What is Customer Segmentation and How is it Used?
From The Buxton Co
Segmentation is one of the most powerful customer analytics tools in marketing, however, it is also the most misunderstood.
What is segmentation?
Segmentation is the process of dividing customers and prospects into different groups, each of which share characteristics and behave similarly within a segment, but look and behave differently across multiple segments.
How will segmentation improve my business?
Not all customers are the same. Segmenting allows you to more precisely reach a customer or prospect based on their specific needs and wants. Segmentation will allow you to:
Better identify your most valuable customers
Improve your return on marketing investment by only targeting those likely to be your best customers
Increase customer loyalty by tailoring your services to your best customers
Improve customer service
Positively impact revenue and reduce waste across your organization
What are the different types of segmentation?
Here is an overview of the most common types of segmentation:
What type of segmentation should I use?
Demographic: The simplest segmentation option, and the most common. Demographic segmentation groups consumers by information you might see in a Census, such as: Age, gender, income, education, nationality, family size, etc.
Behavioral/Psychographic: These types of segmentation commonly look at lifestyle and personality characteristics that influence purchasing and consumption decisions.
Geographic: Geographic segmentation groups consumers based on location. This might include examining consumers by country, region or city, or taking a deeper dive to determine if they are in an urban, rural, or suburban area.
Combination: Often times, it makes sense to use multiple types of segmentation to capture the best picture of your customer. When there is an absence of customer data, businesses may turn to reviewing demographic and geographic information to get a basic understanding of their best customers, or work with an analytics partner to leverage enhanced customer segementation insights.
Selecting the approach thats right for your business depends on your business objectives and the data at hand. No matter which option you choose, segmentation will better allow you to target your ideal customers and reduce the costs spent targeting those outside of your ideal customer segments.
Buxton is the leading customer analytics firm that helps organizations identify who their customers are, where those customers are located, and the value those customers have to the organization.
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