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Fuel Cycle Blog: The Power of Customer Segmentation

The Power of Customer Segmentation

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The advent of big data makes it possible for brands to reach customers in extraordinary and personal ways.

With accurate customer data, brands can do things like tailor email marketing messages to different audiences with dynamic content, for example.

What does this mean? It means, based on customer information, marketing teams can create personalized messages (even within the same email blast) that sends customized content blocks based on different customer data.

If you subscribe to an Adidas email list, for example, you are already used to getting shoe recommendations that match your gender and preferences. Members of the Adidas email list that identify with another gender get email messages with their shoe preferences.

It seems like magic. But, it’s just one example of the power of customer segmentation.

This post will cover the ins and outs of customer segmentation to help you capture better customer data and create better campaigns.

What are the types of customer segmentation?

Customer segmentation is the process of dividing a general audience into smaller segments of customers that share common characteristics. When brands segment customers effectively, it makes it easier for them to personalize content, optimize marketing efforts, and boost sales.

Here are the top four ways brands segment customers:

Geographic.

Brands can divide customers based on their geographic location. This is a common strategy for airlines.

For example, if you live in Salt Lake City, Delta knows you only want to see deals out of Salt Lake City, not every major airport.

Demographic.

Demographic information like age, gender, education level, family size, etc. is another effective way to target customers.

A brand may experience success dividing customers by age and marketing different products to geriatrics versus Generation Zers, for instance.

Psychographic.

Psychographic segmentation focuses on segmenting customers based on the intrinsic traits or beliefs of a customer. This includes values, interests, attitudes, etc.

For example, a streaming service like Hulu or Netflix could segment customers based on preferred types of television shows. That way, when a new crime series or comedy special comes out, they know who to notify.

Behavioral segmentation.

Learning what your customers do during the buying process, the attitudes they hold toward your brand, and their knowledge base is an excellent way to segment customers.

Sephora and Ulta are good examples of brands that use behavioral segmentation. Based on how much a customer buys, or their loyalty level, they can divide customers up into different tiers, and send appropriate rewards and promotions.

Why is market segmentation important for marketers and what are some of the benefits?

The main reason market segmentation is important is because it is the answer to one of the most critical of consumer demands.

In other words, customers consistently ask brands for personalized marketing and shopping experiences, and they are more likely to reward brands that provide personalized customer and digital experiences with their loyalty (aka their hard-earned money).

In fact, 91% of consumers are more likely to shop with brands that provide relevant offers and recommendations.

The way to do this is to capture relevant customer data, segment your audience, and create personalized messages that resonate with the right audiences.

But, creating relevant marketing messages isn’t the only benefit of market segmentation. Other benefits include the following:

  • Efficiency and business cost savings. The more accurate your customer data and segments are, the more efficient you are being with your marketing budget, resources, and time.
  • Improved campaign performance. When you target the right audiences, with the right messages, at the right time, you’re more likely to see results and a positive return on investment.
  • It helps you prioritize target audiences. When you understand behavioral data (e.g., who your most loyal customers are and who rarely engages with your brand), you can focus your marketing efforts where it matters most. This is a good time to remember repeat customers are more valuable than one-off customers.
  • Reveals areas to expand. Market segmentation can also help brands learn which audience segments they are not effectively reaching with their marketing efforts. Armed with this knowledge, they can expand into new markets.
  • Informs business decisions. Customer segmentation can inform business decisions including how you get your product to your customers, what price points are best, what marketing techniques work well, where customers prefer to shop, and more.

Market segmentation is a surefire way to connect with your customers and to arm yourself with the data that helps you make the best business decisions.

Wrap Up

In a competitive, data-driven, and thriving business world, customer segmentation is more than a smart suggestion. It’s a matter of survival.

When you capture the right data and segment your customers appropriately, you are able to make informed business and marketing decisions—decisions your customers will love.

For more information about collecting customer data and market segmentation, visit Fuel Cycle today.