Customer and product user segmentation

Customer and user segmentation: Definition

Customer/user segmentation focuses on dividing customers into groups based on shared characteristics. Your company can segment users based on age, profession, behavior, or needs.

Thanks to user segments, you and your marketing team can concentrate efforts on a specific user group and tailor it to match the targeted segment's needs and expectations.

The ultimate goal of customer segmentation is to understand users and customers better and increase their loyalty and conversion rate.

Benefits of customer and user segmentation include the following:

• Improvement of customer retention
• Iterative marketing
• Increased brand loyalty
• Deeper understanding of customers and users
• Increased revenue and conversion rate
• Effective targeting of niche market segments
• Ability to make informed decisions
• Increased brand awareness
• Improvement of sales channels
• Targeted marketing
• Price optimization

As you can see, customer and user segmentation can tangibly affect your business and ensure that your offer and products are tailored to the target audience.

Why customer and user segmentation is important?

User segmentation enables you to organize the vast and diverse customer or user base into easily digestible segments.

Every user behaves differently, although some have common characteristics that can help you improve the user experience of your products. Different customer segments will desire different things and need other tools to achieve goals.

It's challenging to effectively market products without customer segments because it's like shooting in the dark. The customer and user segmentation allows you to eliminate the guesswork.

Differences between user segmentation and market segmentation

It can be argued that market segmentation and user segmentation are very similar concepts. Both aim to divide the general customer base into smaller and more organized units.

Market segmentation splits users into general groups, while customer segmentation tries to take a deeper look at them and construct buyer and user personas.

Some companies use market segmentation to discover new markets that might be worth investing in and later perform user segmentation on the existing customers.

In short, market segmentation examines the entire market, while user segmentation analyzes a selected part of it.

Ultimately, it's up to you whether you want to use market segmentation or customer segmentation separately or together.

Customer and user segmentation approaches

Over the past 100 years, the approach to customer segmentation has evolved along with the market challenges. Therefore, it shouldn't be surprising that various types of user segmentation were developed to reflect market needs.

Demographic segmentation

World War II redefined the concept of demand. Many new consumer products appeared that didn't require much advertising.

All it took was to ensure product availability and describe their features. It was so easy to succeed.

The advertisements were aimed at groups of customers of a specified age, education, place of residence, and economic situation.

Soon, the customers were no longer so predictable. In the 1960s, even the least educated customer group had money in their pockets, and the rich began to look for more sophisticated products.

The demographic segmentation no longer made sense since the criteria of education and wealthiness have ceased to be determining factors.

Psychographic segmentation

In the 1970s, the belief was coined that convincing a customer to buy a product involves presenting a person similar to the customer or someone they would like to resemble.

The advertising focus shifted from a product's functional features to the emotions related to owning it and raising the owner's status.

The logical consequence was a market segmentation that reflected a target group's characteristics and lifestyle.

Functional differences between products began to blur as the companies copied and developed them faster and faster.

The principles of this system were based on theories developed by David Riesman, a sociologist at Harvard University, and Abraham Maslow, a psychologist at Brandeis University, the author of the well-known hierarchy of needs.

The VALS system divides people into eight basic character types. A customer's behavior can be explained based on whether they belong to one of the types.

Customer types according to the VALS framework:

• Innovators
• Thinkers
• Believers
• Achievers
• Strivers
• Experiences
• Makers
• Survivors

Although customer segmentation in terms of psychographic profile doesn't answer the question regarding which market segments to enter and with what products, it proves helpful in brand positioning and relationship building.

Behavioral segmentation

This customer segmentation model analyzes the usage and behavior patterns of users. It's based on the customer data such as purchase history, navigation patterns, or responsiveness to marketing strategies.

To conduct the behavioral segmentation, you can analyze the following metrics:

• Clicks
• Page views
• Number of purchases
• Social media shares
• Items in abandoned carts

In a more general sense, you will need to focus on tracking website activity, online store activity, purchase frequency, and customer engagement. These data will help you accurately assign users to appropriate segments.

Additionally, behavioral segmentation makes it possible to send personalized emails or other notifications to customers who abandon their shopping carts. It improves product recommendations by making them more in line with customers' desires.

Geographic segmentation

This type of user segmentation divides users according to their geographic location and shared language. It takes into account not only the country but also the city, town, village, state, or other type of administrative division.

The geographic segmentation strategy allows your business to tailor products according to the following:

• Different types of holidays
• Events specific to a given region
• Preferred language

Brands used this segmentation model to create product variants and personalize their offer according to cultural customs. For example, the McDonald's menu in America will differ significantly from the one in Japan.

Additional benefits of geographic segmentation include tailoring product prices according to the economic situation of different locations, a better understanding of the market, and creating marketing campaigns tailored to user habits.

Needs-based segmentation

As the name suggests, a needs-based segmentation strategy allows businesses to personalize their offer and segment users according to current customer and user needs. It focuses on providing must-have products.

Needs-based segmentation takes into account the following aspects of the business:

• Product features
• Way of offering services
• Delivery methods

Product features are important to customers who look for items with specific functions that will help them fulfill their needs. Identifying and including these features in products is crucial to attract users.

Other customers value seamless communication and interactions with the company. Their needs focus on the customer service experience and assistance during buying.

The wide selection of delivery methods and fast delivery time are common user and customer needs. Therefore, it's important to satisfy those needs if you don't want to prompt customers to abandon their carts.

Moreover, to better customize the delivery, you might want to use calendars so that users can select the date of the delivery, which will additionally enhance their customer experience.

Additionally, needs-based segmentation can help your business find new market niches and identify common pain points the specific segment encounters.

Technographic segmentation

Technographic segmentation enables the company to segment users according to the device or technology they use.

This segmentation type can help you better understand how customers and users use devices and for what purpose. You can also check whether they're interested in new technologies and decide if they're worth investing in.

In the technographic segmentation model, you can divide customers based on the following:

• Device type: Mobile phones, computers, laptops, tablets
• Operating system: Windows, iOS, Linux, macOS, Android
• Browser type: Google Chrome, Mozilla Firefox, Opera, Safari

Benefits of technographic segmentation include developing products based on the user experience with a given technology, adapting products to technological customer needs, and providing your other customer segments with accessibility features.

It also ensures that the software you offer is adapted to different types of devices. For example, it lets you keep your websites and applications mobile-friendly.

Value-based segmentation

Value-based segmentation allows you to segment customers based on their economic value. This type of segmentation is used by businesses that direct their offer to users who can buy more expensive products but also to customers who value low-price products.

To clarify, the best example of this can be seen in subscription-based products. Usually, subscriptions consist of at least three different plans with differing prices. The business can determine which plan is the most popular and tailor marketing efforts accordingly.

Value-based segmentation can help you to identify the following types of users:

• Users who care about the price of the products they buy
• Customers who struggle to find a suitable offer among the competitors
• Users who require more customizable price options

Other benefits of this type of segmentation include spending resources on advertising plans for the least or most engaged users, improving return on investment by targeting higher-value customers, and providing an in-depth look into the economic situation of the user base.

What should customer and user segmentation be like?

David Meer and Daniel Yankelovich describe this in Harvard Business Review. They say segmentation brings tangible benefits to a company when it reveals certain customer habits and preferences.

Information is needed about the benefits and features of the products that matter most to customers, which customers will be willing to pay more and which will instead seek lower prices, and how they perceive the company's offer compared to competitors.

Customer and user segmentation should divide the market in a way that:

• Reflects the company strategy
• Indicates the sources of income and profit
• Defines the impact of the customer values, attitudes, and beliefs on the products and services they purchase
• Emphasizes real-life customer behavior
• Constitutes a clear indication for the top management
• Includes or anticipates the changes in the market environment and user behavior.

How to prepare the customer and user segmentation?

A company should ask itself several questions.

What is your objective? A restaurant will consider which menu to introduce. A law firm can decide which area of expertise to choose to expand its business and get the most profit.

A medical company will analyze which diseases are reimbursed in given countries. Banks, for their part, will think about how to keep their clients from leaving and encourage them to get fast cash loans.

Where do your profits come from? The market segmentation should indicate the most profitable customer groups.

These are the customers who leave the most money or who take the least amount of time to serve. The service, in conjunction with the ease of acquiring customers and sales, results in the best profitability index.

What guides the customer? To learn this, a customer profile analysis should be conducted, taking into account the customer's lifestyle, attitude, self-image, and aspirations.

However, when analyzing your customers, you should remember that their attitudes, lifestyles, and aspirations can change.

Customer and user segmentation strategy: step-by-sep

1. Create personas and determine goals

When conducting user segmentation, you need to create personas. They allow you to visualize what a specific customer looks like, such as their job, age, economic situation, etc.

Thanks to defined personas, you can match them to business goals. You can determine conversion rates according to the capabilities of a given persona.

Think about what is more important for your business:

• Customers who make repeated purchases?
• Identifying places where customers resign from purchase?
• Do you want the product to answer user needs?
• Is the product supposed to be profitable above all else?

This will help you find user segments that best fit your company and goals.

Remember that it's also important to identify variables that influence your user segments, such as customer interests, product buying time, and age.

2. Prioritize segment goals

You will probably come up with multiple customer segment goals. It's recommended that you prioritize them so the company won't feel overwhelmed by the amount of data that will need to be analyzed.

The general advice is to start with the biggest segment and slowly make your way to smaller ones. Depending on your goals, you might prefer to start from the most profitable customer segments and users who have the most value to the business.

3. Collect customer data

Now, it's time to collect customer data. It's a crucial step for customer segmentation because the more reliable data you collect, the more effective the segmentation.

Additionally, they can offer helpful clues for creating different user segments.

Some data can be easily collected based on the history of purchases or data entered into forms by users. There are several ways of obtaining data.

User surveys are helpful tools for collecting customer data. They can be conducted at different moments during the purchasing process, such as post-purchase surveys. Users can complete satisfaction or customer experience surveys to describe their feelings and opinions about the offered user experience.

Various tools can analyze social media users' opinions and perceptions regarding your company.

Moreover, you can enlist the help of tracking software to measure website traffic.

4. Conduct user segmentation

With customer data in hand, it's time to create specific customer segments.

First, ensure that the segments are easy for other team members to use. Avoid using jargon that may confuse stakeholders who will work with user segments. They need to be clear and understandable so they can be useful and helpful.

While segmenting customers, it might be a good idea to automate some of the work and use machine learning. Machine learning will enable you to compile contact lists or organize data, letting your team focus on the rest of the work.

When segmenting users, remember that these potential customers and users are supposed to be easily accessible. Additionally, every segment should match your marketing and sales channels.

For example, different age groups use various social media platforms. In the case of young adults, it's possible that you won't find many of them on Facebook and, more likely, on Instagram or TikTok.

Therefore, if your business uses Facebook as its primary advertising platform, then you will have trouble attracting a young audience. A good solution would be to expand your efforts to different platforms.

Don't hyperfocus on finding new customers. Creating segments can also help you identify users who are loyal to your brand. You should adequately reward them for their loyalty and effectively increase the sales volume of this segment.

It's also recommended to use different user segmentation models complementarily. For example, behavioral segmentation and demographic segmentation are good matches. They make your business more inclusive and simultaneously ensure that you don't miss any opportunities.

5. Adapt marketing strategies

Once you have the user segments, it's time to create an individual marketing strategy for each. Use the collected information and data to determine what products and features customers seek. Different segments will have different needs and expectations.

Different types of users will respond to different content and engagement strategies, so you need to make sure that they can connect with your brand.

To achieve this connection, you must send personalized email campaigns, create meaningful landing pages, determine the best time for sending marketing content, and quickly solve issues.

6. Perform customer segmentation analysis

After some time, it's a good idea to come back to the user segments and analyze them. This can help you determine whether they need any changes or if their performance is satisfactory and in line with business goals.

Regular user segmentation analysis can help you:

• Collect user and customer feedback
• Compare the performance of individual segments
• Check if the segments are still relevant
• Update marketing and sales strategies

Customer and user segmentation: Tools

You know how to perform customer and user segmentation; now, it's time to recommend some customer segmentation software and tools that will help you collect and organize the necessary data.

HubSpot

HubSpot offers customer segmentation tools that allow you to create active and static contact lists and organize them according to the contact score. Moreover, you can use its event-based customer segmentation feature to inform relevant users about an event happening in their area.

MailChimp

MailChimp is a customer segmentation tool that lets you send segmented email campaigns to the target audience based on your contact list.

This tool allows you to create personalized emails that match the expectations and needs of specific customer segments. MailChimp will make your communication very customer- and user-centric.

Userpilot

Userpilot provides segmentation features that can aid you in managing user and customer relationships. The platform's functions include tracking user engagement, trend analysis, user path analysis (customer journey), and measuring growth goals.

Qualtrics

Qualtircs offers tools for increasing user loyalty, reducing churn, and sharing real-time metrics with team members.

Thanks to Qualtrics, you can construct studies and analyze your segments. It provides features such as customized analytics, digital customer service, customer retention, action planning, and more.

With such equipment, you can enhance your marketing strategies and reach segments more effectively.

Segment

Segment is a dedicated tool that will enable you to collect data points for mobile applications and websites. It offers various integration options, which allow you to keep all your data on one platform.

Moreover, the tool tracks customer and user interactions and provides daily reports.

Customer and user segmentation: Bottom line

You can analyze customer and user behavior by paying attention to several factors: product use intensity, customers' inclination to exchange a solution for a competitor's offer, and preferences regarding a specific service channel (for B2B, these are phone, email, Instagram, Telegram, other communicators, and face-to-face meetings and teleconferences) or other forms of sales.

While we're on the subject of B2B, you need to know whether it's enough to write an offer email, prepare a nice presentation, meet the customer face-to-face, or at least conduct a teleconference.

Is customer segmentation change-sensitive? Many companies believe that defining it only once is sufficient. This is simply not true.

Therefore, segmentation should include dynamic criteria: instead of personality traits, we should analyze the customers according to attitudes, needs, and behavior. Customer group analysis varies with the environment.

This is affected by the advent of new technologies, changes to legislation, trends, and global issues (e.g., in response to global warming and pollution, the plastic-free trend and electric cars appeared), which redefine the prospective customer's criteria.

It's the first step in creating a strategy. Customer segmentation leads us to building personas.