Updated: Jun 9, 2022
Defining your specific customer segment, or segments, is a crucial step towards accurately and effectively marketing your product or service. The more specific your customer segmentation, the more you will understand your customers’ needs and be able to sell to them successfully.
Customer segments are the different groups of people that your product or service is designed to reach. You could group them by common demographics, common needs, or common behaviours – whatever you choose, it is important to make sure that this information aligns with your goals and business plans. A bank, for example, would find it more useful to define customer segments based on net worth, or account needs, than to define their customers based on geography, whereas a clothing company may find age and gender to be more useful categories than ones based on common needs (everyone, after all, needs clothes).
It could help to build up an imaginary profile of a customer for each segment you have identified as an exercise to better identify customer needs and to help you adapt your customer journey. You could even create a storyboard of your customer journey, for example, this one by Airbnb which illustrates the experience of two Airbnb guests throughout the customer journey.
It is also important to identify your market type. A mass market would be like one catered to by supermarkets: a large group of undefined customers with broadly similar needs (food). A niche market caters to extremely specific customer segments and is increasingly viable as online trading becomes easier and more popular. A segmented market is serves similar, but still distinct, customer segments, with a slightly different value proposition for each. A diversified market caters to two or more completely unrelated customer segments each with a totally different value proposition; and multi-sided markets serve two different but interdependent segments (returning to Airbnb, their customers are both guests and hosts, both have very different needs from Airbnb but are dependent on each other).
Once you have segmented your customers and identified your market, it is important to then use this information to your advantage. At the most basic level, customer segmentation lets you to make more tailored, and therefore more effective, marketing campaigns, allowing you to adjust offers, communications methods and even pricing to attract and retain different customer segments.
Personalization can be a key factor in customer retention – 91% of customers would base repeat purchase on great customer experience, and over 60% expect to have their unique needs and expectations understood and taken into account by brands. Customer loyalty then drives up the customer lifetime value, or how much a particular customer is worth to you over the whole course of their time as a customer. Not only are acquisition costs much higher than retention costs, but though only 12-15% of consumers may be loyal to a single retailer, they can account for between 55 and 70% of sales. Segmenting your customers allows you to spend more time building relationships with the most profitable customers without alienating others.
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