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Customer Segmentation: Types, Strategies and Softwares

  • Hrithik Saini
  • May 11, 2022
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Consider the individuals in your daily existence: parents, friends, coworkers, teachers, trainers, and so on.


You probably don't interact with all of these people in the same manner. For example, you probably converse differently with your family than you thought with your fellow workplace. You presumably have distinct expectations in each of these categories, as well as various ways of communicating with them.


The same is true for your clients. Various groupings of people will invariably exist among your company's consumer base. These individuals come from a range of backgrounds and have distinct requirements, characteristics, pain areas, and aspirations for your company in terms of engagement, assistance, and much more.


Understanding your diverse consumer groups' appropriate communication styles and distinct demands is crucial to building and sustaining effective connections with them. This allows you to fulfill (and perhaps surpass) their expectations in a more productive and convenient manner.


Also Read | Customer Journey Analytics


What is Customer Segmentation?


Customer segmentation is the process of breaking a customer base into categories of people that are similar in areas that matter in advertising, including generation, gender, hobbies, and purchasing patterns.


Companies that use customer segmentation believe that each customer is unique and that their promotional strategies would be best represented if they targeted particular, smaller groups with messaging that would have been interesting to those consumers and ultimately to purchase. 


Companies also want to obtain a better knowledge of their consumers' tastes and demands, with the goal of determining what each category values the much more so that promotional materials may be more precisely tailored to that category.


Why is Customer Segmentation Important?


Customer segmentation seems to have the ability to help marketers reach out to each individual in the most efficient way possible. A customer segmentation study uses the massive amount of data accessible on individuals (and future customers) to preferences of individual groups of consumers with a high degree of certainty depending on demographic, behavioral, and other characteristics.


Because the marketer's aim is to maximize the benefits (revenue and/or profit) out of each client, it's crucial to know how another promotional action will affect the consumer ahead of time. 


Ideally, such "activity-centric" customer segmentation would think about the long customer lifetime value (CLV) effect of a marketing strategy rather than the short-term impact of a marketing strategy.


Customer Segmentation Models


Although the list below does not include each type of customer segmentation, it might help you get started categorizing your consumers. A list of techniques to categorize your customers is included with each model.


  • Demographic Segmentation


  • Needs-based Segmentation


  • Geographic Segmentation


  • Psychographic Segmentation


  • Value-based Segmentation


  • Behavioral Segmentation


  • Technographic Segmentation

Type of Customer Segmentation

How to Segment Customers?

Demographic Segmentation

Age, sexuality, income, experience, and marital status are all factors to consider.

Need-based Segmentation

Specific consumer groups' must-haves and wants for products/services

Geographic Segmentation

The terms "country," "state," "city," and "town" are all used interchangeably.

Psychographic Segmentation

Personality, attitude, values, and hobbies are all factors to consider.

Value-based Segmentation

On the business, the economic importance of specific client groups

Behavioral Segmentation

The usage of features or products, as well as habits, are all examples of tendencies and regular acts.

Technographic Segmentation

On the organization, the economic importance of specific client groupings

CLV-Based Customer Segmentation


In general, it's always simpler to make generalizations and rely on "gut emotions" when defining criteria for segmenting consumers into logical groups, such as customers that originated from a specific source, reside in a specific geography, or purchased a specific product or service. 


These high-level conceptual frameworks, on the other hand, rarely provide the intended outcomes. It goes without saying that certain clients will spend more money with a firm than others. The finest clients will spend a lot of money over a long period of time. 


Good clients will either spend a little amount over a lengthy period of time or a large amount in a short period of time. Others will not spend a lot of money and/or will not stay long.


Customers should be segmented into categories based on forecasts of their total future worth to the organization, with the purpose of treating each group (or person) in the most probable way to maximize that future, or lifespan, value.


Customer Segmentation and Machine Learning


Using machine learning techniques to identify new categories is another technique for customer segmentation. Unlike marketing person segmentation models, such as the ones discussed above, machine learning customer segmentation enables sophisticated techniques to reveal insights and groups that marketers may struggle to identify on their own.


Furthermore, advertisers that establish a virtuous cycle between the segmentation algorithm and market penetration strategy will have continuously developing client segments. 


In these circumstances, the machine learning model will be able not only to improve its segmentation definition but also to recognize if a certain portion of the segment is surpassing the others, so optimizing performance metrics.


Strategies Used for Customer Segmentation


To build a customer segmentation plan, you must first identify the objectives of your department. After that, divide clients into categories and market them according to their shared features. 


You should examine your product offerings and fine-tune your strategy as you learn more about the other category for the best outcomes.


Begin by considering the following strategies when deciding how to segment your customers.


  1. Establish your consumer segmentation objectives


Consider why you're developing a consumer segmentation plan. Consider why you're investing time in segmentation and what you intend to gain from it.


To do so, look over the list of frequent reasons organization's customer segmentation we discussed before. Identify which outcomes you want to attain so that you really can tailor the remainder of your plan to support you in achieving them.


It's important to remember that your customer segmentation objectives will be unique to your company – segmenting consumers isn't a one-size-fits-all procedure.


  1. Divide your consumers into categories according to your preferences


Decide how you'll segment your consumers once you've decided what you want to obtain out of the customer segmentation algorithm. To figure out how you'll achieve this, go back to the client segmentation models and kinds. There is no single right answer anymore; it all depends on your company, clients, and the objectives you defined in the previous phase.


You may strategically segregate your consumers, for example, if you want to distribute targeted adverts to your audience's customers and members on the West Coast in the terms of improving conversions in that area.


  1. Segment your consumer base and reach out to them


It is indeed necessary to consider how you'll focus your clients throughout your business then when you've segmented them. Members of various departments will be able to reliably target your consumers via their job if they comprehend how your customers are categorized.


  1. Analyze Consumer Segmentation


Evaluating your segmentation operations can also provide you with perspective into how you've arranged your clients, allowing you to make any necessary tweaks and improvements.


Check-in along with the promotional, sales, and support teams (as often as you like) to receive their feedback on any segmentation modifications that may be required. You can also try out other ways of putting your consumers together to see what works best.


You may also solicit input from your clients in order to better classify them into relevant categories. You may, for example, run surveys to better your behavioral segmentation by asking clients about their feature and product usage patterns and inclinations. You'll be able to better arrange clients based on their individual habits as a result of this.


Also Read | A Guide to Psychographics for Marketing


Top 5 Customer Segmentation Softwares

These are the top 5 customer segmentation software to get started with the segments of the customers according to your company's needs.

Customer Segmentation Softwares

Whenever it relates to customer segmentation software, there are indeed a lot of possibilities. Here are five of the most common software for customer segmentation to get you started.


  1. Qualtrics


Qualtrics is a customer segmentation solution that allows you to separate your consumers and goods.


You may use the tool to create research, establish customer groups, assess how you segment your clients, and figure out what form of communication each section prefers. Machine learning and artificial intelligence (AI) features in Qualtrics can also help you find new methods to categorize your consumers.


  1. HubSpot


Set up contact scoring to utilize lists to segment your contacts and customers with HubSpot's static and dynamic contact lists and contact scoring.


Event-based segmentation is also an option in the program. If your organization is having a day-long workshop in Boston, for example, you might utilize incident segmentation to assist you to find and alert local clients who have categorically stated interests in the material your organization will present at the session.


Then, once the workshop is over, you can utilize the information you gathered from individuals who attended to segment your clients for future developments.


  1. Experian


Experian's customer segmentation technology includes a number of features that allow you to create, examine, and control your categories in a manner that fit your requirements.


Emphasize cultural segmentation to zoom in on the customers' routines and tastes, or discover your more commercially useful categories because you can add those insights to your lucrative customer interaction portfolio.


  1. Sprout Social


Utilizing Audience Targeting, Sprout Social enables organizations to reach particular categories when writing and posting messages on Facebook and LinkedIn – it's an advertising customer segmentation solution.


Consumers may be segmented and targeted on Facebook by interests, ethnicity, age, geography, relationship status, training, and age; on Linkedin, customers can be segmented and targeted by the size of the business, sector, geography, and experience.


  1. MailChimp


A client segmentation tool is included in Mailchimp's brand management and email management platform. Effectively manage segmented email marketing campaigns that send personalized and customized messages to targeted populations of your relationships and clients. To converse with your chosen group(s), you can choose somewhere between five parameters.


Also Read | Strategies of Customer Retention Marketing


Customer Segmentation is a Collaborative Effort


Customer segmentation is only productive if it is done collaboratively from the beginning. The company's performance hinged on Marketing, Sales, Product, Accounting, and Analytics buy-in, as segmentation evolved from a business necessity to a result of technological advancement. 


After all, various client demands imply different characteristics to design, varied distribution and placement in the marketplace, and different sales movements – all of which are explained as a consequence of segmentation.


Without extensive investigation, internal or external stakeholders, and iteration, establishing segmentation rights is unlikely. Finally, congruence and adoption must go synonymously so that all teams may participate in this new framework's analysis of the organization.

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