What is the purpose of customer segmentation?

The phrase ‘customer segmentation’ is one of those terms that is used so often it has begun to lose its meaning. It's a business phrase that everyone recognizes and nods their heads to, yet each department interprets it differently in practice.

For the marketing team (who usually create the segmentation) it’s about the customers most responsive to marketing. For finance folks it’s about the most profitable customers. For product people it’s what informs which features to build for the customer. And for support it’s about how to handle a request.

So what is the ultimate purpose of customer segmentation?

Customer segmentation is a strategic decision tool.

That's it. 

Any department should be able to look at the segmentation and quickly get relevant ideas on how to grow your business. It should narrow focus on what matters to move the needle for your customers. And, when used correctly, it should also be the fastest path to ROI for your business.

In this post, we’ll focus on marketing. Here’s our rundown of five key ways to improve your marketing strategy using customer segmentation.

5 ways to use customer segmentation for marketing

1. Product positioning

Sometimes a shift in language and positioning makes all the difference. A good segmentation will quickly identify an emerging customer type that is unserved. Aligning your product with that need could lead to your next big hit. For example, SeaQuest aquariums historically focused their marketing on moms. After segmenting their customers they discovered an emerging singles group. They released a ‘date night’ package that became their #1-seller overnight and resulted in record ticket sales. 

2. Email personalization

This one is low hanging fruit. If you have some basic demographic information on your customers you can meaningfully enhance email open rate, click through rate, and sales by simply breaking your customers up into four groups and slightly shifting the copy and imagery. You can see first hand how a brand like AAA got 50% higher CTR, and 50% higher auto insurance policy conversions using this simple tactic.

3. Ad targeting

A good segmentation will quickly show you who not to target. Marketing companies like to talk about high-performing audiences. It is actually less glamorous and more simple than it seems; campaigns that weed out non-likely buyers perform better and are more durable. You can use your customer segmentation to reverse engineer look-alike buyers on media platforms, but some segmentation solutions actually have all those audiences prebuilt and available to target. Companies like Quick Quack Car Wash use this approach to target new customers and consistently garner 27% higher CTR.

4. Co-branding

A next-level segmentation solution will show you what your customers are like outside of how they interact with your brand. For example, it could show which other brands they purchase from or what social media influencers they follow. Finding the intersection of audiences between an influencer and your customer can immediately open up an entirely new and relevant channel eager to buy. Companies like Brixmor used this audience overlap strategy to join forces with an organic specialty grocer that reinvigorated a shopping center.

5. Geomarketing

If you have first-party geographic data, you can segment and target your current customers by location. But an even better solution (and an advantage of geodemographic segmentations) is to identify where your best potential customers are. Which neighborhoods do they live in? Where do they go to work? Where do they commute? Where do they hang out? These are all opportunities to get your brand in front of the right people in the right places.

Put your segmentation to work

Although there are endless ways to use segmentation to enhance your marketing strategy, most other methods are derivations or combinations of these five. Whether you leverage one or all of these strategies, the key is to put your segmentation to work. I hope this helps you find new ways to get the most out of customer segmentation this year.

If you’d like to learn more about optimizing marketing efforts with the latest customer segmentation strategies and tools, watch this on-demand webinar.