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What Is Customer Segmentation? Definition and Guide (2023)



Understanding your customers is critical to success. It allows you to create messaging and offers that resonate with your audience, rather than guessing about their preferences and needs.

And taking it a step further, segmenting customers into groups based on similarities, helps you develop a deeper understanding of those groups. You can then build targeted campaigns addressing each segment’s specific needs. Pretty cool, right?

So, what exactly is customer segmentation and how do you do it? Let’s take a look.

What is customer segmentation?

Customer segmentation is the process of dividing customers into groups based on common characteristics so companies can market to each group effectively and appropriately.

In business-to-business marketing, a company might segment customers according to a wide range of factors, including:

  • Industry
  • Number of employees
  • Products previously purchased from the company
  • Location

In business-to-consumer marketing, companies often segment customers according to demographics that include:

  • Age
  • Gender
  • Marital status
  • Location (urban, suburban, rural)
  • Life stage (single, married, divorced, empty-nester, retired, etc.)

Why segment customers?

Segmentation allows marketers to better tailor their marketing efforts to various audience subsets. Those efforts can relate to both communications and product development. Specifically, segmentation helps a company:

  • Create and communicate targeted marketing messages that will resonate with specific groups of customers, but not with others (who will receive messages tailored to their needs and interests, instead)
  • Select the best communication channel for the segment, which might be email, social media posts, radio advertising, or another approach, depending on the segment
  • Identify ways to improve products or new product or service opportunities
  • Establish better customer relationships
  • Test pricing options
  • Focus on the most profitable customers
  • Improve customer service
  • Upsell and cross-sell other products and services

How to segment customers

Customer segmentation requires a company to gather specific data about customers and analyze it to identify patterns that can be used to create groupings.

Some data can be gathered from purchasing information—job title, geography, or products purchased, for example. Some of it might be gleaned from how the customer entered your system.

An online marketer working from an opt-in email list might segment marketing messages according to the opt-in offer that attracted the customer, for example. Other information, however, including consumer demographics such as age and marital status, will need to be acquired in other ways.

Typical information-gathering methods include:

  • Face-to-face or telephone interviews
  • Surveys
  • General research using published information about market categories
  • Focus groups
  • Loyalty program data
  • In-person conversations
  • Customer reviews
  • POS data
  • Customer support interactions
  • Purchase history
  • Online analytics

With Shopify’s segmentation tools, you can collect this data directly from your online store traffic. Discover powerful insights about your customers by creating unique segments, and then reach out with personalized campaigns to drive sales.

Shopify also includes some default customer segments and templates to help you get started. You can refine, add, or even remove customer segments over time as your business evolves. Build your customer segments in the editor on the Customers page by adding filter names, operators, and values.

Using customer segments

Common characteristics in customer segments can guide how a company markets to individual segments and what products or services it promotes to them.

A small business selling handmade guitars, for example, might decide to promote lower-priced products to younger guitarists and higher-priced premium guitars to older musicians based on segment knowledge that tells them younger musicians have less disposable income than their older counterparts. Similarly, a meals-by-mail service might emphasize convenience to millennial customers and “tastes like mother used to make” benefits to baby boomers.

Once you’ve identified your segments, list their shared characteristics, paying careful attention to pain points and desires. Lean into those commonalities when developing your segmented marketing strategies and promotions. You don’t have to offer every promo to every customer—send your promos only to those who will be interested. A discount on dog food surely isn’t going to drive any sales from your customers who don’t own dogs, for example. So consider creating a segment of dog owners and only send those promos to them.

The main idea behind customer segmentation is you don’t need to send every promotion to every person all the time. Instead, send targeted promotions to relevant audiences.

Additionally, you can put customers into multiple segments—you don’t have to pigeonhole everyone into just a single group. For example, people in your dog owner segment may also be in your parents’ segment.

Customer segmentation can be practiced by all businesses regardless of size or industry and whether they sell online or in person. It begins with gathering and analyzing data and ends with acting on the information gathered in a way that is appropriate and effective.

Customer segmentation examples

Examples of customer segments to build include:

  • Geographic: Dividing customers by location or region. For example, you might market bathing suits to your Florida-based customers year-round, whereas advertising winter coats for your New York–based customers may be more appropriate in colder months.
  • Demographic: Putting people together by age, gender, marital status, and other demographic information. One example could be a bookstore creating a segment for parents and advertising children’s books to them.
  • Behavioral: Grouping your audience by purchase behavior, usage patterns, customer loyalty, etc. These segments get more complex and interesting. A hair care brand could create a segment of customers who have only purchased shampoo and not conditioner, and then create promos around the conditioner for that segment.
  • Psychographic: Dividing your audience by attitudes, values, lifestyle, etc. Another more complex segmentation option: You can create segments of customers who love animals or people who love to travel, for example.

Start segmenting your customers today

Customer segmentation is a great way to kickstart your personalization strategies and develop promotions and campaigns that directly relate to your target audience. And it’s easier than ever with Shopify’s native customer segmentation tools.

With Shopify Segmentation, you’ll understand your data better and be able to act on it for free from the same secure platform you use to run your business. Check out the endless possibilities with Shopify Segmentation.

Customer segmentation FAQ

What does customer segmentation mean?

Customer segmentation is the process of dividing a customer base into distinct groups of individuals that have similar characteristics. This process makes it easier to target specific groups of customers with tailored products, services, and marketing strategies. By segmenting customers into different classes, businesses can better understand their needs, preferences, and buying patterns, allowing them to create more personalized and effective marketing campaigns.

What are the 4 types of customer segmentation?

  1. Demographic Segmentation: This type of segmentation divides customers into different groups based on shared characteristics such as age, gender, income, occupation, education level, marital status and location.
  2. Psychographic Segmentation: This type of segmentation divides customers into different groups based on their lifestyle, interests, values and attitudes.
  3. Behavioral Segmentation: This type of segmentation divides customers into different groups based on their purchase history, usage patterns, brand loyalty and response to marketing campaigns.
  4. Geographic Segmentation: This type of segmentation divides customers into different groups based on location, such as country, region, city or neighborhood.

What is customer segmentation example?

Customer segmentation is the practice of dividing customers into distinct groups with common characteristics. Examples of customer segmentation include geographic segmentation (dividing customers by region), demographic segmentation (dividing customers by age, gender, marital status, etc.), behavioral segmentation (dividing customers by purchase behavior, usage patterns, loyalty, etc.), and psychographic segmentation (dividing customers by attitudes, values, lifestyle, etc.).



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