Customer Segmentation Marketing: Are You Doing It?

Written By Dave Lavinsky
Orange and white target with an orange arrow on the bulls eye

Would you like a tool to attract more leads, convert more leads into paying customers, and better satisfy your customers?

Well, there’s a market research tool that accomplishes just that and it’s called Customer Segmentation.

Customer Segmentation is the process of separating your customers into sub-groups based upon similarities. As a simple example, a clothing store might segment its customers into two groups: men and women.

There are two core benefits to customer segmentation. The first is that it allows you to better service customer needs. Clearly, when you know the precise make-up and needs of your customer segments, you can better satisfy them. For example, a gym might offer exercise classes specifically for women and others specifically for men, each of which target and solve that gender’s core workout needs.

The second benefit of customer segmentation is that it allows you to better communicate the benefits of your offerings and thus increase conversion rates. For example, a car cleaner that offers special detailing services to sports car owners would better attract those customers than competitors offering generic car detailing services.

So how do you go about segmenting your customer base? The key is to collect data from your customers in order to better define them. One type of data is customer purchase data. Specifically, you should create lists of customers who have purchased certain products or services from you.

The second data you should collect, particularly if you are a startup or are launching a new product or service, is survey data. Using a tool like SurveyMonkey, you can survey your current and prospective customers to identify their wants, needs and current purchasing habits.

Importantly, in both your surveys and customer data, you want to collect and analyze both demographic and psychographic information. Demographic information includes variables such as the age, gender, zip code, and income levels of your customers.

On the other hand, psychographic information defines the wants and needs of your customers. It includes variables such as opinions, beliefs, values and interests. For example, while two customers might share similar demographics (maybe they live on the same street, are the same age and gender, and have approximately the same income, etc.), they may vary wildly from a psychographic standpoint (e.g., maybe one is extremely health conscious, the other extremely environmentally conscious, etc.)

Once you collect all the data, you are ready for the most important part of the customer segmentation process, analyzing the information. The official term for this analysis is “cluster analysis.”

The result of your cluster analysis will be several clusters or groups of customers that share distinct demographic and/or psychographic characteristics. And then once you identify these groups, you can better market to and them.

For example, at Growthink, we use a basic segmentation model with two segments: startups (pre-revenue) and established (post-revenue) entrepreneurs. This simple segmentation helps us better understand and serve the needs of these two distinct groups.

For our clients, we’ve identified all types of unique customer segments. For example, one client had a customer group that was willing to pay more for their service as long as they were not bothered with details (we called them the “Don’t Touch Me’s”). Conversely, as is the case with many businesses, we found a segment that is completely price conscious and will always shop for the lowest price (you generally don’t want to serve these customers).

One final benefit of segmentation analysis is in identifying unique partnerships and advertising venues. For example, if you identified that a large segment of your customer base was very health conscious, you could partner with local gyms and health food stores and/or advertising in health related journals. Most likely, your competition would not be doing this, and would miss out on this opportunity.

In summary, customer segmentation analysis will give you a competitive advantage by allowing you to attract more leads, convert more leads into paying customers, and better satisfy your customers.

Start by assessing any customer data you have, and supplementing that with surveys including product/service usage and needs data along with demographic and psychographic questions.

Next, conduct a cluster analysis on the data (I found cluster analysis software online, but you’re probably better off finding a freelance market research professional who can conduct the analysis for you).

Finally, after identifying your segments, cater to them. Cater your marketing messages and offerings to them. And you’ll start seeing your revenues and profits soar.


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