What is customer segmentation?

Whether you’re looking to improve your marketing results or your sales pipeline, you could use customer segmentation. This article will discuss the following areas to help you understand what customer segmentation means in business and how you can use it to your advantage:

• What is customer segmentation?
• Why is customer segmentation important in business?
• How to segment your audience

Customer segmentation is the process of dividing up your current customers into groups (commonly referred to as segments) that have similar needs or wants. By doing this, you can tailor your marketing activities accordingly to those specific groups to get better results.

For example, a cake maker who takes orders online could have a variety of audiences. They might find that their existing website audience is mainly women. To match their available products with different types of customers, they can segment their audience into groups. By doing this, they can adjust their marketing campaigns, social media posts or blog content to cater to each group. Example segments here might include brides-to-be for wedding cakes or mums looking for themed cupcakes or party cakes. 

Segmenting makes the marketing activities more likely to be successful as they will be relevant for each group of customers. For example, a mum looking for party cakes wouldn’t necessarily be attracted to a bakery using wedding cakes as their marketing imagery. But if they saw examples of the cakes they wanted, the baker has a better chance of gaining them as a customer.

Customer segmentation can be essential for companies in competitive markets, such as e-commerce or retail businesses — because when you have a lot of competition, ‘speaking’ directly to specific customers will make your business stand out more in that customer’s mind, instead of using more generalised marketing.

There are many ways that customer segmentation can impact your business, so it could well be worth focusing time and resources on this method of marketing. Here are just a few reasons:

The most obvious reason for carrying out customer segmentation is to contribute to better marketing results. By identifying the different needs of groups within both your current clientele and your target customers, you can create more effective tactics to reach those customers and bring them to your website or store. 

Creating personalised marketing throughout the customer experience (both before and after buying from you) can generate trust as you ‘speak their language’ and the content resonates more with them.

By using specific strategies for your segmented customers, you will be setting yourself up for a better return on your marketing spend. That’s because you won’t be wasting money on campaigns that reach the wrong customers or the right customers but with the wrong message.

So, all your marketing spend would be focused on showing your audience relevant content over generalised communications. As a result, your business becomes trusted by the customer, creating sales in the short term and long-term advocacy for your company (repeat purchases after building trust).

By personalising your marketing to specific audiences, you will be reaching more of the right people. By reaching the right customers, you may find that you are bringing in business more consistently as these customers are already aware of what your business can provide to them.

By adapting how you ‘talk’ to specific audiences, you can create marketing that appeals to these groups. This marketing could be anything from creating offers for particular products to using appropriate imagery and text for different audiences. All this builds trust because it shows you know what they are looking for and improves your chances of having them purchase from you again. 

It’s been proven that it’s far cheaper and more worthwhile for a business to retain customers than find new ones, so speaking the same language as your target customers is crucial.

Identifying different groups within your target audience might also highlight groups that are missing or that you haven’t chosen to target yet. This could also lead to developing new products or services to potentially fill profitable gaps in the market.

Before you segment your customers, you need the whole picture. So, start by identifying who your current audience is made up of. To do this, you can use the Audience tab of Google Analytics to find out demographic data and related interests of the users on your website. 

If you use a CRM (customer relationship management) tool to store your email contacts, you can also use its features to find out information on your subscribers. 

Make a note of the groups in a document that you can refer to when planning any marketing activity. 

You can create groups based on lots of factors; here are a few to start with:

1. Common needs but different purposes – for example, a shoe company might have running shoes and trainers for casual wear. This requires two audiences even though both types of customers may be looking for ‘trainers’.
2. Geographical location.
3. Demographic factors including age, gender, family size, income, or life stage (like a university student or retired).
4. Socio-economic factors, such as social class, lifestyle or personality.
5. Behavioural factors, based on how a customer will use a product or its benefits, as customers could use the same products in different ways.
6. How much the customer has engaged with your business already, using email or website data. For example, some customers may have opened lots of your emails but never purchased from you. This indicates that your email copy could be more compelling to take them to the website. You could then segment your audience based on their level of email engagement to try to gain more visits to the website.

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier, leaving you with more time to focus on creating campaigns for your customer segments.

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.