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What Is Customer Segmentation And Why Is It Important In Business?

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What is Customer Segmentation?

Customer segmentation is the process of grouping a company’s variety of customers based on traits they have in common. The purpose of segmenting customers is to determine ways to maximize the value of each customer to the business. The process of customer segmentation allows your business to develop marketing campaigns that will resonate with customers. Gaining a better understanding of your customers allows you to create unique content that caters to your specific customer base. 

Knowing this information about your customer will allow you to customize your messages to specific groups and improve the overall customer experience. 

Understanding who the customer is can increase customer loyalty. Customers that walk away happy are more likely to return.

Segmentation Models  

While there are several types of segmentation models, there are four essential segmentation models or ways to group customers: 

  • Demographic Segmentation is segmentation based on age, gender, ethnicity, profession, income, education, and religion. This is sometimes referred to as “The who,”  who are you marketing too. For example Demographic segmentation could help you decide to target potential customers based on profession if your business caters for a specific line of work.
  • Psychographic Segmentation is “the why,” segmentation that groups customers  based on hobbies, lifestyle, values, beliefs and personality traits. Effective psychographic segmentation allows you to get to know your customer base on a personal level.
  • Geographic Segmentation is segmenting customers based on their physical location or “The Where.” This is referring to a country, region, or city. This is useful if you’re promoting a local event in a specific area.
  • Behavioral Segmentation groups customers based on their spending, purchasing and browsing habits. How they interact with and their loyalty to the brand also includes their feedback on previous products and services. This segmentation allows you to determine who your active and inactive customers are or if it is their first time visiting your site. It provides insight on not only what they purchase but what they click on or put in their cart as well.  

Importance of Segmentation

Customer Segmentation techniques are implemented to help better serve your current and potential customers. Customer segmentation is important to your business because it gives you the ability to customize the customer experience by: 

  • Investing in the most profitable group.
  • Define and target customers that contribute to your specific business.
    • Identifying customer needs and wants to customize products.
    • Predict spending habits to create promotional campaigns.

Customer segmentation is an efficient method for understanding how to market to your customers. 

It gives you the information to effectively cross sell, and maximize your opportunities to upsell. Being able to build a customer profile helps to improve customer service, and increase profit while keeping the cost of marketing low. 

By being able to identify products and services your customers want will help build relationships and brand loyalty. Understanding who your most profitable customers are allows you to create a marketing strategy that targets those who are likely to buy your product or use your services.

If you are ready to implement customer segmentation into your marketing strategy contact us here at Websand where we take transactional insights, dynamic segmentation and intuitive marketing automation combine to supercharge your email marketing.

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