No customers are exactly similar to each other. And what your business offer may serve a wide variety of customers, which is absolutely right for your organization. But how do you market your brand to such a unique customer base?
Well, you can use a scattershot approach, where you throw everything in your strategy hoping that it works, or you can take a more focused approach, where you tailor your marketing method based on the needs and interests of a specific customer group or segment or customer segmentation.
Knowing your customers’ behaviors and segmenting them based on the findings is a sure approach to business success. Read through the article to understand what is customer segmentation model and how it can help increase conversion.
What is a customer segmentation model?
A customer segmentation model is a method of dividing a broad range of customers into smaller segments based on their commonalities. How you split a large customer base into subgroups varies depending on what your business does and your customers.
If you are a B2B brand offering consultation services to medium and small-sized organizations, one of the segmentation models you can use is to focus on the different sectors your customers operate in.
But for a B2C business, your customer segmentation model may be centered around shared demographics like gender, age, or income levels. How you segment your client base depends on the features you wish to target with more tailored messaging.
This approach is not only about reaching a client base more effectively; it is also a way of reconnecting with relapsed customers and encouraging conversions by sending more targeted follow-up messages.
Remember, customers, are unique in their own way. They have personal buying behaviors and reasons to choose you over your competitors. Although it can be challenging to tailor your customer service engagement strategies to cover everybody, a customer segmentation model simplifies the process for you.
Benefits of market segmentation approach
There are several benefits of implementing a market segmentation approach to your business. The following are the top six benefits you can expect:
Improved business strategy
Customer segmentations allow you to better understand your visitors and how they behave. You can then make this information as a guideline to create a business strategy that is likely to result in your desired outcomes.
For instance, you may identify a customer segment with poor engagement with your products and tailor a specific strategy that solely focuses on them to drive more sales and revenues.
Enhanced user experience
Dividing users into smaller segments allow better personalization. And design a personalized customer journey promotes a better experience for your customers. Personalization results in the following;
- Improved conversions.
- Higher engagement.
- Improved customer retention.
- Reduced churn rate.
- Better marketing campaign ROI.
One of the primary use cases of a customer segmentation model is to increase revenue. By developing a highly personalized customer journey, you can optimize your business website for conversions and boost the chances of your visitors making sales.
Image alt text: a demographic customer segmentation model illustration.
Author credit: By BronHiggs – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=52342290
Other benefits of market segmentation include the following:
- Lower acquisition rates.
- Higher retention rates.
- Better customer understanding.
Primary types of customer segmentation
While there are several segmentation criteria, the following four are the common ones;
Demographic segmentation model
Demographic segmentation divides users based on demographic factors such as age, gender, income, and education level. This is the most common segmentation criterion since the information is easy to collect and can be used to target a wide range of audiences quickly.
Businesses use this approach to target specific groups of customers based on their demographic features. For example, a brand that sells luxury cars might apply demographic segmentation to target customers who are over 40 years and have high-income rates.
This segmentation model focuses on customers’ personalities, values, beliefs, interests, opinions, and lifestyles. Typically, these are difficult information to get as they’ll need you to have potential clients complete a survey or questionnaire.
Marketers use this model to target users based on their psychological and emotional needs. For example, a website that sells outdoor gear might use psychographic segmentation to target customers who are adventurous and value experiences over material possessions.
This model segments customers based on location, such as country, state, city, or neighborhood. Businesses can use this model to target customers based on the particular commonalities of their geographic region.
This is one of the simplest models to implement and is usually used for geographic-specific ad targeting and product recommendations.
For example, a company that sells winter clothing might use geographic segmentation to target customers who live in cold climates.
This model segments customers based on their behavior, such as their purchasing history, brand loyalty, and level of engagement with a company’s products or services. Companies use this model to target customers based on their specific buying habits and preferences.
For example, a company that sells the best pet food in the market might use behavioral segmentation to target people who have purchased pet food in the past or have shown an interest in pet-related products.
Generally, these types of customer segmentation models are basically for companies that want to effectively target their customers and increase sales.
And understanding these unique characteristics of every segment, businesses can create more focused marketing campaigns, develop personalized products and services, and consequently improve customer loyalty and satisfaction.
Types of data used to segment audiences.
There are two types of data we can use to achieve a customer segmentation model online including;
- Hot data: this is a type of data that is generated by the user’s visit. They include things like contextual criteria, behavioral criteria, or even technical criteria.
- Cold data, also called historical data, is a piece of information that can be found in CRM systems. These details can include behavioral data from past purchases or demographic criteria such as gender, age, or socio-professional criteria.
Creating an effective and practical customer segment does not require using only one type of criteria or data. Instead, it is about applying combinations of what you have, based on the specific objectives and what you plan to achieve.
How to prioritize customer segments to target.
With the several segmentation methods, it can be hard to decide which one to target. The following are factors that will help you decide which segments to target first.
To begin with, your customer or market must have an important value to your business. It is crucial to have the segment you target to align with the company goals you plan to achieve.
A customer segment must have profit to be considered valuable. It means, therefore, you must have a clear idea: of your potential clients, their purchasing power, and buying behaviors.
By analyzing these factors, you can tell the expected profitability rates. If you find a segment with potential customers, but includes a small fraction of your audience, then the segment is not worth targeting because it is not profitable.
A valuable customer segment should be easily accessible, meaning you can reach your clients with ease. This can be done through online platforms such as social media, search engines, email campaigns, and offline mediums such as direct mail, broadcast, etc.
For example, if a clothing brand needs to target younger generations, it will leverage YouTube or TikTok to prepare personalized ads and offering that appeals to the segment.
A step-by-step guide to segment your market.
The following are the basic steps you should follow to get started with customer segmentation.
Set a goal.
Effective customer or market segmentation starts with clearly defining your goals and outlining exactly what you expect to achieve. For instance, do you want to improve customer retention rates? Reduce email un-subscription rates, among others.
Your goal will dictate how you segment your customers, so ensure it is clearly defined from the start.
Complete a data analysis.
Analyzing your data helps in identifying interesting patterns and ways to help you segment effectively. Are there various customer segment that drives more sales? Are there exciting patterns you have identified from the batch?
In this stage, you’ll gather all the available data, from cold to hot data, and decide what you need to do with them.
Create a segmentation strategy
Segmentation strategies clearly define the way you would love to segment your market. For instance, if your goal is to increase your product stickiness and boost retention. Once you have finished data analysis, you realize that customers using the product daily have 3x the chances of churning.
The best approach to this would be to have a customer segment of those who log into your product page at least once daily based on their behaviors on your customer data platform.
Use this segment in your targeting campaign
Once you’ve collected the data and identified the segment, you can move ahead to use it in your targeting efforts.
The following are some areas where segments are used in the targeting efforts;
- Landing pages.
- Personalized copy and ad creative.
- Email sequences and workflows.
- Segmented product offerings.
The customer segmentation model is a powerful marketing approach that helps businesses understand their customers better, tailor their marketing campaigns, and increase their conversion rates.
However, implementing this strategy needs careful planning and execution. You need to collect data, analyze them, create segments, and target them effectively.