product or service is made with your customer in mind. But to connect with your customers and retain them for the long haul, you’ll need to identify their needs and values. Customer segmentation offers you valuable insight into your audience’s background, needs and preferences so you can tailor your marketing and communications accordingly. With 80% of consumers more likely to make a purchase when offered a personalised experience, customer segmentation can help you deliver marketing campaigns that resonate with your customers. 

What are the benefits of having a customer segmentation strategy?

Segmenting your audience into smaller groups based on their shared characteristics can offer valuable insight into their needs and values. There are several benefits of customer segmentation, from improving customer retention to enhancing your customer experience. But how does implementing a customer segmentation strategy benefit your business?

Here are just some of the benefits of having a customer segmentation strategy:

• Alignment: Implementing a customer segmentation strategy can ensure all members of your team are on the same page and understand how customer segmentation works, its benefits and your approach. It can outline how you’ll segment your customers and what research methods you’ll use.
• Long-term success: Having a strategy in place can cover the right approach and tools you’ll use so you can optimise your customer segmentation efforts to ensure your segmentation methods are effective long-term.
• Measurable goals: Implementing a strategy can help you measure the effectiveness of your customer segmentation through the use of key performance indicators (KPIs) and measurable objectives that you can regularly review. 

Above all, implementing a strategy can help you to understand and monitor the performance of customer segmentation so you can make any necessary adjustments to your methods, to help you achieve your business goals. 

Segmentation types - B2B vs B2C

While customer segmentation involves segmenting your audience into groups based on their shared characteristics, your process is likely to vary depending on the market you operate in. As a B2C business, your focus will often be on using emotion to encourage your customers to purchase, such as how your product or service can solve a problem they may be personally facing. While B2B businesses also respond to emotion, they are largely focused on how your product or service can serve their business needs.

Here, we’ll explore how customer segmentation compares between B2B and B2C businesses.

B2C

B2C customer segmentation is usually made up of four key types, otherwise known as customer segmentation models: 

• Psychographic segmentation: Whereby you group your customers or potential customers based on their internal characteristics, from their personality to their values and beliefs. It encourages you to ask what motivates your customers, so you can predict how they will interact with your brand and product. Targeting users with messaging that focuses on their lifestyle and personality can encourage a connection between your brand and your customer.
• Behavioural segmentation: Segmenting your consumers by how they engage with your brand, either directly or indirectly, from the interactions with your social media to the products or content they consume. Doing so can offer you insight into your customers’ tastes and preferences so you can tailor your messaging to suit them. 
• Geographic segmentation: As the name suggests, geographic segmentation involves grouping your customers by their location, population density and climate. From there you can create targeted campaigns that are relevant to them.
• Demographic segmentation: This involves grouping your customers or potential customers based on demographic data points such as age, family size, gender or ethnicity. It helps you to target a defined market rather than your entire customer base, based on their needs and values.

B2B

While B2B and B2C customer segmentation serve a similar purpose, B2B segmentation operates differently due to the nature of its market type. B2Bs often have longer sales cycles than B2Cs, with customers who know how the buying process works. B2B businesses are often looking for a product or service that can serve their business and help it to grow. Rather than one single consumer buying what they want, which is often the case for B2C customers, businesses usually require sign-off from several stakeholders before choosing to buy. So, with B2B all decision-makers must be considered in your segmentation process.

Here are five types of B2B customer segmentation: 

• Customer needs: What does this business need from your product or service? Grouping your customers by the needs of their business can help you to identify their pain points and how you can solve them. Perhaps a business is focused on growth, so you could create campaigns targeted towards this specific need. 
• Firmographics: Firmographics work similarly to demographics but through a business lens. Here, you would group your B2B customers by characteristics such as the industry they operate in, their company size and where they’re located.
• Tiering/profitability: This type of segmentation explores the potential value of a lead and ranks your customers by their importance to your business. This may include their profitability to your business, how they align with your goals and their lifetime value.
• Behaviour: Here, you’ll group your customers by how they behave, rather than what they want. You can use data to explore how your customers are interacting with your brand, through your campaigns, social media or email for example, as well as the devices and technology they’re using. In doing so, you should gain insight into the ‘why’ behind their decisions and behaviours.
• Customer sophistication: Customer sophistication groups businesses by their business maturity and knowledge, so you can gauge how well they can judge the quality of your product or service. 

Common segmentation trends based on industry

Above, we covered the main types of customer segmentation and how they can benefit your B2C or B2B business. But as technology advances and consumer behaviour changes, there are other new ways to segment your customers, to better understand their needs and behaviours. Certain industries can use these segmentation models to grasp the needs and behaviours of their customers. 

With 45% of global consumers using their phones to shop online at least once a day, technographic segmentation may offer valuable insight into your customers’ preferences. Technographic segmentation is where you segment your customers based on the technology they use, which can help inform marketing and sales strategies. You may choose to segment customers by the operating system they use, such as Mac or Windows. Those working in the retail industry, for example, could use technographic segmentation to provide personalised product recommendations that may resonate with those who use certain devices. 

Another popular model of customer segmentation is seasonal segmentation, which explores the impact of seasons on buying behaviour - not just holidays or the weather, but also cultural events, sports or political activity. Certain industries like travel or accommodation can be significantly affected by seasonal trends and can use this type of customer segmentation to better target their customers with relevant content based on seasonal trends or events to boost engagement and ROI. 

Steps to develop your customer segmentation strategy

By dividing your customers into groups based on their common characteristics, you can better understand their needs and tailor your marketing efforts to appeal to them. You can execute a customer segmentation strategy to ensure your customer segmentation is effective. Here’s how to approach implementing your strategy, step-by-step:

1. Determine the goal of your customer segmentation strategy

The first step in establishing your customer segmentation strategy is determining your goals. What do you want to achieve from customer segmentation? How will you measure success? Setting goals and objectives can help you focus your efforts in the right places and also help you measure the effectiveness of your work. Make sure the goals you set are realistic and align with the overall objectives of your business. Also, make note of any limitations of the data or resources you’re going to use and how you’ll try to mitigate them. 

2. Break these goals down into projects

Once you’ve determined the goals of your customer segmentation process, you can break these goals down into individual projects. Perhaps one of your goals is to boost the engagement rate of your social media activity. Instead of focusing on several social media channels, your project could be to increase your social media engagement. Through demographic segmentation, you may choose to segment your customers into groups based on their age range and focus on different social media platforms to target different age groups. With 38.9% of TikTok users being aged 18-24, if your target market is those under 25 you may choose to focus on generating more TikTok content, to resonate with this demographic.

3. Choose which projects to prioritise

Once you’ve outlined your projects, you’ll need to decide which areas take priority. A good way to determine which projects to prioritise is which areas will deliver the most value to your business. Weigh up each project to see how they contribute to your business goals, such as improving customer retention or increasing revenue. Next, prioritise your projects in terms of urgency. Perhaps you’re a travel business whose conversion rate has significantly declined and you’re looking to segment your customers by seasonality to see whether a particular seasonal event has affected their buying behaviour. From there, you can choose which projects take priority in meeting your business goals. 

4. Collect customer data

To carry out customer segmentation, you’ll need to collect your customer data and analyse it. You can collect several forms of customer data such as point of sales data, social media engagement data or loyalty card data. Qualitative data can offer personal insight into your customers’ thoughts and behaviours whereas quantitative data is often numerical, such as transaction data, sales records and conversion rate statistics. A simple and effective way to convert your business’ data into actionable insights is through marketing analytics software.

5. Segment your customers

Once you’ve gathered your customer data you can use it to segment your customers. You’ll need to decide on a customer segmentation model that will help you achieve your goal. Perhaps you’re looking to better understand what motivates your customers’ buying decisions, so you could use psychographic segmentation to explore their values and beliefs. But it’s worth noting that one type of customer segmentation alone isn’t enough to fully understand your customers’ needs and preferences. Combining multiple types of segmentation, such as psychographic segmentation and demographic segmentation, can offer you a stronger understanding of your customer’s preferences and help you avoid making generalisations or assumptions based on your customer data.

Utilise the segments in your marketing efforts

Once you’ve segmented your customers, you can start to use these segments to make data-informed marketing decisions. For example, a clothing retailer may be looking to boost their winter coat sales. To do so, they could use their customer data to segment their customers by geographic location and identify which areas of the UK were experiencing cooler temperatures than others. They could then market their winter coats to those specific areas as they may be more likely to purchase them.

Remember to continuously measure the success of your customer segmentation strategy to ensure its ongoing effectiveness. By tracking and analysing your objectives, you can decide which customer segmentation methods are most effective and adjust your strategy where needed.