The art of customer segmentation

Contributor - Andrew Gerrard

Orange melon cut into 12 segments

Not all customers are the same. So stop taking a one-size-fits-all approach to your marketing, and start segmenting your customers into smaller groups, says Andrew Gerrard

Segmenting a market is sound practice. It enables you to develop a deeper understanding of your customers and discover what makes them tick. Creating customer profiles and sending targeted marketing messages is a key part of customer relationship management (CRM). It’s just as relevant to small businesses as it is to larger firms.

What is customer segmentation?

Customer segmentation is simply a way of arranging your customers into smaller groups according to type. These distinct sub-groups or segments should be characterised by particular attributes. Now you can target specific, relevant marketing messages at each group.

It's not just about what you say; how you communicate is also vital. That's because some customers prefer telephone marketing, while others respond better to an email or a text message.

How to profile your customers

Customer segmentation doesn't have to be complex. For a small company, it could be about recognising that you have two or three distinct customer types with different needs.

My philosophy is to always start with the simple question: Who do we want to talk to? Segmentation principles can then add several layers of intelligence, based on key factors such as:

  • spending patterns
  • gender
  • where they live
  • age
  • socio-economic group

What are the differences that actually affect buying behaviour?

If you run a hairdressing salon, for example, the type of offers you might make to customer groups would certainly differ on gender and age lines. If you sell products online, you can analyse customer buying patterns and create customer profiles based on how much they spend, how often they buy or what products they are most interested in.

Royal Mail logo

Free guide: Mail Matters More Than Ever

Deliver effective and measurable direct mail campaigns and drive your return on investment with this new guide from Royal Mail MarketReach.

Get my free guide

Targeting your sales messages by customer segment

By increasing your understanding of what your customers are buying, you can also maximise opportunities for cross-selling or up-selling. I'm reminded of the builders' merchant who sells bricks but misses a trick because he doesn't cross-sell by selling the sand and cement.

By grouping together all the customers who regularly buy certain products, you can target them with relevant offers encouraging them to increase their spend.

Not only is a relevant marketing message more effective as a sales tool, it is also about good customer service. A piece of communication that acknowledges what you bought and when is much more impactful than a one-size-fits-all message. What's more, if you are a regular customer, a targeted message shows you are appreciated and valued.

How to segment new prospects

Communication with existing customers is one thing. But how do we go about identifying new prospects and segmenting them?

When it comes to finding new business, it is vital to establish whether there is a market for your products and services and to identify the type of people that would make the ideal customers. This could be based on your existing customer profile. Or you may be branching out into a new area and need to identify clearly who you're targeting.

The key is to draw a picture of an individual that represents the type of person you are aiming at. If you take two very different types of prospect, you can see that they will have very different needs, wants, values and opinions. And they will respond quite differently depending on the marketing method you use. For example:

Males:

  • with time on their hands
  • with disposable income
  • who have retired or are in semi-retirement
  • who live in a rural environment

Teenage girls:

  • living in cities
  • with low disposable income
  • with aspirations to enjoy life to the full

These are certainly extreme examples, but they illustrate how different your customer segments could be and why it is essential to target messages precisely.

As you analyse your own customer base, it will soon become clear that there are some distinct groups with specific requirements. It's time to divide up that customer base and target each customer segment accordingly. The results could surprise and delight you.

Expert profile picture

contributor

Andrew Gerrard

Andrew Gerrard has more than 25 years' marketing and communications experience working on both the client and consultancy side. This experience has been very broad, including large and small companies, industrial and consumer-based brands.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.