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Customer segmentation is the process of dividing your target market (potential customers) into groups based on shared characteristics. For example, you can segment customers based on their needs, behaviors, lifestyles, or other attributes that may impact their purchasing behavior.
All these characteristics can be broken down into five main categories: demographic, psychographic, geographic, behavioral, and firmographic.
The better you understand your customers, the easier it is to sell to them. Creating effective customer segments helps you gain unique insights on how to capture your audience’s attention, increase sales, and keep your customers happy.
Here are some of the many benefits of customer segmentation:
We’ve gathered everything you need to know in these four steps to customer segmentation research.
Keep in mind that the research process may look slightly different for each company. How you segment your customers may depend on how much you already know about your target market and the goal of your study, but the process will look the same.
Type 1: Demographic Segmentation
Demographic segmentation refers to the grouping of customers based on demographic characteristics. This includes variables such as:
Psychographic segmentation refers to the breakdown of customer groups based on internal, psychological characteristics that may influence their buying behaviour, including:
Psychographic segmentation variables allow you to dive deeper into your audience’s preferences and the motivations behind their purchase behaviour. This helps you build unique customer segments based on more descriptive characteristics related to their daily life and personality, so you can appeal directly to their values.
Geographic segmentation refers to the segmentation of customers based on the region that they live and work in, and the characteristics of that location. This includes:
Like demographics, geographic segmentation is relatively easy to implement. It can be especially useful–even essential–for companies that have customer
Behavioral segmentation is the grouping of customers based on their behavior patterns through their interactions with the company. Companies using behavioral segmentation typically segment customers based on their past purchase behavior (timing, usage, frequency) or stages in the buyer journey.
This strategy is useful for businesses that have internal data on their customers, as they can identify which actions are most likely to lead to a purchase based on previous patterns. They can then learn how and when they need to communicate with customers to help reach a conversion.
Firmographic segmentation is similar to demographic segmentation but has to do with characteristics that describe a company or organization, which can be useful for business-to-business (B2B) customers.
This includes attributes like company size (revenue and/or the number of employees), industry, legal status (Corporation, LLC, Non-profit etc.), or any other characteristic that would help a company distinguish the different organizations they are targeting.
Reviewing the different segmentation categories can help you brainstorm what kind of questions you want to ask your audience, and how you will define or describe your segments. We recommend testing more than one type in your segmentation research.
That way, even though you pick only one segmentation characteristic to define your segments, you can use other segmentation variables to describe those segments in more detail.
Ideally, you should start your customer segmentation process with preliminary research. The easiest way to do this is with a customer segmentation survey. Surveys allow you to quickly collect deep qualitative and quantitative data on your target audience.
The first step is to design and field an exploratory survey to get initial insights into your customers’ needs, preferences and interests. This will help you identify what characteristics or qualities might be important differentiators for your customer groups.
In this step, you’ll test hypotheses and themes revealed in the exploratory study to solidify which characteristics are significant differentiators for your target segments.
The insights from your exploratory research are an essential guide for your main study questions. If you skip this preliminary step, you risk losing valuable time and resources by testing hypotheses or characteristics in the main study that turn out to be irrelevant or too vague.
Creating customer segments is an artistic process as much as it is scientific, so take your time with this step and keep an open mind when analyzing the data.
Statistical analysis tools can help you identify which variables are significant and which ones are not, but you will also need to lean on your intuition to help create meaningful segments that make sense for your business.
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