Customer Segmentation

What is Customer Segmentation?

Customer segmentation is the process of organizing customers into specific groups based on shared characteristics, behaviors, or preferences, with the aim of delivering more relevant experiences. In conversations about customer segmentation, you’ll often hear the terms target audience, segment, or cohort, which have their own distinctions.

A target audience refers to the specific group of consumers most likely to be interested in your product or business (e.g. selling directly to consumers versus B2B). That target audience can then be categorized into different segments based on similar traits they share. (For example, if your target audience is developers, it may make sense to further segment them based on industry – FinTech vs. healthcare, etc.)

A cohort is often time-specific, and can be thought of as a more precise segment in which users are linked by the same event or characteristic. For instance, you could create a segment based on your newsletter subscribers, and then a cohort based on the users who signed up in the past week.

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Why it’s important to segment customers

The days of “one-size-fits-all” marketing are over. Nowadays, irrelevance can cost nearly half of your customer base: 45% of consumers say one unpersonalized experience is grounds for them to switch to a competitor. 

Customer segmentation lays the groundwork for sending the right message, to the right user, at the right time. It allows businesses to understand the needs and motivations of customers on a deeper level, to not only provide a superior experience, but to launch more impactful and cost-effective campaigns (e.g. better targeting ad campaigns to decrease cost-per-acquisition). 

Types of customer segmentation

There are a variety of ways to segment your customers, but the four most common categories include demographic, psychographic, geographic, and behavioral, as we explain below. 

Demographic segmentation

Demographic segmentation is when customers are categorized by certain socioeconomic factors, like: 

• Job title

• Age

• Gender

• Religion

• Marital status

Psychographic segmentation

Psychographic segmentation looks at the attributes and characteristics that form our personalities. A common example is buyer personas, which create fictional backstories about potential customers (combining demographic data, like job title, with more psychographic data like motivations, preferred method of communication, and so on). Examples of psychographic segmentation include: 

• A person’s interests

• Values

• Opinions 

• Habits 

Geographic segmentation

Geographic segmentation is when consumers are organized into groups based on their location. This could be as broad as a region (e.g. North America) or a specific city (e.g. New York City). Geographic segmentation can be done by: 

• Country

• Time Zone

• State

• City 

• Real-time location

Behavioral segmentation

Behavioral segmentation separates customers based on the actions they’ve taken, providing insight into how a person chooses to engage with your business. Examples of the different criteria that can be used for behavioral segmentation include: 

• Pages viewed

• Requesting a demo

• Items that were added to cart

• Cart abandonment

• Completing a purchase