RMI Contributor: Igor Vladimirovskiy
With customer data, segmentation isn’t about data for data’s sake, it’s about growing your bottom line by delivering your marketing efforts more effectively. By categorizing your customers into different segments, businesses can deliver more targeted and relevant messaging at optimal times and locations. This segmentation unveils valuable insights into audience patterns, enabling you to engage with customers more efficiently.
It helps you divide your customers into smaller, meaningful groups so you can deliver what they want instead of guessing. This article unpacks customer segmentation tactics, showing you how to use them effectively. Let’s get started!
What is Customer Segmentation?
Think of how different everyone in your life is. Some people live to travel, others travel to live, and others hope to travel only once each year. Customer segmentation organizes this mix into distinct piles, making it easier to cater to the specific needs of your audience.
By dividing people into groups based on shared characteristics – like where they live, what they value, or how they behave –businesses create targeted campaigns that hit the mark.
These groups—whether defined by demographics, behaviors, lifestyles, location, online, and onsite/instore behavior—let you craft campaigns that feel personal. It’s an antidote to the one-size-fits-all strategy that doesn’t work in today’s crowded market. And with the growth of CDP’s and the importance of 1P audiences, customer segmentation is the foundation for many marketing activities. Furthermore, segmenting audiences based on message sequencing is used to guide customers through the funnel. For example, a potential customer has their first engagement with your business by landing page, but they fail to take any further action. This places the customer in the “message A” audience segment. All individuals in this group are served Ad #1 across 1-3 different platforms. Following exposure to Ad #1, they transition into the next audience, “message B”, where they will be shown Ad #2. This process continues as customers move further down the funnel.
Why Segmentation Works
We all know the analogy, trying to sell sunscreen in a snowstorm is a waste of effort and resources. Without segmentation, you’re essentially doing that. By focusing on specific traits and preferences, you can ensure your message reaches the right audience at the right time.
Segmentation also answers the critical question of where do I put my money? It’s not about spending more—it’s about spending smarter. By identifying which groups are most likely to respond, convert, or stay loyal, you can focus your resources for maximum impact.
The Building Blocks of Segmentation
Over the years, I’ve seen segmentation evolve, but the fundamentals remain solid. There are several types of segmentation, each offering its own perspective on your audience, here are a few of the primary ones:
- Demographic Segmentation looks at who people are—age, gender, income, education. For example, a luxury brand might target high-income professionals with messaging around exclusivity and quality.
- Geographic Segmentation focuses on where people live and where they go. A surfboard company, for instance, targets coastal regions while ignoring inland areas. Or geo-fencing around a football stadium and segmenting that audience to show them ads about season tickets or that team’s merchandise.
- Psychographic Segmentation digs into values, interests, and lifestyles. This is where you find the “why” behind customer decisions, like a fitness enthusiast choosing a smartwatch to track their progress.
- Behavioral Segmentation examines actions—purchase frequency, brand loyalty, or product usage. It’s the difference between guessing and knowing what drives your customer.
- Online Behavior looks at engagement with websites, pages, and ads, search history, and clicks to understand consumer preferences better.
- Onsite/Instore Behavior focuses on consumers’ behavior on your website or inside your store, for example, cart abandonment.
Together, these types of segmentation form a complete picture. It’s like assembling a puzzle where each piece reveals a crucial detail about your audience.
Turning Data into Gold
The magic of segmentation starts with rich, accessible, data. Tools like Google Analytics or HubSpot can help streamline the process, but experience and intuition often fill in the gaps and make sense of the patterns. For example, you start to see who your high-value customers are and what motivates them. Techniques like RFM analysis (Recency, Frequency, Monetary value), Life-Time Value Analysis, Customer Retention/Churn Analysis, and Brand Recognition/Retention Analysis can all help to pinpoint opportunities and identify your best customers. From there, you can craft strategies with accuracy.
Real Results: Segmentation in Action
Segmentation isn’t just theory—it’s a proven strategy. We’ve seen it work time and again.
Take a fashion retailer for example. By using demographic data, they focused their Instagram ads on younger, style-conscious shoppers. The result? A 25% boost in sales within a few months.
Or the hospital that used psychographic insights to understand what patients truly value—whether it was affordability, convenience, or cutting-edge treatments. Satisfaction scores jumped by 20% when they tailored their messaging accordingly. E-commerce brands, too, thrive on behavioral segmentation. These brands have seen success by launching a loyalty program for their most active shoppers. Within a year, repeat purchases surge by 30%.
Challenges in Segmentation
It’s not all smooth sailing. Segmentation comes with its own set of challenges.
- Data Privacy: Customers are more cautious about how their information is used. Transparency and compliance with regulations like CCPA are non-negotiable.
- Integration Issues: Merging data from multiple platforms is like untangling Christmas lights. Tools like Snowflake can help, but it takes effort.
- Keeping It Fresh: People change, and so should your strategies. Revisiting and updating segments regularly ensures you’re staying relevant.
- Volume Size: Segmentation can offer so much insight, but only if your groups contain enough volume. If you only get 1,000 visitors per day you can’t really segment those visitors any further, it won’t allow the platform’s algorithms to work. This is more than just meeting the platform’s minimum audience size; you need enough conversion observation against a segment otherwise you’ll end up paying higher CPCs and CPMs for the same or worse results.
The Bottom Line
For companies, customer segmentation is not just a tool but one of the key drivers of performance. It transforms campaigns from broad strokes into finely tuned masterpieces that resonate. When done right, segmentation creates a competitive edge that drives engagement, loyalty, and results.
The key is to approach it with curiosity and commitment. Dive into the data, but don’t lose sight of the human element. After all, marketing is about connecting with people, not just numbers on a spreadsheet.
