Types of customer segmentation groups marketers must familiarise themselves with.
Businesses, especially small- to medium-sized businesses don’t have the luxury usually afforded to their bigger counterparts. When not shouldering their way to at least have a modicum of exposure, there’s the issue of limited budget and (sometimes) constraining resources they must go around with. While resources are almost always enough to go around with, and sometimes not even a problem for some (way to go!), strategies can still be employed to maximise the resources you have at your disposal. Allocation is essential to the whole marketing strategy so you don’t thin out your resources.
And what better way to make sure you’re not pounding on non-profitable customers but to determine exactly who your profitable customers are! This is where customer segmentation comes in.
Customer segmentation is the manner of dividing customers into manageable groups based on their shared characteristics. Basically, what it does is it evaluates a business’s prime customer groups, observing their shared aspects and ultimately, their profitability. While customers are into getting the maximum value for their money, businesses are also interested in understanding what type of customers they should target in order to allocate and maximise their budget better.
For this article, we delve into the four types of customer segmentation used by marketers to effectively divide their consumers.
Four Types of Customer Segmentation
Also called the “bases of segmentation”, the following four customer segments have been used time and again by businesses to gather insights into their market’s wants and needs.
Additionally, these segmentation bases work with the idea that your customers’ similarities would translate to their overall purchasing behaviour. Following this idea will definitely make it easier for you to foresee a segment’s behaviour and anticipate their preferences so you could make better decisions for your brand. Do take note that the following are especially essential for business-to-consumer (B2C) transactions.
We would swear by this (and we know you would, too): when asked to segment a group of individuals, we always tend to segment them first by demographic category than any other classifications out there. It’s the most common and most no-nonsense category out there, making it the easiest to observe and collect.
A demographic segmentation divides your customers into common variables such as sex, age, gender, income, educational attainment, life stage, ethnicity and nationality. You can get this information through surveys (on field or email), by asking customers to fill out forms, or answering demographic-related questions (which is the easiest to give). Once information is supplied, you can start observing how different segments rate an aspect important to your business, or how, upon closer cross-analysis, one demographic aspect dictates another.
Geographic segmentation divides your customers based on location-specific or location-based units like countries of origin, current addresses, nations, states, cities, regions, or even climate zones. This category accounts location-based aspects that may influence a group’s market behaviour.
For example, you’re a retailer distributing skin-care products to countries in and around Southeast Asia. Aside from personal preferences, your data would suggest that their skincare needs are automatically influenced by weather changes and climatic zones different from the West. So of course, your selection must cater to and be effective for the specific needs of the Asian skin.
Psychographic segmentation is more abstract than demographic or geographic segmentation. It focuses less on the “tangibles” or the easily observable aspects but is more concerned with group characteristics that are less pronounced (but can still be collected.)
Psychographics would include lifestyle, personality, and social classes. Additionally, it also includes values held and opinions of consumers. Since it’s almost elusive, it takes more than the usual collection and encoding of data to highlight the subtle differences within this categorical aspect. Open-ended questions are more apt for unravelling sentiments that help categorise customers based on psychographic segments.
Like psychographic segments, behavioural segmentation is also abstract. This portion includes trends in buying or purchase behaviours, customer likes and dislikes, awareness of and interest in the product, and even the loyalties shown.
Behavioural segmentation helps the company understand the behaviour of their market and target their marketing initiatives accordingly. For example: data would suggest that millennials are more likely to react and engage with promotions done on digital, while the older generations are more inclined to listen and react to traditional media advertising. Given this data and provided you’ve already pinpointed your target consumers (millennials or the older generation), you’d already know how to best reach them for maximum impact. It’s basically a way for marketers to develop a more targeted approach without exhausting their resources.
Now that you know the most common segments, you’ll want to ensure that the units you do collect are quantifiable. After all, it’s only useful if it gives you the insights you need to know who your prime customers are and serve them better. Qualtrics mentions that the segments must be measurable, accessible, substantial, and actionable. If your units satisfy these criteria, then you’re closer to understanding your customer needs and preferences and allocating your budget accordingly.