Understanding your customers is critical to success. It allows you to create messaging and offers that resonate with your audience, rather than guessing about their preferences and needs.
And taking it a step further, segmenting customers into groups based on similarities helps you develop a deeper understanding of those groups. You can then build targeted campaigns addressing each segment’s specific needs. Pretty cool, right?
So, what exactly is customer segmentation and how do you do it? Let’s take a look.
What is customer segmentation?
Customer segmentation is the process of dividing a company’s customers into groups based on common characteristics so companies can market to each group effectively and appropriately.
In business-to-business marketing, a company might segment customers based on a wide range of factors, including:
- Number of employees
- Products previously purchased from the company
In business-to-consumer marketing, companies often segment customers according to demographics that include:
- Marital status
- Location (urban, suburban, rural)
- Life stage (single, married, divorced, empty-nester, retired, etc.)
Why segment customers?
Segmentation allows marketers to better tailor their marketing efforts to various audience subsets. Those efforts can relate to both communications and product development. Specifically, segmentation helps a company:
- Create and communicate targeted marketing messages that will resonate with specific groups of customers, but not with others (who will receive messages tailored to their needs and interests instead)
- Select the best communication channel for the segment, which might be email, social media posts, radio advertising, or another approach, depending on the segment
- Identify ways to improve products or new product or service opportunities
- Establish better customer relationships
- Test pricing options
- Focus on the most profitable customers
- Improve customer service
- Upsell and cross-sell other products and services
How to segment customers
Customer segmentation requires a company to gather specific data about customers and analyze it to identify patterns that can be used to create groupings.
Some customer data can be gathered from purchasing information—job title, geography, or products purchased, for example. Some of it might be gleaned from how the customer entered your system.
An online marketer working from an opt-in email list might segment marketing messages according to the opt-in offer that attracted the customer, for example. Other information, however, including consumer demographics such as age and marital status, will need to be acquired in other ways.
Typical information-gathering methods include:
- Face-to-face or telephone interviews
- General research using published information about market categories
- Focus groups
- Loyalty program data
- Sign-up forms on an online store
- In-person conversations
- Customer reviews
- POS data
- Customer support interactions
- Purchase history
- Online analytics
With Shopify’s segmentation tools, you can collect this data directly from your online store traffic. Discover powerful insights about your customers by creating unique segments and then reach out with personalized campaigns to drive sales.
Shopify also includes some default customer segments and templates to help you get started. You can refine, add, or even remove customer segments over time as your business evolves. Build your customer segments in the editor on the Customers page by adding filter names, operators, and values.
Using customer segments
Common characteristics in customer segments can guide how a company markets to individual segments and what products or services it promotes to them.
A small business selling handmade guitars, for example, might decide to promote lower-priced products to younger guitarists and higher-priced premium guitars to older musicians based on segment knowledge that tells them younger musicians have less disposable income than their older counterparts. Similarly, a meals-by-mail service might emphasize convenience to millennial customers and “tastes like mother used to make” benefits to baby boomers.
Once you’ve identified your segments, list their shared characteristics, paying careful attention to pain points and desires. Lean into those commonalities when developing your segmented marketing strategies and promotions. You don’t have to offer every promo to every customer—send your promos only to those who will be interested. A discount on dog food surely isn’t going to drive any sales from your customers who don’t own dogs, for example. So consider creating a segment of dog owners and only send those promos to them.
The main idea behind a customer segmentation strategy is you don’t need to send every promotion to every person all the time. Instead, send targeted promotions to relevant audiences.
Additionally, you can put customers into multiple segments—you don’t have to pigeonhole everyone into just a single group. For example, people in your dog owner segment may also be in your parents’ segment.
The customer segmentation model can be used by all businesses regardless of size or industry and whether they sell online or in person. It begins with gathering and analyzing data and ends with acting on the information gathered in a way that is appropriate and effective.
Customer segmentation examples
Examples of customer segments to build include:
1. Demographic customer segmentation
Demographic segmentation involves grouping customers together based on facts about their life. It can include factors like:
- Household income
- Marital status
For example, if you run a bookstore you can create a segment for parents and advertise children’s books to them. Or, you might create segments based on age to advertise appropriate books to the right people.
Candle brand Otherland could create a segment of millennials who were born in the 90s to advertise their 90s-inspired product line to.
2. Geographic customer segmentation
Geographic segmentation involves dividing customers by location or region. It can also include:
- Preferred language
- Cultural factors
For example, you might market bathing suits to your Florida-based customers year-round, whereas advertising winter coats for your New York–based customers might be more appropriate during the colder months. Segmenting customers by location also means you can deliver messages in their preferred language if you’re selling internationally or include relevant pop culture sentiments based on where they live.
Allbirds serves different messaging to its different audiences based on their location. To UK customers, it spotlights the lightweight material of its shoes—perfect for summer.
To Australian customers, it focuses on its cozy merino wool line—perfect for winter in the Southern Hemisphere.
3. Behavioral customer segmentation
Behavioral segmentation involves grouping your audience together based on their online behavior—most notably, previous purchases, how often they buy from you, and what products they show the most interest in.
Group customers based on:
- Purchase behavior
- Usage patterns
- Customer loyalty
For example, a hair care brand could create a segment of customers who have only purchased shampoo and not conditioner and create promos around conditioners for that segment. Or they might group together customers who buy the same product each month and create exclusive offers for them if they continue that purchasing cadence.
Accessories brand Caraa sends its VIPs exclusive discounts and offers as a thank you for being loyal.
4. Psychographic customer segmentation
Psychographic segmentation involves dividing your audience by attitudes, values, lifestyles, and interests. Here are some ways you can segment customers:
- Interests and hobbies
- Lifestyle and values
- Personality traits
Use previous product purchases, survey responses, and shopping behavior to determine what kinds of lives your customers live, what they enjoy, and what they value the most. For example, if you run a well-being supplement brand, you might segment customers who spend their weekends hiking and create another segment of people who prefer to go to the gym before work.
House plant brand The Sill has created subscriptions based on its customers’ interests and lifestyles. There’s a pet-friendly subscription for those who live with animals and an easy-care option for those who have busy lives and little time for plant upkeep.
5. Technographic customer segmentation
Technographic segmentation involves grouping customers together based on what technology and apps they use, how they find your brand online, and what channels and devices they choose to engage with you on.
This can include:
- Online behavior
- Technology adoption
- Preferred devices
For example, you can send customers that prefer to receive text messages an SMS when you have a new product line drop. Or, you can send tailored messages to customers who found you via Instagram or TikTok.
Igloo sends price drop alerts to customers who have chosen to communicate via text message.
Start segmenting your customers today
Customer segmentation is a great way to kickstart your personalization strategies and develop promotions and campaigns that directly relate to your target audience. And it’s easier than ever with Shopify’s native customer segmentation tools.
With these tools, you’ll understand your data better and be able to act on it for free from the same secure platform you use to run your business. Check out the endless possibilities with Shopify’s segmentation tools.
Customer segmentation FAQ
What does customer segmentation mean?
What are the 4 types of customer segmentation?
- Demographic segmentation: This type of segmentation divides customers into different groups based on shared characteristics such as age, gender, income, occupation, education level, marital status and location.
- Psychographic segmentation: This type of segmentation divides customers into different groups based on their lifestyle, interests, values and attitudes.
- Behavioral segmentation: This type of segmentation divides customers into different groups based on their purchase history, usage patterns, brand loyalty and response to marketing campaigns.
- Geographic segmentation: This type of segmentation divides customers into different groups based on location, such as country, region, city or neighborhood.