Customer segmentation is a successful marketing tool when implemented correctly.
What is Segmentation?
Segmentation is the classification of customers (and prospects) using defined characteristics that allow you to easily find and categorize people while helping you understand and predict how they may act.
Understanding your customers–their similarities, their differences–is one of the most fundamental and important steps in quantifying the customers’ relationship with your product and company. There are many segments to choose from, but only a few that your specific customers fit into.
For this reason, selecting segments and placing your customers must be done with precision. Your precise customer segments can then be used to improve your product, marketing efforts, and, ultimately, your profitability.
How to Segment Customers?
Based on Demographic Segmentation
The simplest way to divide your customers is based on demographic data. Most companies use it to get the right population in using their products. Demographic data means their age, gender, family size, education, profession, income etc.
For example, if your customers are young children, you can make advertising choices to reflect their interests. One more example on income demographic segmentation is Audi and BMW car manufacturers target high-end users whereas Maruti target normal end users.
Based on Behavioral Segmentation
This type of market segmentation divides the population on the basis of their behavior, usage and decision-making pattern. Segmenting them into groups depending on which products they buy, how often, and how they purchase each product.
Look at customers who have only purchased one item, returning customers, and new customers. You can also separate customers from the number of sales they have contributed to your business (lifetime value). Thus, the usage segmentation is also a type of behavioral segmentation.
Based on Psychographic Segmentation
Psychographic segmentation is one which uses lifestyle of people, their activities, interests as well as opinions to define a market segment. Psychographic segmentation is quite similar to behavioral segmentation. But psychographic segmentation also takes the psychological aspects of consumer buying behavior into accounts. These psychological aspects may be consumers lifestyle, his social standing as well as his AIO. Do refer more to Activities, interests, and opinions.
Groups might include customers that strive for “clean” or “green” living, religious customers, or customers that support a certain cause or charity,
- Psychographic information is best obtained through surveys or focus groups.
- Psychographic traits may be applied broadly to different generations, such as baby boomers and millennials.
Based on Geographic Segmentation
Geographic segmentation divides people on the basis of geography. Your potential customers will have different needs based on the geography they are located in.
This type of segmentation is the easiest, but it was actually used in the last decade where the industries were new, and the reach was less. Today, the reach is high but still geographic segmentation principles are used when you are expanding the business in more local areas as well as international territories.
Segmentation helps you with:
You need to be able to determine which subset of potential customers are the ones you want. Everyone wants perfect customers. The easy way to figure out which kind of customer is perfect for you is to know that you’ve found the perfect subset. And that subset, that targeting of a specific group of people, is a by-product of knowing how you broke up the entire set of potential customers into groups. Then you can pick which groups are a good fit for you, and you can walk away from the unprofitable ones.
Different segments will value what you do differently. Once you understand which segments you’re going after, you can make sure that your pricing aligns with what makes sense to each segment. It allows you to align your price with their perceived value, and that’s a huge deal because it gets you moving away from straight costs.
Different segments have different competition because they have different alternatives. This means you need to position yourself well in each segment, but that means you have to know what those segments are, and who your competition is within each segment.
How you promote your product, and how you pitch it – from the words to the images to the places where you spend money – all change based on your target. If you don’t know which segment you’re going after, you can’t determine where your targets hang out, and that means you’re left with broad messaging rather than the laser-like focus.
When it all comes down to it, even what your product does (it’s features) are a by-product of what segment you’re going after. Because you want to solve a problem. And different segments have different problems.
Finally, try and focus your efforts by having some research questions and hypotheses to answer before collecting data and customer segmentation, but don’t be afraid of following the patterns seen in the analysis. Oh yeah, and get as much buy-in as you can. You don’t want people arguing too much over who “owns” the customer relationship.
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