What is customer segmentation?

Customer segmentation is an analytics technique that involves sorting customers into groups based on shared characteristics. These can be demographic details such as age, location or income bracket, behaviours like previous purchases or browsing patterns, or preferences shared in a survey or feedback form.

Groups defined in a segmentation analysis can be used to refine marketing strategies and target customers based on those shared characteristics. They can also be used to focus resources on the customers likely to bring in the most income, maximising the impact of your marketing budget.  

Datamine’s customer segmentation services are extremely flexible – we can group customers by characteristics, the products they purchase and even the specific store location they prefer. We can use a combination of your business data, information from external sources and market research to build a full, accurate picture of your customers.

Why is customer segmentation important in business?

Customer segmentation is important because it helps your marketing team target customers more accurately and focus their energy in the right place. It helps you build a deeper understanding of your customer base, which can feed into new sales, marketing, product development or store location decisions.

For your customers, segmentation also offers benefits. In a world filled with generic marketing and ads, segmentation helps you cut through the noise with relevant, timely messages. This personalised, targeted approach helps you improve the customer experience – keeping them coming back for more.

The benefits of segmentation include increased personalisation, better use of resources, an improved customer experience and, as a result, reduced churn.

Improve personalisation

Segmenting your customers lets you target your marketing rather than taking a broad-brush approach. Targeting makes it more likely that your communication channels, marketing messages and wider approach will be relevant to your customers, improving engagement and conversions. Your team can also use strategies such as remarketing and keyword targeting with particular groups to boost those outcomes even further.

Reduce churn

Identifying customers at risk of churn gives you an opportunity for retention strategies to keep them around. For example, loyalty programmes, personalised support, recommendations and offers can help reduce churn rates.

Optimise use of resources

A better understanding of your customer base helps you focus your marketing budget and other resources where they will be most effective. This can mean targeting high-value customer groups with intensive marketing or focusing your efforts on sales, support or product development in response to segmentation insights. Either way, the goal is to invest where it counts and maximise the value of your budget.

Give your customers a better experience

The more you know about your customers, the easier it is to build a better customer experience. This might look like sending personalised deals and discounts, channelling customers into different sales funnels, or recommending products or services based on past behaviour.  

Types of customer segmentation include strategic, marketing and operational. While these approaches use the same customer data, each has a different purpose.

Strategic segmentation

Strategic segmentation delivers insights that help you shape your organisational strategy. For example, business leaders may use customer segments to make decisions about store locations, staffing, stock levels or market positioning. Segmentation data could also be used to model potential outcomes, giving leadership teams clarity as they make significant calls or set new business goals.

Marketing segmentation

Probably the best-known form of segmentation, this approach uses customer segments to refine marketing campaigns and messaging. With segmentation data, your marketing team can create segments or personas based on behaviour, demographics and other information, and use these to guide marketing decisions. Each group essentially goes through a different customer journey, with relevant messages, channels, offers and message frequency.

Operational segmentation

This type of segmentation uses customer groups to inform operational choices. This means that customers in different segments receive different greetings in-store, service levels and even prices. For example, a B2B business might give businesses above a certain size a dedicated manager, while smaller businesses speak to whichever sales assistant is on-site.

What type of segmentation could work for your business? Talk to one of our expert team members to find out.