Have you ever thought about why companies and businesses provide offers to loyal customers or new customers? It is all about customer segmentation. If the business or a company is big or even has a low customer base, then it would be very difficult to cater to the needs and requirements of all the customers. Even to approach the less customer database and make them connected to the company is also difficult. Therefore, we use customer segmentation strategy.
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What is Customer Segmentation?
Customer segmentation is the concept of breaking up the customers market into smaller segments based on their similar characteristics like age, choices, preferences, gender, or education level.
The purpose of dividing the target market into smaller parts; that the customers’ market would become easily manageable. Here are some of the other goals;
- You can better understand the needs and requirements of customers and establish a relationship with them.
- It would become easier to recognize loyal customers.
- You can recognize multiple opportunities like up-selling and cross-selling.
- You can make better market and customer base strategies, the company’s profit would increase consequently.
Types of Customer Segmentation
When we talk about customers’ segmentation or dividing the customers’ market into separate groups, then here are some of the following types of groups for customer segmentation.
In the demographic segmentation, we can divide the market base on the customers’ age, gender, married, single, social status, income, preferences, and education level.
The company would offer different products to different customers, base on the demographic segmentation like; different product for the teenagers, single +25 single young, married +40 middle ages male and female, and +60 senior citizens. When you offer different products to different segments of the market, then it would become easier for the company to keep track of all the customers.
In the geographic segmentation, we divide the target market base on the geographic location of customers. People living in different locations have different needs and requirements.
For instance, you can’t offer summer clothing and shoes to the customers of the cold region and vice versa, because offering such products would be useless.
In the behavioral segmentation, we divide the market base on the attitude, likeness, dislike ness, pattern of shopping and knowledge of customers.
If the company offers products to the customers that they don’t like, they have less knowledge of the utility of the product, or there’s no pattern of shopping such products. Just like the choices of teenagers and elderly people are different, or the preference of single people is different than the married male and female with families. If you offer them products opposite to their nature and segment, then it would be useless. Customers won’t buy the products they don’t like or they have less knowledge.
In the psychographic segmentation, we divide the market based on the values, beliefs, choices, lifestyle, interests and personality traits of customers.
If you offer the meat products to the vegetarian people or any products that is against the values and beliefs system of people. Rich city people buy skirts, shorts tight jeans, fancy pants and shirts, and people in the village have different lifestyles and interests. If a company offers products contrary to customers’ beliefs, interests, and lifestyle, then they won’t buy it.
Other Types of Segments
Firmographic segmentation is the type of customer segmentation that business uses for the division of its business customers.
The purpose of dividing the business customer market is to understand the business industry, advertising techniques to follow, and adopt better sales approaches. It also helps the company to improve its business performance.
Like we use demographic segmentation in the customers’ market; here we use the firmographic segmentation in the business market for a better understanding of the business to business customers.
As the name implies, smart segmentation is for the online digital world, where we divide our application users into two categories; buyer and non-buyer.
The purpose of the smart segmentation is to monetize the ads for non-buyers of the app users. In other words, those who use the apps but they don’t do purchasing would see the ads. The users who do the purchasing won’t see the ads. Smart segmentation would be a win-win situation for the company.
Benefit of Customer Segmentation
CustCustomer segmentation has a huge impact on how companies manage their customers. During the segmentation process, the target market divides into different segments based on some unique characteristics to reach and sever every segment effectively and efficiently. It is also important to mention here, while customer segmentation companies also keep in mind their resources and overall goals.
- Increased Competitiveness. If your business is well segmented and you offer multiple varieties of products to your customers, then it gives you a competitive edge over competitors. As a result, more and more customers would be attracted to your brand.
- New Market Opportunities. In the process of customer segmentation, you may come across with new hidden customer segment. When you invest in those segments, then it would open up many new opportunities in the market. Employment opportunities for the sales staff, skilled manufacturers, suppliers and distributors.
- Effective Brand Strategy. When you’re precise about your customer segments, then it would also help you to be precise about the company’s brand. Precise company’s brand relevant to your product would not only bring new customers, but it would also increase brand loyalty. When you have a database of brand-loyal customers, then the effectiveness of your brand strategy would also increase.
- Enhance Distribution Strategy. One of the most important advantages of customer segmentation is that it helps you to know exactly the demographic, geographic, psychographic and behavioral segmentation of the customers. When you such information, then you deliver precisely the same product or service that customers are looking for.
- Better Customer Retention. According to recent market research, 75% of the customers would repeat the purchase to the same brand where they have a good experience. Brand segmentation helps you to deliver the product based on the needs and requirements of customers. If you keep satisfying the customers, then they would keep buying your products.
- Marketing Efficiency. Customer segmentation would make the market efficient in many ways like low prices for all the customers. If the division becomes successful and attracts a lot of customers, then the company has to move the production to the economies of scale stage, which would decrease the price of the product.
Customer Segmentation Examples
For various companies, customer segmentation is mandatory. When companies segment their customer, actually they want to sell and sever them on a personal level. Here are some of the examples of customer segmentation for the following industries.
As we know business to business (B2B) market is different from the business to customer (B2C) market. The buying and selling of both of these types of businesses is different. If you efficiently separate your business clients from ordinary customers, then the effectiveness of your business would increase.
Banks also use customer segmentation strategy while advertising and marketing different schemes. Business holder accounts have different requirements, banks lower the per transaction charges to increase the transaction of business.
Banks would offer saving schemes to the regular salary account holders because they withdraw all of their earning every month. That’s how bank offers different schemes to different customers depending on their account type and the money they have in their account.
Retail is a very common example of customer segmentation that we see and experience every day. Perhaps you would have seen how retailers advertise products for the kids, families, single moms, parents, single dads, and elderly people. Sometimes, one retailer advertises a single product differently to different customers, because every segment of the market have different needs and requirements from the same product.