How and why use customer segmentation?

What is customer segmentation?

Customer segmentation is how businesses sort customers into distinct groups based on their demographics, behaviours, past purchases or preferences. 

Segmenting your customers makes it possible to deliver relevant messages at the right time. For example, you could email specific customers a custom offer or special promotion. 

8 types of customer segmentation

1. Firmographic

Firmographic segmentation sorts B2B customers into categories based on company-specific attributes, or firmographic data.

These customer segmentation examples include:

• size

• location

• annual revenue 

• years in business 

• Industry

• product offerings

Ask companies for this information during the lead generation process. You can also use customer data platforms to find any additional information. 

2. Demographic

Demographic segmentation groups customers based on their personal characteristics. B2C businesses typically use this data to target their marketing campaigns, while B2B brands may consider additional attributes, such as job title.

Common examples of demographics are:

• age

• gender 

• occupation

• education 

• household income

• marital status

• parental status. 

3. Geographic

Geographic segmentation categorises contacts based on their physical location. Usually, this means sorting customers and prospects by where they live. However, businesses can also target leads based on where they shop or their typical routes.

Using geographic segmentation, companies can send relevant and timely marketing communications such as inviting customers to in-person events or providing limited-time special offers. 

These customer segmentation examples include:

• country 

• state 

• town/city 

• region 

• postal code

• time zone

• climate  

4. Technographic

Technographic segmentation separates customers and leads based on their technology solutions and preferences. It’s common for the technology and software industries to segment users and leads in this way.

Examples of technographic data include:

• cloud or on-premise servers 

• cloud service providers

• software tools and subscriptions

• operating system 

• mobile device usage (Android or iOS). 

5. Psychographic

Psychographic segmentation uses attributes like personality and interests to divide contacts into groups. 

This segmentation model is particularly useful because it considers the customer’s specific interests or values instead of treating all people with similar demographic characteristics the same.  

Examples of psychographic data include:

• values 

• interests 

• personality 

• hobbies 

• opinions.  

6. Behavioural 

Behavioural segmentation divides customers and prospects into groups according to their actions. Using recent actions to segment an audience is an effective way to reach leads based on what they value and where they are in their customer journey.

Examples include:

• website or landing page views

• purchase behaviour 

• browsing habits

• Brand interactions on socials. 

7. Needs-based

A needs-based segmentation model classifies users according to what they identify as "must-haves" when they’re making their purchasing decisions. For example, they may be looking for specific features within products that differ from those that others prioritise.

8. Value-based

Value-based segmentation categorises customers based on the potential economic value of the contacts themselves. 

Some customers are worth more than others to your business. For example, some people may make frequent purchases or purchase more expensive items than other customers. Businesses commonly create and target segments of high-value users. 

Creating powerful marketing campaigns

Stacking audience segments is especially effective when customers fall into multiple categories. For example, you can combine value-based and needs-based segmentation to create a powerful marketing campaign. By targeting users who make high-value purchases and need a specific feature, you may be able to up-sell or cross-sell new products as they are released. 

Why should you segment customers?

Persona development

You can use customer segmentation to build marketing personas. A persona is an archetype who'll have characteristics from multiple segments. Marketing personas (or ideal customers) are useful for businesses to demonstrate the types of clients they are trying to reach and to target their marketing activities accordingly.

Many businesses create multiple customer personas. Having clearly defined customer segments makes this process easier. 

Personalised marketing   

Segmentation is one of the most crucial aspects of running personalised marketing campaigns. Grouping your audience allows you to send hyper-relevant, niche messaging to the right people at the right time. 

Product or service development

By knowing who your product or service is intended for and why they need it, you can better tailor your offering to your customers’ needs. Adding new features, products or improvements to your offer will set you apart from your competitors and demonstrate your value. 

Sales targeting

It’s easier for your sales team to identify high-value sales opportunities when they better understand your customer segments. As a business, you can invest more time in higher-value segments to increase customer profitability and lifetime value, 

Channel-specific communication

Audience segments may prefer particular communication channels. For example, younger audiences are likelier to engage with a brand through social media, while older audiences may prefer a letter or phone call. Understanding each audience’s communication preferences can drive better results over time. 

How do you segment customers?

1. Create a customer list

The first step is creating a list of your contacts, including leads and customers. Using a CRM makes this process easy. You may want to clean up your data at this stage and remove any outliers that may skew your data.

2. Pick a segmentation model

Next, select a segmentation model to create customer groups. Your choice depends on your objectives, so think about what you want to achieve. 

For example:

• A graphic design agency can use firmographic data to target growing marketing agencies that may need support from a third-party service. 

• A retailer might use demographic or value-based segmentation to offer loyalty rewards to returning customers.

3. Collect customer experience data

Customer experience encompasses every interaction between your customers and your business. Collecting qualitative and quantitative customer experience data is crucial to understand the customer experience and making improvements.

To collect qualitative data, try:

• asking customers why they chose to purchase with your business 

• surveying customers to learn about how they plan to use your product and how their expectations align with reality 

• use social listening tools to track online mentions about your brand. 

You can gather quantitative data (and assess trends over time) by:

• tracking customer purchase history 

• analysing social media views and follower growth

• recording volume of customer support tickets.

4. Refine your segmentation

As you collect more data and acquire more customers, you must refine your segmentation and develop new categories. Refining your strategy will help you target clients more effectively, develop competitive products and grow your business.

You can refine customer segments based on:

• customer feedback and reviews

• changes in your brand, product or service

• new market trends

• emerging marketing channels

• new technology innovations. 

Use a CRM for customer segmentation

With a CRM, you can simplify customer segmentation and focus your marketing efforts on your ideal customer.

Check out MYOB CRM, which is part of the MYOB business management platform. With MYOB, you can manage your customers, suppliers, projects, employees, finance, accounting and tax — all in one place. 

Try MYOB CRM free for 14 days. Or check out the MYOB App Marketplace to see other CRM integrations. At MYOB, we have you covered. 

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.