Exploring Types of Customer Segmentation Strategies for Marketing Success

Let’s start with an interesting example. Did you know that in your personal life, you have most likely performed one or more types of customer segmentation without even realizing it? For example, you might have shared an ‘event reminder’ with your friends through a group text before informing your co-workers via email. Though they’re not your customers but you segmented them and communicated through different media.

In this article, you’ll know the different types of customer segmentation and why they are important for a business success.

What is Customer Segmentation?

Customer segmentation is a strategic process that involves categorizing and grouping customers based on common characteristics such as age, location, device used, industry, gender, and more. Each group of shared characteristics forms a ‘Customer Segment’. This process enables businesses to customize marketing, service, and sales initiatives to meet the specific needs of these distinct groups, potentially enhancing customer loyalty and boosting conversion rates.

Just as you adjust your messaging for different social circles, businesses can improve communication and effectiveness by addressing various types of customer segmentation.

Why do we need Customer Segmentation?

Customers have distinct characteristics, preferences, and expectations. Recognizing these traits is essential for delivering effective and personalized experiences. A ‘one size fits all’ approach can lead to issues such as lack of personalization and inefficient resource allocation.

Instead, understanding customer segmentation technology allows businesses to gain deeper insights into individual segments, creating tailored content that addresses their unique needs and challenges. This strategic segmentation improves customer service, marketing, and support by equipping internal teams with insights to tackle specific challenges and communicate effectively through preferred channels.

Additional Benefits of Utilizing the Right Customer Segmentation Model

• Enhanced Consumer Engagement: Targeted ads and personalized marketing messages establish meaningful connections with potential consumers, fostering sustained engagement from existing ones.

• Increased Consumer Satisfaction and Loyalty: Brands that make customers feel seen, heard, and understood cultivate higher levels of satisfaction and loyalty. This personalized approach goes beyond treating customers as mere order numbers.

• Improved ROI: Customer segmentation reduces wasted time and resources on marketing efforts that don't resonate with the right audience. By comprehending your consumers' needs, you can efficiently address those needs, leading to a more cost-effective and rewarding marketing strategy.

By applying the right customer segmentation models and exploring customer segmentation use cases, businesses can achieve more targeted, efficient, and successful marketing outcomes.

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Different Types of Customer Segmentation

Your business can segment customers in many models. Here, you’ll get to know majorly four types of customer segmentation, as listed below.

Demographic Segmentation

Demographic segmentation involves categorizing customers into groups based on significant life factors. Parameters of demographic segmentation include age, gender, income, education, and marital status.

This is one of the most important types of customer segmentation where you get a foundational understanding of a customer base. This information serves as a crucial building block for businesses to better understand the type of audience that they are going to serve.

Industries such as ecommerce and fashion commonly utilize demographic segmentation to tailor their marketing strategies.

For instance, in the fashion industry, a business owner may target both men and women. By segmenting customers based on gender, the business can deliver personalized product recommendations and messages to each group.

Let’s talk about an insurance broker company Policybazaar. They regularly communicate their offers for different age groups. Take a look -

Here, Policybazaar is targeting people who are born between 1975-1995. 

While below you can see that the company is trying to target elder audience to communicate its Senior Citizen Health insurance plan.

Their internal team might be using Geographic Segmentation model further as well to analyze the results and optimize campaign performances to drive results.

Seeing the use of one of the popular types of market segmentation examples, you can take inspiration and start building models for your business.

When executed effectively, this approach contributes to building a more loyal customer base, fostering long-term relationships of your business with customers.

With the use of tools like Nected, grouping of customers based on shared characteristics is effortless. It uses demographics to segment customers into micro-segments that refresh daily. This allows businesses to create targeted marketing initiatives and optimize their strategies.

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Geographic Segmentation

Geographic segmentation involves categorizing customers according to their location, spanning countries, states, cities, towns, etc.

This segmentation model becomes particularly relevant for businesses operating in multiple locations within the same city, state, or country, or those engaged in shipping products to diverse geographical regions.

The rationale behind segmenting customers by geography is to customize communication in a way that resonates with their specific locale. This entails adopting regional language nuances, referencing local points of connection, and tailoring messaging to align with the cultural context of the audience.

When businesses incorporate elements that reflect the experiences of customers in their particular location, it demonstrates a thoughtful approach to content creation. This, in turn, signals the customers that the message is crafted expressly for them, establishing a connection through relatable and localized communication.

With tools like Nected, you can analyze large amounts of consumer data to understand what products the customers really want, and apply strategies accordingly.

Let's take a look at an example of how you can use Nected to perform geographical segmentation. Here we take a sample set of data and we want to provide different discount rates to domestic and international customers respectively.

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To create a complex rule set called the Pricing Rule, we need to access the data from the database and select the desired columns. We can use the Nected Query Builder to easily connect to any data source and drag and drop the columns we want to use in our rule set.

Next, we need to define the logic for our rule set. We want to provide different discounts to international and domestic customers based on their location. We can use the Nected Rule Editor to create a conditional statement that checks the ‘customer_location’ column in our data. Just click on the drop down list and select the desired parameter.

This rule set will assign a result and a discount value to each customer based on their location. We can test our rule set using the Nected Simulator to see how it works on sample data. We can also modify our rule set as needed using the Nected Rule Editor.

Finally, we need to deploy our rule set to our application or website. We can use the Nected API to integrate our rule set with any platform or service. We can also use the Nected Dashboard to monitor and manage our rule set performance and analytics.

Behavioral Segmentation

Behavioral segmentation is centered around customer actions and interactions with your brand. Instances of categorizing customers based on behavior include their inclinations, frequent activities, product usage, and routines.

This segmentation model proves particularly valuable in campaigns involving PPC or YouTube ads, ensuring that your advertising budget is directed toward customer segments that align with your brand. Instead of relying on external demographic factors, behavioral segmentation groups consumers based on their habits and actions. 

This is one of the most used types of customer segmentation models by marketers and businesses.

For instance, it considers factors like purchase history and the preferred social media platforms used by customers. By honing in on specific platforms, you can optimize your ad strategy and, for instance, send targeted sales emails to frequent or repeat online buyers, creating a more effective and personalized marketing approach.

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Technographic Segmentation

Technographic segmentation is slowly becoming one of the most important types of segmentation methods. It is a strategic approach that categorizes customers based on the technology they use. This method is becoming more prominent as businesses progressively transition their operations to the online ecosystem. 

Notably, this trend has spurred significant growth in sectors such as Software as a Service (SaaS) and online marketing analytics.

The basis of technographic segmentation lies in its ability to allow businesses to fine tune their targeting strategies to consumers based on the specific software or online services they use regularly. This form of segmentation goes beyond traditional demographics, offering a highly personalized approach that considers factors like mobile and desktop usage, preferred apps, and software choices.

The significance of understanding the technological preferences of individuals cannot be overstated, whether for online marketing needs or for SaaS enterprises that are heavily reliant on technology to deliver their services. As businesses continue to embrace digital transformations, the relevance and impact of technographic segmentation are poised to grow. This approach not only provides a more nuanced understanding of customer preferences but also offers a more effective way to connect with diverse consumer segments.

For example, when we look at Zomato, one of their most important messaging channels is push notifications on smartphones. This form of messaging would have been way less effective if the target customers’ primary device would have been a laptop or personal computer.

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Customer Segmentation Use Case

Let’s take a closer look at practical use case of customer segmentation using Uber as an example. Below are the key segments targeted:

1. Geographic Targeting

Uber tailors its services to the specific needs of different regions. In cities with heavy traffic, like New York, Uber promotes shared rides, which help reduce congestion and provide cost-effective options for riders. In suburban or rural areas where public transportation might be limited, Uber offers larger vehicles, catering to group transportation needs. Additionally, Uber adjusts its offerings based on local events, traffic, and weather conditions to ensure timely and relevant service availability.

2. Behavioral Segmentation

Uber's approach to behavioral segmentation focuses on understanding and responding to how users interact with the platform. Frequent riders may receive rewards or special offers that encourage continued use, while those who ride less often might see promotions designed to increase their engagement. Uber also customizes ride suggestions based on past behavior, making it easier for users to access services that match their preferences and routines.

3. Demographic Targeting

Uber segments its customers based on demographics such as age and income. For example, younger users, like college students, might be targeted with discounts that encourage social activities, while older users might see promotions for more premium services. This segmentation allows Uber to connect with different groups more effectively, offering them services that align with their specific needs and interests.

4. Needs-Based Segmentation

Uber also segments users by their specific requirements. Business travelers, for instance, might prefer more comfortable and reliable services, which is why Uber promotes options like Uber Comfort or Uber Lux to this group. On the other hand, users looking for cost-effective transportation might be drawn to promotions for ridesharing options. By identifying and addressing these varied needs, Uber ensures that its service offerings are relevant and valuable to each customer segment.

By leveraging these segmentation strategies, Uber meets diverse customer needs, drives loyalty, and increases usage, ultimately enhancing operational efficiency and revenue growth.

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How to Choose the Right Segmentation Strategy

Selecting an appropriate segmentation strategy is crucial for maximising the benefits of customer segmentation. The following steps outline the process:

1. Define Your Goals

Start by outlining the objectives you want to achieve through segmentation, such as boosting customer retention or increasing sales. Clear goals will guide your choice of segmentation approach and help you focus on what you want to accomplish.

2. Collect Relevant Data

Gather data that supports your objectives. This might include demographic details, purchase history, and customer feedback. Utilise surveys and analytics tools to collect this information, ensuring it is aligned with your goals.

3. Choose the Right Segmentation Model

Select a segmentation model that fits your objectives and the data you have. Common models include demographic, geographic, behavioural, and psychographic segmentation. Choose the model that best matches your needs.

4. Test and Refine Segments

Evaluate the performance of your segments to see how well they meet your goals. Be ready to adjust and refine them based on their effectiveness. Regularly review and update the segments to keep them relevant.

5. Implement Tailored Strategies

Create and execute marketing strategies tailored to each segment. Personalise your approach to address the specific needs and preferences of different customer groups to enhance engagement and satisfaction.

Here’s How You Can Use Nected for this type of customer Segmentation

As you now know, technographic segmentation involves categorizing customers based on the technology they use. 

For example: In this dummy rule set, technographic segmentation focuses on scoring customers based on the devices (Mobile, PC), applications, and software they utilize. 

Just like this, by analyzing the technological landscape of your customers, you can do segmentation & create rules that assign scores or prioritize customers based on their tech preferences. This can help businesses in tailoring marketing strategies, product offerings, and customer interactions to align with the tеchnological profiles of different segments.

Explore how Nected can help you utilize different types of segmentation methods.

Utilizing customer segmentation enhances conversion rates by better targeting and delivering more pertinent information to your audience. 

It’s time to utilize different types of customer segmentation in your business to boost the revenue. Consider using a user-friendly No code tool for customer segmentation and drive maximum results. 

FAQs Customer Segmentation

Q1. What is a customer segment?

When a set of common characteristics of customers are defined, it’s called customer segment.

Q2. Why do customer segmentation

By doing Customer Segmentation, you can get better results in marketing, service, and sales initiatives for your company.

Q3. What are the different types of customer segmentation?

Types include demographic, geographic, behavioral, and psychographic segmentation, each focusing on different customer characteristics to guide marketing efforts.

Q4. How can businesses implement customer segmentation?

Businesses can implement customer segmentation by gathering and analyzing data, defining segments, crafting targeted strategies, and monitoring results regularly.

Q5. What are the benefits of customer segmentation?

Benefits include improved marketing efficiency, higher customer satisfaction, better decision-making, and more effective resource allocation for business growth.